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Financial advisory
RES5Financial Advisory Services✓Under a '$1,000,000 excess of $250,000' cover, a loss of $1,600,000 occurs. How is the loss split between the insurer's retention, the reinsurer, and the part above the top of the layer?
The insurer keeps the first $250,000 (its retention). The reinsurer pays the next $1,000,000, up to the top of the layer at $1,250,000. The remaining $350,000 lies above the layer and falls back on the insurer, so the insurer's total net cost is $250,000 + $350,000 = $600,000. The $350,000 is unreinsured, not uninsured: the insurer still owes it to the policyholder. Check: $250,000 + $1,000,000 + $350,000 = $1,600,000.
The reinsurer never pays more than the layer limit. Anything above the top of the layer drops back onto the insurer unless it buys a higher layer; it does not become the policyholder's uninsured loss.
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