What condition must be met for a surplus share reinsurer to start paying losses?

The correct condition for a surplus share reinsurer to start paying losses is when the total losses exceed the net retention defined by the treaty. In surplus share reinsurance, the ceding insurer retains a specified portion of the risk, known as the net retention, and the reinsurer covers losses that exceed this amount. This mechanism is designed to protect the ceding company from catastrophic losses while allowing it to retain manageable risks.

When losses fall under the amount of net retention, the ceding company is solely responsible for those losses, and there is no obligation for the reinsurer to contribute. Therefore, it is only when losses surpass this retention threshold that the reinsurer becomes financially responsible for a share of the losses, aligning with the intended function of surplus share reinsurance.