Treaty novation

Novation substitutes one reinsurer for another on a live treaty, the new party taking over all rights and obligations and the old one being definitively released. It requires the agreement of all three parties, the cedant included, which distinguishes it from retrocession, where the original reinsurer remains solely liable to its cedant and protects itself upstream. The problem it solves is a clean exit: a reinsurer leaving a line, restructuring or withdrawing from a jurisdiction wants the item off its balance sheet, which retrocession does not achieve since it leaves the liability in place and merely adds an asset. Only novation removes the liability. For the cedant it is a credit decision in its own right: it swaps one signature for another and should consent only after analyzing the incoming party, since that consent extinguishes all recourse against the outgoing one. Run-off portfolios are largely transferred this way, often supported by court-sanctioned collective transfer mechanisms where the number of cedants makes individual consent impracticable.

A reinsurer withdraws from the European market in 2026 and transfers 340 million euros of reserves spread across 87 treaties. Sixty-one cedants accept the novation after reviewing the incoming party; twenty-six refuse, representing 94 million of reserves, and the outgoing reinsurer must keep those obligations until run-off or use a court sanctioned transfer to carry them across without individual consent.

Novation, Treaty novation, Substitution de réassureur, Transfert de contrat