A clause obliging the reinsurer to pay the full loss to the estate even though the insolvent cedant has paid nothing.
An insolvency clause states that the reinsurer's obligation is not conditioned on the cedant's actual payment of the loss. In liquidation the reinsurer owes the estate its full share, computed on the loss amount allowed in the proceeding, not on the reduced dividend the liquidator will pay policyholders. Without it, a reinsurer could argue its cover indemnifies an outlay the cedant never made, and pay only the distribution percentage, which would hollow out reinsurance at exactly the moment it is most needed. The problem it solves is therefore the protection of a failed carrier's policyholders: reinsurance must remain a fully recoverable asset of the estate. It is imposed by statute or regulator in many jurisdictions, notably in the United States where its absence denies the treaty any reinsurance credit on the cedant's balance sheet. It is commonly paired with an offset clause, whose interaction determines what the reinsurer may withhold for unpaid premium.
On the liquidation of a regional insurer in 2026, the liquidator allows 120 million euros of claims and can only pay policyholders 55 percent. The treaty carries an insolvency clause: reinsurers pay their share on the 120 million allowed, that is 78 million, not on the 66 million actually distributed. The 12.9 million difference accrues to the estate and lifts the distribution rate from 55 to 66 percent.
Insolvency clause, Clause d'insolvabilité de la cédante, Clause de liquidation