Category: Reinsurance structures · Reviewed by Jake Leat, Associate Director · Last reviewed 2026-06-05
Stop loss reinsurance is a form of aggregate reinsurance in which the trigger is a defined loss ratio on the underlying portfolio rather than an absolute monetary aggregate. The reinsurer responds to losses above the threshold loss ratio, up to an upper threshold or absolute limit.
Category: Reinsurance structures Also known as: stop loss, SL Related concepts: aggregate excess of loss, stop loss treaty, loss ratio
A stop loss treaty is defined by reference to a portfolio, a treaty period, an attachment loss ratio (where the reinsurer begins to respond) and a top loss ratio (where the reinsurer’s obligation ends). A stop loss of 90 per cent xs 80 per cent provides cover when the cedant’s loss ratio on the defined portfolio exceeds 80 per cent, paying up to a maximum loss ratio of 170 per cent (80 per cent + 90 per cent).
Stop loss is widely used in crop reinsurance, life reinsurance and certain casualty quota share structures. It is comparatively unusual in mainstream property and casualty markets because of the difficulty of pricing tail loss ratio scenarios and the risk of moral hazard.
Stop loss treaties are documented under the Market Reform Contract format. They are subject to general principles of English contract law and the Insurance Act 2015. Specific provisions are typically included to address: the calculation of the loss ratio (gross or net of recoveries; including or excluding ALAE); the definition of the underlying portfolio; reporting timing; and provision for adjustment as claims develop.
Stop loss is used principally where:
The structure produces significant SCR relief because it caps the cedant’s net underwriting result. However, the high attachment loss ratios (typically 90–110 per cent) mean that recoveries are infrequent, and reinsurers price accordingly.
An illustrative example: a UK crop insurer purchases stop loss reinsurance of 60 per cent xs 90 per cent on its £20m premium portfolio. In a poor harvest year with a 130 per cent loss ratio, the cedant recovers (130 − 90) × £20m = £8m, reducing its net loss ratio to 90 per cent.
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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