A reinstatement clause restores an excess of loss layer's limit after a loss, and the cedent pays for the restored limit at the moment of settlement. That price is a stated percentage of the annual premium, multiplied by the fraction of limit reinstated and, where the wording says so, by the fraction of the term left. Peerless Insurance's filed $100 million excess of $500 million layer charges 100% of developed premium, pro rata to amount only (Liberty Mutual Agency Corp. Form S-1/A, July 2010).
Two filed treaties supply the wording below and a broker model clause supplies the time-prorated form. The renewal price changes behind them are tracked in the site's reinsurance coverage and on the P&C Pricing Pulse reinsurance panel.
Key Takeaways
- Peerless's clause carries no time factor, so a full-limit loss in any month costs the whole premium again: $10.5 million on the deposit.
- Homeowners Choice's 2016 contract is drafted the same way; its words "pro rata only as to the fraction of the Reinsurer's limit" exclude time.
- A $60 million loss costs $6.3 million to reinstate under the amount-only form and $3.15 million under a time-prorated clause with six months left.
- Statutory accounting books the premium as ceded premium, accrued at the loss and earned to expiry, so the net cat loss never shows it.
- HCI buys reinstatement premium protection on all three of its 2026 towers, so the $4.06 billion program's reinstatement cost is itself reinsured.
What the Two Filed Clauses Say
Exhibit A of Contract No. 2009250, effective January 1, 2009, covers Peerless for $100 million of each loss occurrence above a $500 million retention. Section 4 provides one reinstatement "at an additional premium calculated at 100% of the developed premium hereon, but pro rata as to the fraction of the face value of this Contract (i.e., the fraction of $100,000,000) reinstated," payable "simultaneously with each loss settlement" (Liberty Mutual Agency Corp., July 2010). Liability "shall never exceed $100,000,000 in respect of any one Loss Occurrence nor $200,000,000 in all."
Section 2 sets the premium. The rate is 0.3033% of subject earned premium, estimated at $3,115,974,059, against a minimum and deposit premium paid in two installments of $5,250,000. That deposit is $10.5 million, a 10.5% rate on line; the developed premium on the estimated base comes to about $9.45 million. Under Section 4.D, a reinstatement premium settled before the developed premium is known "shall be based upon the deposit premium, subject to adjustment when the developed premium is finally established."
Homeowners Choice Property & Casualty's contract effective June 1, 2016 uses the same form in Article 10. For each amount reinstated the company pays "an additional premium calculated at pro rata of the Reinsurer's premium for the applicable layer(s) for the term of this Contract, being pro rata only as to the fraction of the Reinsurer's limit of liability hereunder" (HCI Group Form 10-Q, August 2016). "Only" removes time from the formula.
Of the twelve model variants the Brokers & Reinsurance Markets Association publishes as BRMA 41A through 41L, 41A charges "pro rata both as to the fraction of the face value of this Contract so reinstated and as to the fraction of the unexpired term," 41G through 41I are amount-only, and 41K provides free reinstatements inside an aggregate limit. "A wide variety of reinstatement clauses are used in the industry," Larry Schiffer wrote in a commentary for IRMI (IRMI, December 2011).
The Worked Table
Three losses to the Peerless layer, priced on its $10.5 million deposit. Columns two and three apply the filed clause; the rest apply the BRMA 41A time fraction at nine, six and three months remaining.
| Loss to layer | Premium, filed clause (no time factor) | Net recovery | Premium, 9 months left | Premium, 6 months left | Premium, 3 months left | Net recovery, 6 months left |
|---|---|---|---|---|---|---|
| $25.0M | $2.625M | $22.375M | $1.969M | $1.313M | $0.656M | $23.688M |
| $60.0M | $6.300M | $53.700M | $4.725M | $3.150M | $1.575M | $56.850M |
| $100.0M | $10.500M | $89.500M | $7.875M | $5.250M | $2.625M | $94.750M |
Computation: reinstatement premium = $10,500,000 x 100% x (loss to layer / $100,000,000) x time fraction, where the time fraction is 1 under the filed clause and months remaining / 12 under BRMA 41A. Net recovery = loss to layer minus reinstatement premium. The deposit stands in for developed premium per Section 4.D; at the $9.45 million developed figure every premium cell falls by 10%.
A $60 million loss nets $53.7 million under the filed clause and $56.85 million under a time-prorated one with half the year gone, a $3.15 million difference the gross recovery never shows. In month eleven the same loss would cost $525,000 to reinstate under 41A and still $6.3 million under Peerless's wording.
Aggregate limits work on the same fraction. David Clark's CAS study note puts it in one line: a cover with one reinstatement "effectively has an aggregate limit equal to one plus the number of reinstatements, times the occurrence limit," and gives the same result "for four losses halfway through the layer as for two full limit losses" (Clark, Basics of Reinsurance Pricing, 2014). His example charges $990,000 to reinstate $4.5 million of a $10 million limit at 110% of a $2 million premium. On the Peerless layer a second full-limit loss exhausts the $200 million aggregate and reinstates nothing; the full $10.5 million was paid on the first.
Where the Premium Lands in the Accounts
Amounts paid for prospective reinsurance "shall be reported as a reduction of written and earned premiums by the ceding company and shall be earned over the remaining contract period in proportion to the amount of reinsurance protection provided" (NAIC Statutory Issue Paper No. 75, 1998). The same paper requires a liability for premium owed on loss experience "during the accounting period in which the loss event(s) giving rise to the obligation to pay such additional premium occur(s)."
SSAP No. 62R adds the earning rule: a reinstatement premium "shall be earned over the period from the reinstatement of the limit to the expiration of the agreement" (NAIC Statutory Issue Paper No. 162, 2020). For the $60 million loss in month three, the cedent books $6.3 million of ceded written premium in the quarter of the event and earns it over the nine months left, while the $60 million recovery is booked in full against that quarter's gross loss.
The quarter's net catastrophe loss therefore shows $60 million of relief on this layer, and the cost of the second limit lifts the ceded premium ratio for the rest of the treaty year.
Pricing It In, and Insuring It Away
A reinsurer quoting the layer counts the expected reinstatement premium as income, so the second limit is partly funded by what the cedent pays when the first is used. Strip that payment out, as BRMA 41K does, and the second limit must be funded in the upfront rate, so a free reinstatement reads as a higher rate on line. Retention and limit choices around that rate are worked through in the site's piece on program design in a $790 billion capital market.
Cedents can also reinsure the premium itself. HCI Group's 2026-2027 program, filed June 1, 2026, states for each of its three towers that it "provides full reinstatement premium protection ("RPP") coverage for excess of loss treaties containing paid reinstatement provisions" (HCI Group Form 8-K, June 2026). That program carries about $4.06 billion of aggregate limit, 16% more than the prior year, for net ceded premium to third parties of about $381.2 million. Tower 3 covers up to $431.5 million for a single Florida event and $649.7 million for all occurrences above a $2.8 million retention.
Hurricane Isaias reached that tower. Florida's regulator counted $582 million of insured loss six days after landfall, and HCI said only Tower 3 was affected above a $15 million consolidated retention, as the site reported in its coverage of the storm. Each Tower 3 layer the loss uses is reinstated at settlement, with the reinstatement premium recoverable under the RPP cover already priced inside the $381.2 million.
Peerless's clause leaves one more step. A reinstatement premium settled in month three is billed on the deposit and adjusted when the developed premium is known at year end, so the final cost of the second limit is a figure the treaty cannot state until it expires.