Reinsurance treaty wording

Category: Reinsurance · Reviewed by the Apex broking team · Last reviewed 2026-08-22 · ~5 min read

Definition

A treaty wording is the full contract wording for a reinsurance treaty: an obligatory arrangement under which a cedant cedes, and a reinsurer accepts, a defined class of business for a defined period. It sits behind the slip or placing document and, in the London market, is usually issued as a contract document after placement. Where the slip and the wording differ, which one governs is a question of construction that the wording itself normally addresses, and it is worth resolving before a loss rather than after one.

Business covered and territorial scope

The first working clause defines the subject business: the classes, the originating cedant or cedants, whether inwards reinsurance accepted by the cedant is included, and the territorial and jurisdictional scope. This is where the treaty is really underwritten. A definition that says “all business written by the cedant in its Property department” behaves very differently from one that lists specific policy forms, and portfolio drift over a multi-year relationship is a common source of argument.

Period and attachment basis

The period clause fixes the term. The attachment basis fixes which underlying losses fall in. A risks-attaching treaty picks up losses on underlying policies incepting during the treaty period, so exposure runs beyond the treaty year. A losses-occurring treaty picks up losses occurring during the treaty period, whenever the underlying policy incepted. A claims-made treaty follows the trigger of the underlying claims-made policies. Mixing bases across a programme, or changing basis at renewal, is how gaps and double counting appear.

Retention, limits and cessions

Proportional treaties set out the cedant’s retention and the cession — a fixed percentage under a quota share, or a multiple of the retained line under a surplus treaty — together with limits per risk and any event limit. Non-proportional treaties set the deductible, the limit, the number of reinstatements and whether reinstatements are free, pro rata as to time, pro rata as to amount, or both. An hours clause defines the period within which individual losses may be aggregated into one event; a two-risk or occurrence warranty may require more than one risk to be involved before the treaty responds.

Loss settlement: follow the fortunes and follow the settlements

The loss settlement clause decides how far the reinsurer is bound by what the cedant has agreed with its policyholder. A follow-the-settlements clause is conventionally read subject to the classic double proviso: the settlement must be businesslike and bona fide, and the claim must fall within the risks covered by the reinsurance as a matter of law and within the terms of the reinsurance as a matter of construction. In Hill v Mercantile and General Reinsurance Co plc [1996] 1 WLR 1239 the House of Lords confirmed that a follow-the-settlements provision does not oblige a reinsurer to pay a settlement of a claim that, properly analysed, was not covered by the reinsurance. Many wordings now qualify the clause expressly, and the qualification is the clause that matters.

Claims co-operation and claims control

A claims co-operation clause requires the cedant to notify and consult; a claims control clause goes further and gives the reinsurer conduct of the claim. Both are frequently drafted as conditions precedent, which converts a procedural failure into a coverage defence. Where a wording contains both a follow-the-settlements clause and a claims control clause the two pull in opposite directions, and the wording needs to say which prevails.

Ultimate net loss, offset and security

The ultimate net loss definition determines what counts towards the deductible and the limit: whether defence and adjusting costs are inside or outside, how salvage, subrogation and other reinsurance recoveries are treated, and whether extra-contractual obligations or awards in excess of policy limits are included. Alongside it sit the accounting clauses — premium and adjustment, profit commission, portfolio transfer, offset — and the security provisions, such as funds withheld, letters of credit or trust accounts, that determine what the cedant actually holds if the reinsurer fails.

Boilerplate that is not boilerplate

Several standard clauses do real work. An errors and omissions clause preserves cover where a cession is missed inadvertently, but usually only for genuine error. An inspection of records clause governs access to the cedant’s files. Insolvency, currency conversion, sunset and sunrise, and cut-through clauses all have consequences that only appear under stress. The arbitration and choice of law clauses decide where and under what law any of it is tested, and in a cross-border programme they deserve as much attention as the pricing.

Why it matters

A treaty wording is where a well-priced reinsurance programme either holds or does not. The questions worth asking at renewal are simple: does the business-covered definition still describe what the cedant writes; is the attachment basis consistent across the programme; is the loss settlement clause qualified in a way that leaves the cedant exposed to a coverage gap; and are the claims clauses conditions precedent.

Frequently asked questions

What is the difference between a treaty slip and a treaty wording?

The slip records the agreed terms at placement and is the contract in the first instance. The wording is the full contract document issued afterwards. Where they conflict, the wording usually contains a provision saying which governs; if it does not, the point becomes a construction dispute.

Does a follow-the-settlements clause make the reinsurer pay whatever the cedant pays?

No. On the conventional reading the settlement must be businesslike and made in good faith, and the claim must fall within the risks covered by the reinsurance as a matter of law and within its terms as a matter of construction. Hill v Mercantile and General Reinsurance Co plc [1996] 1 WLR 1239 confirms that a settlement outside the reinsurance is not made payable by the clause.

Why does the attachment basis matter so much?

Because it decides which underlying losses fall into which treaty year. Risks-attaching, losses-occurring and claims-made bases pick up different losses from the same underlying portfolio, so a change of basis at renewal can leave a gap or create a double recovery unless it is managed deliberately.

Related entries

• Reinsurance treaty
• Proportional reinsurance
• Non-proportional reinsurance
• Facultative reinsurance
• Excess of loss reinsurance

This entry is part of the Apex Insurance Wiki. Last reviewed 2026-08-22. Next review: 2027-02-22. It is insurance information, not legal advice, and it states the position as at August 2026.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.