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).
To know more about it, look at what we have already written on this subject