Treaty reinsurance
Framework agreement by which a reinsurer commits to automatically covering a defined tranche of an insurer's entire portfolio of ceded risks, without risk-by-risk review.
Treaty reinsurance is the most common form of reinsurance. Unlike facultative, it binds the reinsurer and the cedant for a pre-defined set of risks, with no acceptance or refusal of each risk by the reinsurer. The cedant commits to cede, and the reinsurer commits to accept automatically any risk falling within the treaty's scope. There are two main forms. In proportional treaty (quota share and surplus), premiums and losses are shared in a fixed proportion. In non-proportional treaty (excess of loss, stop-loss), the reinsurer only pays above a retention. In cyber, Lloyd's creation of risk codes RY and RZ in 2024 separated cyber treaty reinsurance (RY/RZ) from direct cyber insurance (CY/CZ) and from facultative. LMA 5629, 5630 and 5631 were drafted for cyber treaties: reinsurers have cyber war clauses adapted to the treaty structure, rather than the direct policy clauses of the 5564-5567 series.
In January 2024, a reinsurer writes a cyber quota share treaty covering 30% of a French insurer's SME portfolio. It uses LMA 5630 for the cyber war component. Thanks to the Difference in Conditions provision, it can follow the cedant's exclusion if that exclusion is Type 3 compliant. Without the treaty, it would have to review each cyber policy individually.
treaty reinsurance, proportional treaty, non-proportional treaty, obligatory reinsurance
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