In the case of per occurrence excess of loss reinsurance, under what condition does the reinsurer start to pay?

In per occurrence excess of loss reinsurance, the reinsurer begins to pay when the losses from a single defined occurrence exceed the retention amount specified in the reinsurance agreement. The retention amount is essentially a threshold that the ceding company (the primary insurer ceding risk to the reinsurer) must first bear before the reinsurer becomes liable for any additional losses. This structure is designed to provide the primary insurer with a layer of protection by sharing the financial burden of large individual events or occurrences that surpass their capacity to absorb losses.

The nature of per occurrence excess of loss reinsurance means that each separate event is treated independently. Therefore, the reinsurer's responsibility is triggered only when the specific losses from that event breach the agreed-upon retention limit. This ensures that both the ceding company and the reinsurer have clearly defined roles and limits with respect to loss exposures stemming from particular occurrences.