Developing and Executing Treaty Reinsurance Contracts
From submission to signed treaty
The treaty lifecycle runs: submission and underwriting, quoting and negotiation, placing/signing, endorsement, and renewal. Candidates should know the standard treaty sections: preamble/parties, business covered, term, territory, exclusions, retention and limits, reinstatement, definitions (loss occurrence, ultimate net loss), claims and cash loss provisions, premium and deposit premium adjustment, accounts and remittances, errors and omissions, arbitration/governing law, and termination.
Clauses that generate questions
- Ultimate net loss (UNL): defines what the reinsurer pays after salvage and recoveries; watch whether defense costs are inside or outside the limit.
- Errors and omissions: protects against inadvertent clerical error, not deliberate non-disclosure.
- Cash loss: allows the cedent to collect promptly on large losses before final adjustment.
- Deposit premium and adjustment: minimum and deposit premiums are adjusted at expiry based on actual premium.
- Follow the fortunes / follow the settlements: binds the reinsurer to the cedent's good-faith claim settlements.
Traps
Assuming a treaty is binding before signing (slips and binders often bind), and assuming "errors and omissions" covers bad-faith or intentional conduct. Another trap: treating a memorandum of understanding as a fully executed treaty.
Rule of thumb
Read every clause as a question: who pays, how much, when, and on what evidence? If a clause cannot answer all four, it is ambiguous and likely the subject of the question.
Worked example: A treaty has a $1,000,000 per-occurrence limit with defense costs inside the limit. A $1,100,000 indemnity plus $150,000 defense leaves $1,000,000 total payable, not $1,150,000.