Non-Proportional CoversCore

Attachment Point & Limit

Q: A programme reads "$75M xs $25M". At what gross loss is the cover exhausted?

$100M — Exhaustion = attachment + limit = $25M + $75M = $100M. Anything above that is unreinsured.

Q: Under a franchise deductible of $10M, a $14M loss produces a recovery of:

$14M — Once the franchise is breached the reinsurer pays the loss in full from the first dollar — $14M, not $4M. That is the whole difference from a conventional deductible.

The "xs" notation

Where the reinsurer starts paying, and where it stops.

Open the interactive version → definition, quiz, structure diagram and progress tracking

Definition

The attachment point (also priority, retention or deductible) is the loss amount at which the reinsurer's liability begins. The limit is the maximum it will pay for one loss. Together they define the layer, written limit xs attachment; their sum is the exhaustion point, above which the cedent is bare again.

Setting the attachment is a frequency decision (how often do you want to be paid?); setting the limit is a severity decision (how bad can it get?).
A franchise deductible behaves differently: once breached, the reinsurer pays the loss from the first dollar rather than from the threshold.
Attachment can be indexed against inflation on long-tail casualty business, so the retention keeps its real value over a decade of development.

Exhaustion point = Attachment + Limit

The single most useful number to sanity-check any programme against the modelled loss.

Worked example

A $40M xs $10M layer attaches at $10M and exhausts at $50M. Losses below $10M and above $50M are entirely the cedent's.

The structure diagram for this term is in the interactive version.

Scenario · figures in USD

The same three losses under a deductible and a franchise

Compare a conventional $40M xs $10M layer with a hypothetical franchise version, where breaching $10M makes the reinsurer liable from the ground up.

Loss $8M — deductible basis	Recovery nil
Loss $8M — franchise basis	Recovery nil (threshold not met)
Loss $25M — deductible basis	Recovery $15M
Loss $25M — franchise basis	Recovery $25M
Loss $62M — deductible basis	Recovery $40M · cedent $22M
Exhaustion point	$50M

So whatFranchise wording is rare in modern treaty business precisely because of the middle row — it creates a cliff edge at the threshold and a powerful incentive to reserve just above it.

Check your understanding

A programme reads "$75M xs $25M". At what gross loss is the cover exhausted?

$100M. Exhaustion = attachment + limit = $25M + $75M = $100M. Anything above that is unreinsured.

Under a franchise deductible of $10M, a $14M loss produces a recovery of:

$14M. Once the franchise is breached the reinsurer pays the loss in full from the first dollar — $14M, not $4M. That is the whole difference from a conventional deductible.

Word problem

Brightwater Insurance holds two layers: $15M xs $10M and $50M xs $25M. Losses of $8M, $22M, $48M and $90M occur in the year. Complete the recovery table and identify the cedent's worst single net loss.

Show a hint

Fill from the bottom. Layer 1 covers $10M–$25M; Layer 2 covers $25M–$75M; the tower exhausts at $75M.

Reveal the worked answer

$8M → below $10M → cedent $8M, no recovery
$22M → Layer 1 pays $22M − $10M = $12M; cedent $10M
$48M → Layer 1 pays full $15M; Layer 2 pays $48M − $25M = $23M; cedent $10M
$90M → Layer 1 $15M, Layer 2 full $50M; loss above $75M = $15M back to cedent
Cedent net on the $90M loss = $10M + $15M = $25M

Recoveries of nil, $12M, $38M and $65M. The worst net loss is $25M on the $90M event — two and a half times the intended $10M retention, entirely because the tower stops at $75M. Any conversation about "how much do we retain?" is meaningless without also asking "and where does the programme run out?"