Back-to-back coverage

Back-to-back coverage denotes in reinsurance the perfect correspondence between the scope of cover of a direct policy and that of the reinsurance treaty covering it. When an insurer cedes a risk to a reinsurer, the ideal of back-to-back coverage means that every loss covered by the direct policy is also covered by the treaty, and that every exclusion in the direct policy is also present in the treaty. In practice, many gaps may arise between the two coverages: timing mismatches (direct policy and treaty renewals do not coincide), unilateral contractual changes (an endorsement to the direct policy may not have been reflected in the treaty), differences in exclusion wording (the cyber clause in the direct policy may be more or less restrictive than that of the treaty). In the context of Lloyd's market bulletin LMA 21-042 on silent cyber, achieving back-to-back alignment has become a major challenge: an insurer that has excluded cyber from its direct property policies but whose reinsurance treaty does not contain the same exclusion remains exposed to cyber accumulation in its reinsurer retention. Multi-year treaties predating 2019 are particularly exposed: concluded before Lloyd's directives came into force, they can only be brought into compliance at maturity or by endorsement, leaving residual exposures difficult to quantify.

A French insurer brought all its professional multi-risk policies into LMA 21-042 compliance in January 2022, adding an LMA 9340 cyber exclusion clause. But its catastrophe XL treaty signed for three years in 2020 contains no equivalent cyber exclusion. In a systemic cyber event like CrowdStrike affecting several of its insureds, losses exceeding its retention would be passed to the reinsurer on the basis of losses the latter had assumed were excluded. The back-to-back divergence thus creates a loss surprise for the reinsurer and a risk of contractual dispute.

back-to-back, cohérence directe-réassurance, alignement traité-police