Reinsurance Terms (Florida Insurance Glossary)

🏦 Reinsurance

Insurance purchased by an insurance company (the ceding insurer) to transfer part of its potential losses to another insurer (the reinsurer). It helps manage large losses and the insurer’s financial exposure, including hurricane risk.

🔁 Treaty Reinsurance

An agreement under which a reinsurer automatically covers a defined portfolio or category of risks that meet the treaty’s terms. Treaties may be renewed periodically and are not necessarily long-term agreements covering every homeowners policy.

📄 Facultative Reinsurance

Reinsurance negotiated for an individual risk or a specifically identified exposure, such as an unusually large or complex property.

📉 Retention

The portion of losses the insurer retains under a reinsurance arrangement. In an excess-of-loss contract, this is generally the loss amount the insurer absorbs before that layer responds, subject to the contract’s terms.

⬆️ Attachment Point

The specified loss threshold at which a reinsurance layer begins paying covered losses. The threshold may apply per event, per risk, or in aggregate, depending on the contract.

⬇️ Exhaustion Point

The loss level at which a reinsurance layer’s limit has been fully used. Losses above that layer may be covered by higher reinsurance layers, retained by the insurer, or otherwise financed.

📚 Reinsurance Layers

Separate levels of reinsurance protection with different attachment points and limits. Insurers may combine multiple layers to manage hurricane and other catastrophe exposures.

🌪️ Catastrophe (CAT) Reinsurance

Reinsurance designed to protect against significant losses from specified catastrophic events, such as hurricanes. Covered perils, event definitions, exclusions, and payment triggers depend on the contract; storm surge is not automatically included in every arrangement.

📊 CAT Bond (Catastrophe Bond)

A security that transfers specified catastrophe risk to capital-market investors. If a defined trigger is met, some or all investor principal may be used to pay the sponsor; payment depends on the bond’s trigger and terms, not simply on whether a major storm occurs.

🏛️ FHCF (Florida Hurricane Catastrophe Fund)

A state-created program that provides participating Florida residential property insurers with reimbursement for eligible hurricane losses, subject to statutory requirements, selected coverage levels, retentions, limits, and available funding. It is not a direct insurance policy for homeowners.

💸 FHCF Reimbursement

Payments to a participating insurer for eligible hurricane losses under its FHCF reimbursement contract, after the applicable retention and subject to its reimbursement percentage, coverage limits, and other contract terms.

📈 Reinsurance Rate-on-Line (ROL)

The reinsurance premium divided by the limit of reinsurance protection purchased, usually expressed as a percentage. A higher rate-on-line generally means a higher price relative to that limit, although differences in coverage terms also matter.

🌎 Global Reinsurance Market

The international market in which reinsurers and other capital providers assume insurance risk. Catastrophes, investment conditions, available capital, and demand worldwide can influence the price and availability of reinsurance purchased by Florida insurers.

🧾 Quota Share

A proportional reinsurance arrangement in which the reinsurer assumes an agreed percentage of covered premiums and losses, subject to the treaty’s terms. Commissions and other adjustments may also apply.

📦 Excess of Loss (XOL)

Reinsurance that responds to covered losses above a specified retention, up to a contractual limit. It may apply to an individual risk, a catastrophe event, or aggregate losses.

🧮 Probable Maximum Loss (PML)

A modeled estimate of potential loss associated with a specified event or probability level, such as a hurricane loss at a selected return period. PML is not a single universally defined maximum and depends on the model, assumptions, and probability selected.

📉 Loss Creep

The increase in estimated ultimate losses from an event as claims develop, damage is discovered, repairs become more expensive, or additional information emerges. It can affect reinsurance recoveries if contractual thresholds are reached.

⚠️ Reinsurance Hard Market

A period when reinsurance capacity is tighter, prices rise, or contract terms become more restrictive. Catastrophe losses, capital conditions, and changes in risk expectations can contribute.

💰 Capital Requirements

Regulatory and financial standards intended to ensure insurers maintain adequate resources for their obligations. Qualifying reinsurance may reduce an insurer’s net risk exposure, but its effect on regulatory capital depends on applicable accounting, credit-for-reinsurance, and solvency rules.

🚫 Reinsurance Shortfall

A situation in which an insurer’s reinsurance protection is insufficient for the losses it experiences or the exposure it intends to protect. The insurer may have to absorb more losses, potentially straining its finances; a shortfall does not automatically mean insolvency.