Paid reinstatement

Category: Reinsurance structures · Reviewed by Taylor Watts, Broker · New Business · Last reviewed 2026-06-05

Paid reinstatement

Paid reinstatement is a reinsurance treaty provision under which the cedant must pay an additional premium to restore the limit of an exhausted excess of loss layer. The standard calculation is pro rata as to amount and (often) pro rata as to time, although 100 per cent additional premium for reinstatement is common in working layers.

Category: Reinsurance structures Also known as: paid RIP, additional premium reinstatement Related concepts: reinstatement premium, free reinstatement, excess of loss reinsurance

Definition

Paid reinstatement formulae include:

• Pro rata as to amount, full as to time: additional premium = original premium × (loss amount / limit); the reinstatement is available for the remainder of the treaty year
• Pro rata as to amount, pro rata as to time: as above, but additionally adjusted for the unexpired portion of the treaty year. This produces a lower reinstatement premium where the loss occurs late in the year
• 100 per cent additional premium: the cedant pays the full annual premium to fully reinstate; common in working layers
• Paid as paid: reinstatement premium becomes payable as the underlying loss is settled (rather than reserved)

Legal / Regulatory basis

The slip and treaty wording govern the calculation, timing and accounting for reinstatement premium. Disputes over the calculation are commonly arbitrated under London market arbitration clauses.

How it works in practice

Paid reinstatement is the standard structure in modern XL markets. The cedant budgets for the expected cost of reinstatements in addition to the original treaty premium. In a year with no losses, only the original premium is paid; in a year with multiple losses, the total cost can exceed the original premium by a factor of two or three.

Reinstatement premium accounting under IFRS 17 is treated as an additional premium on the reinsurance contract held, recognised as the contractual liability arises and reduced as the cover is restored.

Example

An illustrative example: a UK property risk XL layer of £20m xs £5m with two reinstatements, pro rata as to amount and time, at an original premium of £4m. On 1 April 2024 (3 months into the treaty year) a £15m loss produces a £10m recovery and a reinstatement premium of £4m × (£10m / £20m) × (9/12) = £1.5m. The layer is fully reinstated for the remaining 9 months. A second £10m loss in November attracts a further reinstatement at the same rate, prorated for the remaining 2 months: £4m × (£10m / £20m) × (2/12) = £333,333.

See also

• /wiki/reinstatement-premium/
• /wiki/free-reinstatement/
• /wiki/excess-of-loss-reinsurance/

References

1. Market Reform Contract — https://www.lmalloyds.com
2. IFRS 17 Insurance Contracts — https://www.ifrs.org

This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-05. Next review: 2026-12-05.

Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.