Reinsurance Contracts

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Reinsurance Contracts

The reinsurance contract wording process in the US has moved within a short period of just a decade from a backroom function to one of being “shoulder to shoulder” with the underwriter. This evolution was driven primarily by regulatory pressure to fundamentally change its contract wording process from no written contract in some cases to a fully written and signed contract prior to its inception. Similar pressure exists to use innovation in the reinsurance contracting process to restore the economic efficiency originally intended while managing growing frictional costs.

In this white paper, Section I will explain the growing importance of treaty reinsurance contracts in the US market and postulate the form and content of today’s treaty reinsurance contracts do not reflect the actual business relationship between the parties. Section II describes how innovation is evolving in commercial (non-reinsurance) contracts and the short-term difficulties of applying innovative methods to the reinsurance treaty wording process.

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