Category: Reinsurance structures · Reviewed by Al Jabbar, Broker · Specialist Risks · Last reviewed 2026-06-05
Free reinstatement is a reinsurance treaty provision under which the cedant may restore the limit of an exhausted excess of loss layer without paying any additional premium. The annual premium has, in effect, been priced to include the cost of one or more reinstatements.
Category: Reinsurance structures Also known as: nil reinstatement premium, free RIP Related concepts: reinstatement premium, paid reinstatement, excess of loss reinsurance
Free reinstatement is most common in:
A treaty offering ‘one free reinstatement’ provides an aggregate maximum recovery of twice the layer limit across the year, at the cost of the original premium only.
Free reinstatement provisions are documented in the slip and treaty wording. There is no separate regulatory treatment; the provision affects the calculation of the reinstatement premium only.
In practice, free reinstatement is increasingly rare in modern XL markets. Most treaties provide pro rata reinstatement premiums or full additional premium for reinstatement. Free reinstatement is most often seen in: top-layer cat XL where the expected loss is very low; treaties priced with a margin for multiple recoveries; and certain working-layer treaties on small portfolios.
A cedant negotiating free reinstatement may agree a higher initial rate on line; the reinsurer is effectively prepaid for the expected recoveries.
An illustrative example: a London market catastrophe XL programme features a top layer of £50m xs £150m at 1.25 per cent rate on line (£625,000 premium) with one free reinstatement. Following a £170m event the cedant recovers £20m and the layer is reinstated to full £50m capacity without additional premium. A second event in the same treaty year could produce a further recovery up to £50m at no additional reinstatement cost.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-05. Next review: 2026-12-05.
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