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Excess of Loss Reinsurance

Trading Term

Excess of loss reinsurance covers losses above a stated attachment point up to a defined limit, and is commonly arranged in stacked layers often visualized as a tower. The primary insurer retains losses below the attachment point, the first layer covers the next tranche, and higher layers cover progressively rarer and larger losses at progressively lower prices per dollar of coverage. Because each layer corresponds to a range of loss severity with its own exceedance probability, layers can in principle be priced against, or partially replaced by, other instruments that pay out in the same loss range.

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