Treaty and facultative contracts
Treaty reinsurance covers a defined portfolio of policies, while facultative reinsurance covers individual risks. Proportional arrangements share premiums and losses, while excess-of-loss arrangements respond above a retention. Key provisions typically address coverage scope, notice and claims cooperation, follow-the-settlements language, and arbitration. Credit for reinsurance rules, administered by state insurance regulators such as New York's Department of Financial Services, affect whether the ceding insurer can count the reinsurance on its financial statements and whether collateral is required. Contracts placed in the London market or with offshore reinsurers can bring different conventions and governing law, which should be identified early.
Where disputes arise
Disputes often concern whether a settlement by the ceding insurer binds the reinsurer, whether notice was timely, and how losses are aggregated into occurrences or events. Whether defense costs fall within or on top of a reinsurance limit has been heavily litigated, and New York's highest court has said the answer depends on the contract language rather than a fixed rule. Many reinsurance contracts require arbitration before industry panels and may include honorable engagement clauses that give arbitrators flexibility. Gather the contract, cover notes, underwriting and placement files, claims files, and correspondence.
Getting started
We begin by reviewing the contract wording, placement history, and course of dealing, since custom and practice often inform interpretation. We assess notice and cooperation compliance, and evaluate aggregation and allocation questions. We consider whether negotiation or commutation could resolve the dispute without arbitration. If arbitration is likely, we discuss panel selection, the evidence each side will need, and how confidentiality will be maintained. For ceding insurers, we review whether collateral can be drawn if payment is delayed. For reinsurers, we look at the underwriting information provided at placement, since what was disclosed at that stage can become a central issue.
