Page 186 - Fire Insurance Ebook IC 57

Fire and Consequential Loss Insurance

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

An ' excess of loss' insurance comes into operation when
the total net loss suffered by the insurer due to one event
exceeds the agreed figure of the treaty. Such excess
amount, or part of the excess amount is then paid by the
reinsurer, (subject to a maximum limit) as per the contract.

The net loss is computed after taking into account,
recoveries from facultative and treaty reinsurers. If the
total loss exceeds the maximum limit provided in the
treaty, the excess amount can either remain in the
account of the ceding insurer, or can be absorbed under
a second excess loss treaty.

For e.g, a company is prepared to absorb a loss of up to
Rs. 50,000 due to any event. It is estimated that the
maximum exposure per event is Rs. 2,00,000. Excess
of loss reinsurance is then arranged for Rs. 1,50,000 in
excess of Rs. 50,000.

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