Excess of loss reinsurance pays specified losses above an insurer's retained amount, up to an agreed layer limit. The arrangement may operate per risk, per event, or over an aggregate period, depending on the contract. It differs from proportional sharing of every premium and loss.
An insurer covering Nepalese property might retain a defined first layer of catastrophe losses and reinsure the next layer. Several layers can be used to address different severities. This retention belongs to the insurer's reinsurance arrangement and should not be confused with a deductible payable by the customer.