DEFINITION of 'Catastrophe Excess Reinsurance'
Insurance for catastrophe insurers. Because of the unpredictable nature of catastrophes, the large amount of damage they cause and the high number of insurance claims that occur as a result, a catastrophe insurance company faces a significant risk of its business going under.
To mitigate this risk, catastrophe insurers rely on catastrophe excess reinsurance. The reinsurance company accepts a portion of the potential obligation in exchange for a share of the insurance premium.
BREAKING DOWN 'Catastrophe Excess Reinsurance'
In the absence of catastrophe excess reinsurance, insurers may restrict new business or refuse to renew existing policies after a catastrophe. Thus, catastrophe excess reinsurance benefits not only catastrophe insurance companies (by helping them to stay in business) but the market as a whole (by making catastrophe insurance more widely available).