What is stop loss treaty

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A stop loss treaty is a type of reinsurance contract that limits the amount of loss an insurer can incur on a specific policy or portfolio.

Stop loss treaties are commonly used in the insurance industry to manage risk and protect against catastrophic losses.
The treaty sets a predetermined threshold, known as the stop loss point, beyond which the reinsurer assumes responsibility for covering additional losses.
For example, if an insurer has a stop loss treaty with a stop loss point of $1 million, they would be responsible for covering losses up to $1 million, and the reinsurer would cover any losses exceeding that amount.
Stop loss treaties can be structured in various ways, such as on an individual policy basis or as an aggregate limit for a portfolio of policies.
The terms and conditions of a stop loss treaty, including the stop loss point and premium rates, are negotiated between the insurer and reinsurer.

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