Treaty novation

2026, textbook case: a reinsurer leaving the European market transfers 340 million euros of reserves across 87 treaties; 61 cedants accept the novation, 26 refuse it, for 94 million it has to keep until run-off. Novation substitutes one reinsurer for another on a live treaty. The new party takes over all rights and obligations, and the old one is definitively released. It requires the agreement of all three parties, the cedant included, which distinguishes it from retrocession: there, the original reinsurer remains solely liable to its cedant and protects itself upstream. It is the clean exit. A reinsurer leaving a line, restructuring or withdrawing from a jurisdiction wants the item off its balance sheet. Retrocession does not achieve that, 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 its consent extinguishes all recourse against the outgoing one. It should therefore consent only after analyzing the incoming party. 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.