A method of allocating automatic reinsurance among several reinsurers. Using this method, reinsurance is ceded in layers. The layers are defined in terms of amounts of insurance. One reinsurer will receive all reinsurance up to the limit of the first layer. A second reinsurer will receive all reinsurance in excess of the first layer up to the limit of the second layer, and so forth, depending on the number of layers. See First Excess, Layer, and Second Excess.
Risks that have high limits or high exposure to loss are often protected by purchasing policies to cover limits in layers. The first layer of coverage is called the primary layer and responds first to loss. When that limit has been exhausted, the second and subsequent layers respond. Because of the structure of layering, the second layer and above are normally much less expensive than the primary and, therefore, this method of protection can be cost effective.
A method of dividing reinsurance coverage among multiple reinsurers by allowing one reinsurer or a pool of reinsurers to cover all cases in excess of an insurer's retention limit up to a specified amount. See also first excess and second excess.