Payout Waterfall

Exact live order for claim funding, fees, private reinsurance, and debt

What Starts The Waterfall

The waterfall begins only after the claim path has already validated the loss and collected any required salvage from the claimant.

At that point the protocol computes:

• the claimant's net payout
• the protocol's claim fee
• the underwriter-funded share
• the private reinsurance share, if the policy has a non-zero reinsured portion

If the policy is not reinsured, the private reinsurance step is skipped entirely.

Initial Claim Execution

Exact Order

1. Underwriter adapter liquidity
   The protocol first tries to withdraw liquidity already deployed on behalf of the policy's bound underwriter.

2. Private reinsurance hook, if applicable
   This step only exists when the policy was minted with a positive reinsured portion. The hook is asked to fund only the declared reinsurance share, not the full claim.

3. Underwriter idle liquidity
   If adapter withdrawals were not enough, the protocol uses the underwriter's remaining idle capital in the pool.

4. Protocol backstop
   If the underwriter-backed sources are still short, the protocol draws from shared backstop liquidity.

5. Protocol treasury
   Treasury is the next and final immediate liquidity source, if configured.

6. Outstanding claim debt
   Any unpaid claimant remainder is recorded as debt that can be collected later through a separate debt-claim flow.

Without Private Reinsurance

For a non-reinsured policy:

• the underwriter is charged for the full economic claim amount allocated to the syndicate path
• reinsurancePortion is zero
• the hook is never called

The live order is therefore:

1. underwriter adapter liquidity
2. underwriter idle liquidity
3. backstop
4. treasury
5. claimant debt for any unpaid remainder

This is the simplest path and the one used when reinsurance is disabled or the policy was sold without a reinsured portion.

With Private Reinsurance

For a reinsured policy, the claim first passes through the reinsurance module. That module calculates a split between:

• the syndicate / underwriter share
• the private reinsurance share

Only the syndicate share is charged to the underwriter. The reinsurance share is passed into the payout waterfall and collected from the bound hook if possible.

Important nuance:

• A policy being sold by a syndicate with a hook configured is not enough by itself.
• The policy must actually carry a positive reinsured portion.
• If the reinsured portion is zero, the claim behaves like a normal non-reinsured policy.

What Happens If The Hook Underpays

If the private reinsurance hook pays only part of its expected share, or pays nothing:

1. the claimant can still be paid from later layers in the waterfall
2. the unpaid hook amount can be substituted by underwriter idle liquidity, backstop, and treasury
3. the settlement layer records that substitution as an amount owed by the hook to whichever creditor fronted the money

That means private reinsurance improves the payout stack only if the hook actually funds its share or is backed by enforceable collateral.

Claim Fees

The protocol separates the claimant's net payout from the claim fee:

• the claimant is paid first
• the fee is paid second
• any unpaid fee is forgiven rather than turned into claimant debt

So claim debt tracks only the unpaid claimant amount, not an unpaid protocol fee.

Outstanding Claim Debt

If the waterfall cannot fully fund the claimant immediately, the unpaid remainder becomes outstanding claim debt.

Later, the claimant can call the debt-collection path to try again. That later debt payout uses a best-effort liquidity pass over:

1. available idle liquidity
2. backstop
3. treasury

Two important consequences:

• later debt collection does not retry the private reinsurance hook
• the debt balance is reduced only by the amount actually paid on that later attempt

Reading Outcomes Correctly

When you interpret a claim result, keep these distinctions separate:

The key takeaway is that a claimant can be paid even when the reinsurer failed to fund its own share. In that scenario, the protocol has resolved the claim, but the hook still owes money elsewhere in the system.

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