Attachment Point
The loss level at which a reinsurance contract or cat bond begins to pay. Also called the 'strike' or 'retention'.
The attachment point is the threshold of losses at which a reinsurance contract begins to respond. Below the attachment, the cedant retains all losses. Above it, the reinsurance or ILS structure provides protection up to the exhaustion point (attachment + limit).
In cat bond structures, the attachment point defines the start of the protected layer. A bond with a $500m attachment and $100m limit covers losses between $500m and $600m for the cedant. The attachment is expressed either as an absolute dollar amount or as a return period (e.g. "attaches at 1-in-20 year losses").
Attachment points directly determine the expected loss and risk premium of the instrument. Bonds with lower attachment points (more likely to be triggered) carry higher spreads; those with high attachment points (rare events only) carry lower spreads but are more leveraged to tail-risk events.
Example usage
“The cat bond attaches at $800m of Florida insured losses and exhausts at $1.2bn — a $400m limit covering losses in the 1-in-50 to 1-in-100 year range.”
Frequently asked questions
What is Attachment Point?
The loss level at which a reinsurance contract or cat bond begins to pay. Also called the 'strike' or 'retention'. The attachment point is the threshold of losses at which a reinsurance contract begins to respond. Below the attachment, the cedant retains all losses. Above it, the reinsurance or ILS structure provides protection up to the exhaustion point (attachment + limit).
How is Attachment Point used in practice?
The cat bond attaches at $800m of Florida insured losses and exhausts at $1.2bn — a $400m limit covering losses in the 1-in-50 to 1-in-100 year range.
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