Over-line coverage is a process of providing insurance beyond the capacity of an insurance provider. This can be due to unforeseen events in the market or because they may wish to take on extra risks. When this occurs, the insurance company engages in a process of reinsurance. This involves an insurance company (the original insurer) entering into an agreement with a second company (the reinsurer) in which the first company transfers a portion of the risk of the initial policyholder to the reinsurer.

Reinsuring allows the original insurance company to take on more risk than it would normally be able to, without having to commit more resources to mitigate the risk. It also spreads the risk between the two providers, reducing the likelihood that the original insurer will suffer losses. In most cases, the reinsurer will handle the risk and claims payments for the coverage.

Reaching over-line can be beneficial for an insurance company, as it allows them to increase their offerings of certain types of policies. For example, if a life insurance company wanted to enter into a new market, they could work with a reinsurer to bring in additional coverage that they could not offer on their own. It also allows an insurer to protect itself against potential claims and losses they may not have managed on their own.

Despite the potential benefits, over-line coverage can also present problems, particularly when an insurance company reaches too far over-line. This can attract the attention of state insurance regulators and can result in the insurer being put on notice to reduce their over-line capacity. This may be seen as a sign of weakness in an insurer, so insurance companies should be aware of the limits of their coverage and avoid pushing too far into over-line coverage.

Overall, over-line coverage can be an effective tool for an insurance company that needs to expand their coverage or protect against potential losses, but must be done with caution to ensure it does not negatively impact the insurer. It is important for insurers to ensure that their over-line capacity does not exceed their own limits or those of their partner reinsurers, as this can lead to scrutiny from state insurance regulators.