Category: Reinsurance fundamentals · Reviewed by Taylor Watts, Broker · New Business · Last reviewed 2026-06-05
A reinsurance treaty is a contract under which the reinsurer agrees, in advance, to accept all cessions of a defined class of risks from the cedant during the treaty period, without separate underwriting of each individual risk. The treaty governs the ongoing relationship between cedant and reinsurer across a portfolio of underlying business.
Category: Reinsurance fundamentals Also known as: treaty, treaty reinsurance contract Related concepts: facultative reinsurance, treaty reinsurance, auto facultative Related legislation: Insurance Act 2015; Solvency II Directive 2009/138/EC
A reinsurance treaty defines: the class or classes of business to be ceded; the cession basis (proportional or non-proportional); the limits, retentions and reinstatements; the premium and commission; the territorial scope and exclusions; the risk attaching or loss occurring attachment basis; and ancillary terms (governing law, arbitration, claims control, errors and omissions clause). The treaty period is typically twelve months, although multi-year treaties are common in soft markets.
Once concluded, the treaty obliges the cedant to cede, and the reinsurer to accept, every risk within the scope. There is no individual underwriting at the time of cession; the reinsurer relies on the cedant’s underwriting in originating the underlying business.
A reinsurance treaty is a contract of indemnity governed by general principles of English contract law and (where the underlying business is marine, aviation or transit) by the Marine Insurance Act 1906. The duty of fair presentation under the Insurance Act 2015 [1] applies to the cedant in placing the treaty.
The standard market wording in the London market is the Market Reform Contract (MRC) [2], with treaty-specific terms attached as the slip.
In practice the treaty is placed annually at the principal market renewal dates (1 January, 1 April, 1 June, 1 July). The cedant prepares a submission setting out the portfolio, loss history, current rating and proposed treaty terms; the reinsurance broker presents the submission to a panel of reinsurers; reinsurers quote their lines and the broker assembles the placement.
Treaty operation is governed by the slip and wording, with quarterly or monthly accounts (proportional) or claim-by-claim notification (XL). Claims handling, errors and omissions, sunset clauses and termination provisions are governed by the wording.
For Apex clients the existence of a strong outwards treaty programme behind the cedant is a material element of the cedant’s security. We monitor cedant reinsurance disclosure in annual reports and SFCRs (Solvency and Financial Condition Reports) as part of carrier selection.
An illustrative example: a UK insurer’s 2024 motor proportional treaty is a 30 per cent quota share placed in the London market. The treaty is risk attaching, with a flat 30 per cent ceding commission, sliding scale to a maximum of 35 per cent and minimum of 25 per cent, and a 25 per cent profit commission over three years. The treaty period is 1 January 2024 to 31 December 2024.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-05. Next review: 2026-12-05.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
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