An insurance company that purchases three $100 million layers of property-catastrophe coverage may find it is short of coverage if three $200 million events occur, even though the total coverage package—with reinstatements—totals $600 million in limits.

Mike Schnur, a partner at TigerRisk, provides the simple example to explain how the innovation of “cascading limits” solves the problem of “trapped limits” for unlucky insurers facing this situation.