Category: Reinsurance fundamentals · Reviewed by Al Jabbar, Broker · Specialist Risks · Last reviewed 2026-06-05
Treaty reinsurance is reinsurance covering a defined class or portfolio of risks ceded automatically under a single contract — the reinsurance treaty — during the treaty period, without separate underwriting of each individual risk. It is the dominant form of reinsurance for routine portfolio cessions.
Category: Reinsurance fundamentals Also known as: obligatory reinsurance, treaty cessions Related concepts: reinsurance treaty, facultative reinsurance, auto facultative
Treaty reinsurance is automatic and obligatory: provided the underlying risk falls within the agreed scope of the treaty, the cedant must cede it and the reinsurer must accept it. This automaticity is what distinguishes treaty from facultative reinsurance.
Treaty reinsurance may be proportional (quota share or surplus) or non-proportional (excess of loss or stop loss). Proportional treaties cede premium and losses in fixed proportions; non-proportional treaties respond only to losses above an agreed retention.
A treaty reinsurance contract is subject to the duty of fair presentation under the Insurance Act 2015 [1] and to the standard contractual machinery of English insurance law. The London market standard wording is the Market Reform Contract [2], with class-specific clauses and the General Underwriters Agreement (GUA) applying to multi-reinsurer placements.
Treaty cessions are recorded by the cedant on bordereaux (proportional) or notified individually (XL), with settlement quarterly (proportional) or claim-by-claim (XL). The cedant is responsible for the proper application of the treaty terms, the calculation of cessions and the production of clear accounts.
Reinsurers exercise oversight through audit rights and through occasional review of underwriting practice. The ‘follow the settlements’ clause in standard wording requires the reinsurer to follow the cedant’s bona fide and businesslike settlements [3].
Treaty reinsurance is the workhorse of the global reinsurance market: the great majority of cessions, by premium volume, are treaty cessions, with facultative reinsurance reserved for individual risks outside treaty scope.
An illustrative example: a UK insurer’s 2024 reinsurance programme comprises (i) a 30 per cent motor quota share treaty, (ii) a property surplus treaty providing seven lines above a £1m retention, (iii) a property risk XL of £20m excess of £5m and (iv) a property catastrophe XL of £100m excess of £25m. Each treaty cedes automatically in accordance with its terms; facultative reinsurance is used only for risks above treaty capacity.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-05. Next review: 2026-12-05.
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