Risk Excess Treaty Reinsurance

Unlike quota share arrangements a risk excess reinsurer only pays when the loss exceeds a pre-agreed amount, which is retained by the Risk Retention Group. As the payment of losses is not split equally reinsurers charge a percentage rate of the total premium which can increase or decrease as negotiated at each renewal. Again by reducing the amount to which the Risk Retention Group is exposed from any one loss to a level commensurate with the Risk Retention Group's capital base, the Risk Retention Group does not face financial ruin in the event of a large individual loss.

Risk Excess Reinsurance is normally preferred by Risk Retention Groups with established portfolios which are better able to predict overall loss ratios but who need to reduce the impact of any one loss above a certain level. Individual risks which are either too large or which fall outside the treaty parameters can be reinsured on a facultative excess of loss basis following the same approach as a risk excess of loss treaty.

Risk Excess reinsurance is usually be secured on a claims made basis which protects all losses reported to the Risk Retention Group during the policy period. Risk Retention Groups purchasing this type of reinsurance need to ensure that losses arising from policies accepted prior to the reinsurance contract being put into place are covered either under the current or under the previous arrangement. They should also ensure that there is an appropriate run-out clause so that, in the event of the reinsurance not being renewed, there is some coverage until such time that new reinsurance can be arranged.