01.Core Concepts

An excess-of-loss treaty is designed for protection against a catastrophic loss A treaty can be written to cover a single exposure, a single occurrence, or excess losses Example: Apex Fire Insurance wants protection for all windstorm losses in excess of $1 million. Assume Apex enters into an excess-of-loss arrangement with Franklin Re to cover single occurrences during a specified time period. Franklin Re agrees to pay all losses exceeding $1 million but only to a maximum of $10 million. If a $5 million hurricane loss occurs, Franklin Re would pay $4 million.