Category: Insurance definitions · Reviewed by Tim Roche, Director · PI & Commercial · Last reviewed May 2026
PI treaty reinsurance is an automatic reinsurance agreement under which a reinsurer agrees to accept a defined share or layer of every PI policy written by the ceding insurer within an agreed class, period and territory. Treaties contrast with facultative reinsurance, which is negotiated risk by risk, and they are the backbone of how PI capacity is produced.
A treaty is a contract between an insurer (the cedant) and one or more reinsurers. It applies automatically to all qualifying business written by the cedant during the treaty period. The reinsurer takes on either a defined proportional share of every risk (proportional treaty) or pays only when losses exceed an agreed threshold (non-proportional, or excess of loss, treaty).
In UK professional indemnity, treaty reinsurance is critical because individual primary policies are too small to justify per-risk reinsurance, but the aggregate portfolio carries meaningful balance-sheet exposure. A treaty allows the cedant to write more PI than its own capital would otherwise permit, by transferring part of the exposure to a panel of reinsurers in advance.
Treaty reinsurance affects the policyholder only indirectly. The contract is between insurer and reinsurer; the policyholder remains in contract with the insurer. But treaty terms shape the capacity, pricing and underwriting appetite the insurer brings to the market. When the reinsurance market hardens, primary PI hardens with it.
Three structural choices define a treaty.
Proportional or non-proportional. A proportional (quota share or surplus) treaty cedes a fixed share of every risk and every loss to the reinsurer, with premium ceded in the same proportion. A non-proportional (excess of loss) treaty cedes only the part of any loss above an attachment point, up to a defined limit. Most PI portfolios use a mix: a proportional treaty to share volume and a non-proportional treaty to cap exposure to a single catastrophic claim or a series of related claims.
Scope and exclusions. Treaties define the class of business covered (for example, “accountants’ PI up to £5m limit”), territory, currency, retroactive date constraints and any specific exclusions. Asbestos, cyber, financial-services regulatory work, US exposure and audit of listed companies are typical PI treaty exclusions or sub-limits.
Claims cooperation and control. A treaty will normally require the cedant to notify the reinsurer of large or material claims, to consult on settlement strategy for claims above a threshold, and to follow specific defence protocols. Some treaties include a claims cooperation clause, some include a stricter claims control clause, and some include neither, leaving the cedant in full control.
A mid-tier UK insurer writes £45m of gross PI premium across accountants, surveyors and design consultants. To manage capital and capacity, it places:
A £2m claim against a surveyors’ PI policy translates as follows: the gross claim is £2m. 40% (£800k) is ceded to the quota share treaty. The insurer’s net loss is £1.2m, of which £1m sits within the retention and £200k is recovered from the excess of loss treaty. The insurer’s ultimate net cost is £1m before reinstatements and other contractual mechanics.
When reinsurers withdraw capacity or push for stricter terms — as happened in PI markets in 2018–2022 — the cedant’s ability to write business at previous prices and limits is constrained, and the change feeds through to the primary PI market within one or two renewal cycles.
Although the treaty contract sits between insurer and reinsurer, several practical implications reach the policyholder.
Capacity and pricing. When treaty markets tighten, primary PI insurers reduce capacity, raise rates, restrict wordings, push for higher deductibles and shorten retroactive dates. When treaties soften, the opposite happens. Brokers tracking the treaty cycle can predict when primary PI conditions will follow.
Coverage continuity. A treaty exit by a major reinsurer can force a primary insurer to non-renew an entire segment. Firms in concentrated sectors (audit, large architects, financial services) feel this first.
Claims handling. Where a treaty contains a claims control clause, the reinsurer can effectively direct claims strategy on large matters. The policyholder will not see the reinsurer but may notice unusually firm defence positions on claims approaching the reinsurance attachment.
PI treaties come in several flavours:
Most large PI portfolios use a combination of proportional and non-proportional layers.
What is PI treaty reinsurance?
An automatic reinsurance contract under which a reinsurer takes a defined share or layer of every PI policy the cedant writes in a class, period and territory. It is distinct from facultative reinsurance, which is negotiated risk by risk.
Does treaty reinsurance affect my PI policy?
Indirectly. The contract is between the insurer and reinsurers, and your policy is unchanged. But treaty terms drive primary capacity, pricing and underwriting appetite — when reinsurance hardens, primary PI hardens.
Who pays my claim — the insurer or the reinsurer?
The insurer. The insurer pays you in full (subject to your policy terms) and then recovers its reinsured share from the reinsurer. You have no contract with the reinsurer.
What is the difference between quota share and excess of loss?
Quota share is proportional: the reinsurer takes a fixed share of every risk and loss. Excess of loss is non-proportional: the reinsurer pays only when losses exceed an attachment point, up to a defined limit.
Why does the treaty market matter to PI buyers?
Because treaty conditions feed through to primary PI within one or two renewal cycles. Brokers monitoring treaty conditions can give early warning of primary market changes.
Can a reinsurer cancel a treaty mid-term?
Most treaties run for 12 months and renew. Reinsurers can decline to renew or impose stricter terms at the anniversary. Mid-term cancellation is unusual but possible if the cedant breaches material terms.
What is a claims cooperation clause in a treaty?
A clause requiring the cedant to keep the reinsurer informed about material claims and to consult on strategy. It stops short of giving the reinsurer control. See PI claims cooperation clause.
Is reinsurance regulated in the UK?
Yes. Reinsurance carried out from the UK is regulated by the PRA and FCA. Inward reinsurance from overseas reinsurers is also regulated to ensure adequate security and clear contract certainty.
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Apex Insurance Brokers Ltd is a Bristol-based insurance broker authorised and regulated by the Financial Conduct Authority (firm reference number 724952). The company is registered in England and Wales under Companies House number 07014570. Contact: info@apexinsurancebrokers.co.uk | 0117 325 0027.
Last reviewed: May 2026 by Apex Insurance Brokers Ltd.
Important: this article is general information, not advice on your specific circumstances. For advice on PI insurance for your firm, contact us on 0117 325 0027 or info@apexinsurancebrokers.co.uk.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
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