Excess per risk reinsurance protects the ceding insurer against losses on an individual insured risk above a stated retention. In plain language, it is reinsurance for a single large risk, not for an entire catastrophe accumulation.
What “per risk” means
The focus is one insured risk at a time, such as a single building, factory, or other separately identifiable exposure. If the loss on that one risk exceeds the cedent’s retention, the reinsurer pays the amount within the contract layer.
This differs from catastrophe reinsurance, which is triggered by an event affecting many risks at once, such as a hurricane or earthquake.
Why insurers use it
Per-risk excess protection is valuable when an insurer wants to write larger property or specialty exposures without keeping the full severity risk on its own balance sheet. It helps with:
- capacity management
- net retention control
- protection against a very large loss on one insured item
The pricing depends on the quality of the underlying risks, how much the cedent retains, and how exposed the portfolio is to large single-risk losses.
Practical example
A commercial property insurer writes a manufacturing plant with a very high insured value. The insurer keeps the first $2 million on any one risk and buys excess per risk reinsurance above that level. A fire causes an $8 million covered loss at that plant. The cedent pays its retention, and the reinsurer responds for the covered amount in the excess layer.