Can someone explain to me how the 2 types of excess of loss reinsurance, Catastrophe Reinsurance and Stop Loss Reinsurance differ as it is not entirely clear to me in the course notes? Also I would like to know how the uses of these two types would differ? Many Thanks
Catastrophe reinsurance pays out when the total claims from a single event that occurs during the term of the reinsurance treaty exceed a specified minimum amount. It's most likely to be used when there's potential for many insured lives to "die as a result of the same event", ie where the lives are non-independent. So, it is most commonly associated with group business. Stop loss reinsurance pays out when the total claims during the period of the reinsurance treaty exceed a specified minimum amount. Therefore, it protects against the risk of "more deaths than expected over the year" (if it's an annual treaty). There's no need for these deaths to be caused by the same single catastrophe event. Hope this helps....
