Non-Proportional CoversAdvanced

Aggregate Stop Loss

Q: A stop loss of 30% xs 75% on $200M of GNPI exhausts at what level of losses?

$210M — It attaches at 75% × $200M = $150M and provides 30% × $200M = $60M of limit, exhausting at $210M — a 105% loss ratio.

Whole-year net protection

Cover that responds to the total of all net losses in a year, usually expressed as a loss ratio.

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

Definition

An aggregate stop loss protects the cedent's annual result rather than any individual loss or event. It attaches when net incurred losses for the period exceed an agreed amount — most often stated as a percentage of gross net premium income — and pays up to a stated limit, frequently with the cedent co-participating in the layer.

The broadest protection available: it responds to frequency, severity and accumulation together.
Reinsurers insist on a co-participation (commonly 5–10%) and a high attachment to preserve the cedent's incentive to underwrite and reserve properly.
Common in crop, credit and health portfolios where results move with a season or a cycle rather than with single events.

Recovery = min( Losses − (Attachment% × GNPI), Limit% × GNPI ) × (1 − Co-participation)

Attachment and limit are both expressed as percentages of the same premium base.

Worked example

A 25% xs 80% stop loss on $100M of GNPI attaches once net losses pass $80M and pays up to $25M — capping the net loss ratio at 80% until the cover exhausts at a 105% loss ratio.

Scenario · figures in USD

A bad crop year capped

Prairie Mutual writes $100M of GNPI and buys a stop loss of 25% xs 80% with a 10% co-participation. Drought pushes net incurred losses to $96M.

Gross net premium income	$100M
Net incurred losses	$96M
Loss ratio before recovery	96.0%
Attachment (80% of GNPI)	$80M
Loss in the layer	$16M
Cedent co-participation (10%)	$1.6M
Recovery (90% of $16M)	$14.4M
Net loss ratio after recovery	81.6%

So whatA 96% loss ratio becomes 81.6%. The co-participation is what stops the cedent becoming indifferent to everything above the attachment point.

Check your understanding

A stop loss of 30% xs 75% on $200M of GNPI exhausts at what level of losses?

$210M. It attaches at 75% × $200M = $150M and provides 30% × $200M = $60M of limit, exhausting at $210M — a 105% loss ratio.

Why do reinsurers require a co-participation on stop loss covers?

To keep the cedent motivated to underwrite and reserve properly. Full cover above the attachment would remove the cedent's stake in its own result — a classic moral hazard. The co-participation keeps its money in the game.

Word problem

Ridgeline writes $250M of GNPI and buys a 20% xs 85% aggregate stop loss with a 10% co-participation. Net incurred losses reach $242M. Calculate the recovery and the resulting net loss ratio.

Show a hint

Convert both percentages to dollars against the $250M base before comparing them with the losses.

Reveal the worked answer

Attachment = 85% × $250M = $212.5M
Limit = 20% × $250M = $50.0M; exhaustion at $262.5M
Losses in the layer = $242M − $212.5M = $29.5M (within the limit)
Cedent co-participation = 10% × $29.5M = $2.95M
Recovery = 90% × $29.5M = $26.55M
Net losses after recovery = $242M − $26.55M = $215.45M
Net loss ratio = $215.45M ÷ $250M = 86.2%

A recovery of $26.55M brings a 96.8% loss ratio down to 86.2%. The co-participation means the cedent never quite achieves the 85% attachment level — it retains $2.95M inside its own cover, which is exactly what the reinsurer intended.