Glossary
Attachment Point
An attachment point is the loss level at which an insurance or reinsurance layer, or a tranche of a structured credit investment, begins to absorb losses. Losses below it fall on the insured, lower layers or junior tranches. The detachment point is where the layer's limit is exhausted.
Formula
Example
A reinsurance layer attaches at $100,000,000 and detaches at $150,000,000, a $50,000,000 limit. An event causing $130,000,000 of losses costs the layer $30,000,000. A $180,000,000 event exhausts the full $50,000,000. In credit, a tranche attaching at 5% and detaching at 10% of a pool loses nothing until pool losses exceed 5%; at 7% pool losses, it loses 2 / 5 = 40% of its principal.
How it is used in underwriting
Attachment and detachment points define who bears which losses, and they are the core of pricing layered risk. Insurance and reinsurance underwriters estimate the probability that losses reach the attachment point and the expected loss within the layer, then price accordingly. In structured credit, collateralized loan obligations and warehouse facilities, the attachment point of a tranche shows how much subordination protects it. A senior lender with a 70% attachment point is protected by the 30% of losses that junior tranches and equity must absorb first. The same logic applies to a mezzanine loan's position in a property's capital stack.
Underwriters should look beyond the headline attachment point. In insurance, how losses are aggregated, whether by event or annually, and the definition of an occurrence affect when attachment is reached. In credit, attachment as a percentage of the pool changes as the pool amortizes and as losses occur, and the thickness of the tranche matters: a thin tranche can go from untouched to wiped out over a small range of losses. Correlation also matters, since correlated losses make it more likely that attachment points are breached together across many positions. Stress testing losses around attachment levels is essential.
Frequently asked questions
What is the difference between attachment and detachment points?
The attachment point is where a layer or tranche starts absorbing losses. The detachment point is where its exposure ends. The difference between the two is the layer's limit or the tranche's thickness. Losses above the detachment point fall to higher layers or senior tranches.
How does attachment point affect pricing?
Lower attachment points mean losses reach the layer more often, so expected loss and price are higher. Higher attachment points mean more protection from losses below and lower expected loss, so pricing is lower. In credit, senior tranches with high attachment points earn lower spreads than junior tranches.
Is attachment point the same as a deductible?
They are similar concepts. A deductible is the amount an insured pays before insurance responds, effectively the attachment point of the primary policy. In excess insurance and reinsurance, attachment point describes where each layer begins above the underlying coverage or retention, which may be far above a primary deductible.
Related terms
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