XN Captive | Reinsurance Loss Simulator

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Disclaimer

This simulator is intended for illustrative purposes to demonstrate how basic reinsurance policies can support a captive, interact with each other, and distribute losses across various scenarios. Actual reinsurance policies can vary widely in structure, terms, and interactions, depending on negotiations with reinsurers and specific business needs. This model simplifies these complexities to focus on core concepts.

The simulator does not reflect actual captive financial or accounting operations and should not be used to make decisions regarding capitalization, collateral, surplus, solvency, or claim payment timing, as claims may take years to settle. Calculations are illustrative and should not be interpreted as real-world outcomes.

Default assumptions can be adjusted to explore different configurations and scenarios, but they may not reflect the specific requirements, constraints, or realities of captives in practice.

The total funds available in the captive to pay losses, also known as the Loss Fund. The starting amount can be set in the Default Assumptions section.

Captive Cash

XoL Policy Total:

The total amount paid by the XoL reinsurer across all losses. The XoL reinsurer covers single claims exceeding the XoL Attachment Point, up to the XoL Policy Max. Any claim amount beyond the XoL Policy Max is applied to the Captive. Adjust XoL AP and Max in the Default Assumptions section.

Agg Policy Total:

The total amount paid by the Agg reinsurer across all losses. The Agg reinsurer covers claims after the captive has paid an amount equal to the Agg Attachment Point. When combined with an XoL Policy, the Agg Policy only covers amounts below the XoL Attachment Point. Adjust the Agg AP in the Default Assumptions section.

300 of 400K

Quota Share Total

The total amount paid by the Quota Share reinsurer. Quota Share divides single claim amounts proportionally between the captive and reinsurer based on the designated ratio. When combined with an XoL Policy, the Quota Share reinsurer only covers amounts below the XoL Attachment Point. Adjust the Quota Share ratio in the Default Assumptions section.

Select Policies

This simulator allows you to explore three reinsurance policy types: Excess of Loss (XoL), Aggregate (Agg), and Quota Share. Each policy illustrates core reinsurance principles and can stand alone or, in some cases, be combined. XoL can be paired with either Agg or Quota Share, but Agg and Quota Share cannot be combined (in this version of the simulator).

The policy types in this simulator are simplified to focus on their fundamental functions. Adjustments in the Default Assumptions tab let you customize policy terms and explore different loss distribution scenarios. Please note that real-world policy terms, coverage, and interactions vary significantly and are shaped by negotiations with reinsurers and the unique needs of each captive.

Select which types of reinsurance you'd like to add to the simulator.

Excess of Loss (XoL)

Covers individual claim amounts exceeding the XoL Attachment Point, up to the XoL Policy Max. XoL coverage is determined on a per-loss basis, meaning each loss is assessed independently of other losses. In this model, any claim amount above the XoL Policy Max is applied to the Captive.

Aggregate (Agg)

Covers all claims once the captive has paid an amount equal to the Agg Attachment Point. When combined with an XoL Policy, the Agg Policy only applies to portions of claims below the XoL Attachment Point and above the XoL Max.

Quota Share

Divides the cost of each claim proportionally between the captive and the reinsurer based on the designated ratio. Quota Share does not have its own attachment point but is influenced by XoL policies, covering only loss amounts below the XoL Attachment Point when the two policies are combined.

$200K XoL Attachment Point

$1M Max Limit

200K XoL Attachment Point

400K Agg AP

$200K

Loading Simulator

Using The Loss Simulator

The Loss Simulator is designed to help you visualize how different loss frequencies and severities impact a captive’s financial performance under various reinsurance structures.

Follow these steps to use the tool effectively:

Review the Default Assumptions‍

The simulator starts with pre-set assumptions, including retention limits, reinsurance types (Excess of Loss, Aggregate, Quota Share), and coverage amounts.

These assumptions dictate how losses are absorbed by the captive versus how much is transferred to reinsurance.

Update Assumptions as Needed

Modify key inputs such as attachment points, excess limits, quota share percentages, or deductible amounts to reflect different reinsurance structures.

Adjusting these values will change how the simulator calculates the captive’s retained risk and reinsured portion.

Add Losses to Simulate Scenarios

Enter one or multiple loss amounts to see how they impact the captive’s financial position.

The system will allocate each loss based on the selected reinsurance structure and policy limits.

Test different loss patterns, such as:

• A single large loss to see how it interacts with excess limits.

• Multiple smaller losses to understand how aggregate coverage responds.

• Mix of high- and low-severity claims to evaluate quota share impact.

Analyze the Results

The simulator will calculate how much each loss is retained by the captive and how much is covered by reinsurance.

Pay attention to whether losses exceed reinsurance attachment points or trigger aggregate limits.

Compare different reinsurance combinations to determine the most effective structure for managing risk.

By experimenting with different assumptions, reinsurance types, and loss amounts, you can gain a clearer understanding of how your captive responds to various loss scenarios and optimize your risk management strategy accordingly.

The example scenarios below illustrate how different loss patterns interact with various reinsurance structures, demonstrating the impact of Excess of Loss, Aggregate, and Quota Share coverage—helping you experiment with how losses are applied under different assumptions.

Example Scenarios

The scenarios below illustrate this relationship, and operate under the policy assumptions in the following table:

Captive Reinsurance Scenario 1

A single loss of $300,000 with XoL and Agg policies.

Captive Reinsurance Scenario 2

A single loss of $300,000 with XoL and Quota Share policies.

Captive Reinsurance Scenario 3

A single loss of $199,999 with XoL and Agg policies.

Captive Reinsurance Scenario 4

A series of 5 losses of $80,000 each with XoL and Agg policies.

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Captive Reinsurance Scenario 5

A series of 10 losses of $80,000 each with XoL and Agg policies.

Captive Reinsurance Scenario 6

A single loss of $3,000,000 with XoL and Agg policies.

Note: Although the claim is larger than the $400K Aggregate Attachment point, the Aggregate policy is not triggered because there has been only one claim.

Captive Reinsurance Scenario 7

Two losses: $3M, then $3.5M with XoL and Agg policies.

Reinsurance provides a safe framework to manage risks in a captive. By understanding the intricacies of reinsurance, companies can form a safety net to support their financial stability, even in the face of significant losses and unforeseen circumstances. The protection available through Excess of Loss, Aggregate, and Quota Share coverage provide a customizable shield to balance insurance needs with financial prudence.

Through meticulous planning, negotiation, and the expertise of captive managers, reinsurance can empower businesses to navigate their growth journeys with confidence and resilience. For more information on XN Services related to Reinsurance, visit our Services page.

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How Captive Reinsurance Works