Multi-year treaty

A multi-year treaty commits cedant and reinsurer across several years, with price and terms fixed at signature, sometimes subject to bounded revision clauses. It stands against the dominant practice of annual renewal, which exposes the cedant to the full volatility of the cycle. The problem it solves is uncertainty about the future cost of protection: a cedant pricing its own products three years out cannot afford its reinsurance to double mid-period, and a multi-year commitment transfers market risk to the reinsurer on top of technical risk. For the reinsurer, the compensation is stable income and acquisition costs amortized over several years, which partly offsets the loss of pricing flexibility. The structure is standard on catastrophe notes, where three years with an annual reset has become the norm, and far rarer in traditional reinsurance, where annuality remains the rule and participants prefer to keep the option of repricing each January.

A cedant secures a three-year commitment on its middle layer in 2026, at a fixed 6.8 percent rate on line, against 6.2 percent for annual cover. It therefore pays a 0.6 point premium for cycle insurance, that is 300,000 euros a year on a 50 million limit. At the 2028 renewal, after two costly seasons, comparable layers trade at 9.4 percent.

Multi-year treaty, Traité multi-exercices, Multi-year agreement, Couverture pluriannuelle