Stop Loss Reinsurance

Stop loss is a nonproportional type of reinsurance and works similarly to excess-of-loss reinsurance. While excess-of-loss is related to single loss amounts, either per risk or per event, stop-loss covers are related to the total amount of claims X in a year – net of underlying excess-of-loss contracts and/or proportional reinsurance. The reinsurer pays the part of X that exceeds a certain amount, say R. The reinsurer’s liability is often limited to an amount L so that the payment is no more than if the total claim exceeds L+ R. Furthermore, it is common for the reinsurer’s liability to be limited to a certain share (1 − c) of the excess X − R, the remaining share c being met by the ceding company (see Reinsurance). The reinsurer’s share Z of the claims may by summarized as follows