Treaty Tips
Last updated 3/5/2015
Treaty Tips are brief articles that provide practical advice on drafting reinsurance agreements. The tips often track recent litigation and arbitration decisions.
The Mutual Benefits of Clear Reinsurance Limits
Summary: A practical discussion of the importance of clarity in the drafting of reinsurance agreements. (January 2015)
Creativity in Reinsurance Agreements
Summary: The reinsurance agreements in some recent catastrophe bonds have contained innovative terms which may be very adventageous for cedents in traditional reinsurance agreements. This Treaty Tip discusses such terms. (July 2013)
Summary: The significance of the “honorable engagement clause” in reinsurance agreements.
Avoiding Gaps in Reinsurance Cover
Summary: There may be gaps in reinsurance coverage that a “follow the fortunes” provision will not close.
Addressing Non-Payment Contingencies
Summary: The failure to specify an interest rate to be paid due to late payments under a reinsurance agreement could prove to be very costly.
Summary: If an arbitration agreement does not clearly delineate the process for the selection of an umpire, there may be unforseen consequences.
Don’t Leave it to a Court to Interpret the Parties’ “Deems”
Summary: The use of the term “or so deemed” may make a reinsurance agreement ambiguous and lead to unintended interpretation by a court.
Shortcut Drafting Can Mean Good Business for Expert Witnesses
Summary: The use of shorthand terms in contracts can insert ambiguity into the agreement if not appropriately defined.
“Follow the Fortunes” obligation generally not implied into reinsurance contracts …
Summary: A follow-the-fortunes clause, if desired, should be expressly provided for in a contract; some courts have been unwilling to imply the clause into a reinsurance agreement based solely on industry custom and practice.
Summary: To avoid unexpected consequences, careful consideration of treaty definitions should be given, particularly as the arrangement changes over time. Consider for example, whether the phrase “losses incurred” is broad enough to encompass a start-up fee.
Summary: Superfluous words in contracts can lead to unintended consequnces. In one reported case, a court interpreted the phrase “outstanding premium installments due for the Contract Year” to permit a reinsurer to offset against a loss indemnity payment an amount equal to premiums scheduled to be paid.
