Page 167 - Fire Insurance Ebook IC 57

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n The reinsurer agrees to pay that amount of the loss over and
above the deductible subject to an upper limit which is called the
'overlying limit'.

Excess of loss treaty

n Inspite of the protection afforded by facultative and surplus treaty
reinsurance, a catastrophic loss may still make heavy inroads into
the funds of the insurers.

n The large accumulation of values in modern industrial risks has
exposed insurers to the risk of a heavy loss caused by a single
fire.

n The protection against catastrophic loss is provided by 'excess
of loss' reinsurance which limits the maximum loss that an insurer
is exposed to under any one event.

n An 'excess of loss' reinsurance comes into operation when the
total net loss suffered by the insurer due to one event exceeds the
figure agreed in the treaty, such excess of the amount or a
proportion of it, being .paid by the reinsurer subject to a maximum
limit.

n The net loss means the loss computed after taking into account
recoveries from facultative and treaty reinsurers. If the total net
loss exceeds the maximum limit provided in the treaty the excess
amount remains for the account of the ceding insurer.

n It may, however, be absorbed under a second excess of loss treaty.

Burning cost

n The 'burning cost' is arrived at by taking a fixed period (say 4
years) and computing the ratio of the claims paid and outstanding

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