First Surplus Treaty
A common form of proportional reinsurance treaty under which the amount of each cession is defined as the amount of gross (policy) liability that exceeds, or is "surplus" to, an agreed net liability retention, up to the limit of (reinsurance) liability. Often, a maximum net retention is specified in the treaty, with the ceding company having the option to choose a lesser retention on individual risks. The amount of first surplus reinsurance provided will be limited to a fixed multiple of the selected retention in each case. Higher surplus treaties, termed "second", "third", and so on, can be arranged to provide the ceding company with additional reinsurance capacity beyond that provided by the prior surplus treaty plus its true net retention.