Service of suit clause
A clause by which the reinsurer submits to a named jurisdiction and appoints an agent for service there.
Under a service of suit clause, a reinsurer that defaults on its obligations agrees to submit to the jurisdiction of a court chosen by the cedant. It appoints an agent there to accept service of process. It comes from the United States and solves a very concrete problem: getting a foreign-domiciled reinsurer to appear, and then enforcing a judgment against it, can take years and cost more than the debt. By naming a forum and an agent in advance, the clause removes most of that obstacle. US regulators commonly require it before granting local cedants reinsurance credit on treaties written outside the United States. Its interaction with an arbitration clause takes care. Well drafted, the two coexist: arbitration decides the merits, and service of suit is used to compel arbitration and then to enforce the award. Badly drafted, they cancel each other and open a preliminary fight over forum.
A New York cedant places a layer in 2026 with Bermudian and European reinsurers. Its regulator conditions reinsurance credit on a service of suit clause naming the New York courts and a local agent. Two reinsurers decline the clause: the cedant must then post collateral for 100 percent of their share, that is 21 million dollars by letter of credit, to obtain the same balance sheet treatment.
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