Definition for : Excess loss
Refers to a mechanism in an Insurance policy whereby the insurer will indemnify the insured for an insured Risk, but only after a certain level of losses have first been incurred by the insured in relation to the insured asset or portfolio of Assets, in a defined period of time. This can significantly reduce thead" on a portfolio of loans or Bonds designates the difference (when positive) existing between (i) the weighted average Spread received on the underlying portfolio of loans and/or Bonds; and (ii) the weighted average costs of the Spread to be paid to Investors having bought the asset-backed securities. The excess Spread is the most important part of the Credit enhancement mechanisms (along with any notes tranching) used in transactions such as Mortgage-Backed Securities (MBS), Collateralised Bond Obligations (CBO), Collateralised Debt Obligations (CDO) or Collateralised Loan Obligations (CLO).
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