Category: Reinsurance brokers and structures · Reviewed by Al Jabbar, Broker · Specialist Risks · Last reviewed 2026-06-05
A stop loss treaty is a reinsurance contract under which the reinsurer responds when the cedant’s loss ratio on a defined portfolio exceeds a threshold loss ratio. The reinsurer pays up to a maximum loss ratio or an absolute monetary limit, providing comprehensive tail protection for the cedant.
Category: Reinsurance brokers and structures Also known as: stop loss reinsurance treaty Related concepts: stop loss reinsurance, aggregate cover, aggregate excess of loss
Stop loss treaties typically include:
Stop loss is most commonly used in agricultural reinsurance (crop, hail, livestock), in certain life and health reinsurance arrangements, and as ‘second tier’ protection in some property and motor portfolios.
Stop loss treaties are documented under the Market Reform Contract format. The contractual mechanism for loss ratio calculation is critical and is the subject of careful drafting. Disputes over calculation methodology are not uncommon and are typically resolved under London market arbitration clauses.
In practice the stop loss treaty operates over the treaty year, with the loss ratio determined at the end of the development period (typically three years for casualty business). Reinsurer’s payments are made on a ‘paid as paid’ basis or on a defined reporting schedule.
The structure is attractive to cedants with material loss ratio volatility but is priced accordingly: stop loss attaches in poor years and pays largest recoveries in the worst years, making it inherently more expensive per unit of cover than per-event XL on lower volatility books.
An illustrative example: a UK crop insurer purchases a stop loss treaty of 50 per cent xs 100 per cent for 2024 on £10m of subject premium, with an absolute monetary limit of £4m. In a year with a 140 per cent loss ratio (£14m of incurred losses) the reinsurer pays (140 − 100) × £10m = £4m, capped at the monetary limit. The cedant’s net loss ratio is 100 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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