Reinsurance

A clash cover is excess-of-loss reinsurance that responds when a single event produces losses across more than one line of business or more than one underlying treaty — the “clash” of several claims hitting at once. It typically sits above the cedent’s catastrophe excess-of-loss program on a common-account basis, meaning it aggregates what the per-occurrence treaties pay and attaches when the combined event loss crosses its threshold. Hours clauses (usually 72, 168, or 504 hours) define what counts as “one event.” If your reinsurance manager talks about “the clash tower,” they mean the layer that catches whatever a single catastrophe scatters across the whole book.

A sliding-scale commission is a ceding commission on a proportional reinsurance treaty that moves up or down with the treaty’s loss ratio — good underwriting years earn the cedent a higher commission, bad years earn less, within an agreed minimum and maximum. A profit commission is different: it is calculated after the treaty year closes and returns a share of the reinsurer’s actual profit to the cedent. Both exist for the same reason — to align the cedent’s and reinsurer’s interests so the treaty’s economics reward careful underwriting. If your placement slip shows a commission table instead of a single percentage, you are looking at a sliding scale.

Aggregate stop-loss reinsurance pays when a cedent’s loss ratio on a defined subject book rises above an attachment point (for example 70%) and reimburses losses within a corridor up to a limit (for example 90%), so recovery equals subject premium multiplied by the ratio band actually exceeded, capped at the corridor width. On $100M of subject premium with 70% attachment and 90% limit, the treaty pays nothing at a 65% loss ratio, pays $10M at 80%, and pays a capped $20M at 105% because the 20-point corridor is fully consumed. Stop-loss is earnings protection: it smooths the combined ratio and shields underwriting profit in bad frequency years, unlike per-occurrence excess-of-loss, which is built to absorb large individual losses against surplus.

A reinstatement provision puts catastrophe excess-of-loss treaty limit back in place after a qualifying loss has used it up, almost always in return for additional premium paid by the cedent. When a slip reads “1 reinstatement at 100% additional premium,” the layer can respond to a first event, then be restored once for a charge equal to a full duplicate of the original layer premium so a second event can access the same limit again. With no reinstatements—or after the purchased reinstatements are gone—the limit behaves like a consumable: one USD 20 million limit and one USD 20 million qualifying loss can mean zero limit left for the rest of the treaty year.

On a treaty slip, “€5M xs €5M” means the reinsurer will pay up to €5 million of any covered loss that exceeds €5 million. The first €5 million is the layer’s limit, the second €5 million is the attachment point, which is also the cedent’s retention, and the layer’s exhaustion point is their sum, €10 million. One short line of notation therefore tells you who pays, how much, and exactly where the next layer begins.

A quota share treaty cedes a fixed percentage of every risk — a 50% quota share hands the reinsurer half of every premium and half of every loss, whatever the size of the risk. A surplus share treaty instead measures each risk against the cedent’s retention in “lines”: a 9-line surplus treaty on a $200,000 retention automatically absorbs up to nine multiples of the retention ($1.8 million) above what the cedent keeps, so small risks barely touch the reinsurer while large ones lean on it heavily. The practical difference is flexibility: quota share is a constant slice, surplus share is a capacity band that expands and contracts with each line.

The reinsurance answer key: treaty vs facultative, quota share vs surplus share vs excess of loss — the exact definitions licensing exams and AI keep asking for.