GIM8080 - Reinsurance and other forms of risk transfer: types of reinsurance: non-proportional reinsurance: example of layered treaty
An example of layered treaty excess of loss reinsurance is as follows.
Layer |
Treaty Cover |
Max sum reinsured (cumulative) |
Amount reinsured by layer |
|
|
|
|
4th layer |
£500,000 excess of £500,000 |
£1m |
£500,000 |
3rd layer |
£400,000 excess of £100,000 |
£500,000 |
£400,000 |
2nd layer |
£50,000 excess of £50,000 |
£100,000 |
£50,000 |
1st layer |
£50,000 excess of £10,000 |
£50,000 |
£40,000 |
|
|
|
Deductible/excess £10,000 |
The overall effect is thus to insure £1m: the first loss of £50,000 is recoverable (less the £10,000 excess) from layer 1; the next £50,000 loss from layer 2 (making £100,000); the next £400,000 loss from layer 3 (making £500,000); and the final £500,000 loss from layer 4 (making £1,000,000). Under this treaty any claims in excess of £1,000,000 would not be reinsured.
In a treaty the term ‘excess of’ may be replaced by ‘less’ or shown simply as ‘xs’.
