Exhaustion Point
The loss level at which a reinsurance contract or cat bond is fully used up. Attachment plus limit.
The exhaustion point is the upper boundary of a reinsurance contract or catastrophe bond layer — the loss level above which the contract pays its maximum amount and ceases to respond. It equals the attachment point plus the limit.
For example: a cat bond with a $500m attachment and $250m limit exhausts at $750m. If covered losses reach $750m or more, the bond's full principal is deployed to pay the cedant. If losses fall between $500m and $750m, a proportional amount is paid.
The spread between attachment and exhaustion defines the "layer" — a narrower layer has more binary risk (all-or-nothing), while a wider layer has more linear payoff characteristics.
Example usage
“The bond's exhaustion point of $1.5bn represents a 1-in-150 year loss event for the cedant's Florida book.”
Frequently asked questions
What is Exhaustion Point?
The loss level at which a reinsurance contract or cat bond is fully used up. Attachment plus limit. The exhaustion point is the upper boundary of a reinsurance contract or catastrophe bond layer — the loss level above which the contract pays its maximum amount and ceases to respond. It equals the attachment point plus the limit.
How is Exhaustion Point used in practice?
The bond's exhaustion point of $1.5bn represents a 1-in-150 year loss event for the cedant's Florida book.
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