XoL in a nutshell: expecting the unexpected with Excess of Loss

“Please continue trading as you do with that buyer - no need to request a credit limit,” is perhaps not something you expect to hear from an insurer. But with Excess of Loss (XoL), that’s typically how it works. Sound risky? It’s quite the opposite.

XoL acts as a kind of emergency policy in that it offers protection against large, unexpected losses. Its key differentiating factor, though, is that XoL customers are companies that already have mature in-house credit management. And for these companies, it’s a win-win solution. 

With a traditional trade credit insurance (TCI) policy, companies protect themselves against the risk of non-payment in everyday transactions with their customers. However, an XoL policy is not intended for these day-to-day losses, but rather for exceptional credit losses. 

XoL insurance comes into its own when a company faces an unexpected loss greater than what it is usually able to absorb. With these policies, the insured party retains losses up to a certain amount – known as an Aggregate First Loss – which is set in agreement with the insurer. Beyond this determined threshold, the policy pays out. 

1.    XoL customers are subject to Credit Management Review

Before a customer can take out an XoL policy, Allianz Trade’s in-house XoL Underwriters assess and verify their credit management. XoL is a policy tailored for companies with mature credit risk management – often with a team of credit managers in-house.  As such, we need to ensure their processes are robust at policy inception, before offering binding terms.

2.    Policies are (almost) set in stone

In contrast to TCI, XoL limits cannot be cancelled or reduced during the 12-month insurance period. This offers a lot of certainty to customers. New buyers can of course be added during the life of the policy, and the new limits will be non-cancellable for the remainder of the policy duration.

3.    Customers gain flexibility

XoL policies also offer a high discretionary credit limit (DCL) – the amount of exposure a company can take without consulting us. It’s a light-touch policy that gives our customers autonomy, flexibility and greater protection when needed. We’re very careful when offering these policies: we need to ensure that the customer manages risk adequately.

4.    Customers share the risk

There is a high level of risk share between the customer and insurer with these policies because of the non-cancellable limits and high DCL. Typically, the Aggregate First Loss is set at a higher level than traditional TCI policies.

5.    XoL is cost-effective and stable

Thanks to this risk share, XoL premium rates are usually lower than for traditional TCI. Furthermore, raising rates at renewal is not common, even if a customer has made a claim. These are exceptional losses, and the reason we’re there. 

If necessary, we may choose to increase a customer’s first loss if we realize it has been set too low. However, we aim to find a fair balance, and our customers – who renew year on year – recognize that. 

XoL is an ideal solution for companies with in-house credit management. It enables them to continue working as they already do, safe in the knowledge that Allianz Trade, an AA-rated insurer, will provide additional support when needed.

They also benefit from our database of over 80 million graded companies through access to our monitoring system containing buyer grading information. This is a huge value-add, supporting us to build true partnerships with satisfied, long-term customers.