Excess of loss is defined as:

• A. The primary insurer pays the amount of each claim up to the limit; the reinsurer pays the excess
• B. The reinsurer pays all claims until the limit is reached
• C. The insured pays the deductible to the reinsurer
• D. Claims are paid by a government fund

Answer: (A)

Excess of loss reinsurance shifts the burden of large claims from the primary insurer to the reinsurer once the ceding insurer’s retention is exceeded. The primary insurer handles losses up to its retention, and when a claim goes beyond that amount, the reinsurer pays the excess, up to the agreed limit. This structure protects the primary from catastrophic losses while allowing it to retain smaller claims.

The described arrangement matches this: the primary pays amounts on each claim up to the limit, and the reinsurer pays the excess beyond that. The other options don’t fit because they imply the reinsurer covers all claims, involve the insured paying a deductible to the reinsurer, or rely on a government fund, none of which describe standard excess of loss reinsurance.