Category: Reinsurance structures · Reviewed by Matt Bartlett, Director · Founder · Last reviewed 2026-06-05
Reinstatement premium is an additional premium paid by the cedant to restore the limit of an excess of loss reinsurance after a recovery, allowing the layer to respond to subsequent losses in the same treaty year. The amount and method of calculation are defined in the slip.
Category: Reinsurance structures Also known as: RIP, additional premium to reinstate Related concepts: free reinstatement, paid reinstatement, excess of loss reinsurance
When an XL layer responds to a loss, the layer’s available limit is reduced by the amount of the recovery. The slip will specify how many reinstatements (typically one to three) are available and at what cost. Common reinstatement formulae are:
The aggregate maximum recoverable across the treaty year is the limit × (1 + number of reinstatements). A layer of £20m xs £5m with two reinstatements provides up to £60m of aggregate recovery during the year.
Reinstatement provisions are governed by the slip and treaty wording. There is no separate regulatory treatment; the structure forms part of the overall reinsurance contract.
Reinstatement provisions are particularly important in working-layer XL where multiple losses are expected. They are less material in top-layer XL where a single major event is the principal exposure and full exhaustion is unlikely.
The reinstatement premium is calculated and paid at the time of the recovery. Many treaties operate a ‘paid as paid’ basis on reinstatement, with the cedant paying as the loss is settled to the original insured.
After all reinstatements are exhausted, the cedant must purchase ‘back-up’ reinsurance (a new layer placed in mid-year) to cover further losses — a costly proposition in a difficult market.
An illustrative example: a UK property risk XL layer of £20m xs £5m with one reinstatement at 100 per cent additional premium. The annual premium is £3m. Following a £15m loss the cedant recovers £10m from the layer. To restore the limit the cedant pays £3m × (£10m / £20m) = £1.5m. A subsequent £15m loss would again attract £10m of recovery from the (reinstated) layer.
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.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
Get a quote