A more thorough explanation:

Definition: Excess reinsurance is a type of reinsurance where a second insurer agrees to take on a portion of the risk of the original insurer in exchange for a percentage of the premium. The second insurer only assumes liability for an amount of insurance that exceeds a specified sum.

Examples: For example, if an insurance company has a policy with a limit of $1 million and wants to reduce its risk exposure, it may purchase excess reinsurance. The excess reinsurance policy would cover any losses that exceed $1 million, up to a certain limit. Another example is if a property insurance company wants to insure a building for $10 million but only wants to retain $5 million of the risk, it can purchase excess reinsurance for the remaining $5 million.

Explanation: Excess reinsurance allows insurance companies to reduce their risk exposure by transferring a portion of the risk to another insurer. This can help increase the capacity of the insurer to accept risk, promote financial stability, and strengthen solvency. The examples illustrate how excess reinsurance works in practice, where the second insurer only assumes liability for losses that exceed a specified amount, reducing the risk exposure of the original insurer.