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Simple English definitions for legal terms
treaty of reinsurance
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A quick definition of treaty of reinsurance:
A treaty of reinsurance is a long-term contract between an insurance company and a reinsurer. The contract covers different types of risks, such as professional liability and property damage, and obligates the reinsurer to accept the transfer of these risks in advance. Instead of receiving individual notices for each claim, the reinsurer receives periodic reports on the losses paid. This type of contract is also known as a reinsurance treaty or bordereau.
A more thorough explanation:
A treaty of reinsurance is a long-term contract between an insurer and a reinsurer that covers different classes or lines of business of the reinsured. The reinsurer is obligated in advance to accept the cession of covered risks.
For example, an insurance company may enter into a treaty of reinsurance with a reinsurer to cover their professional liability, property, and other lines of business. Instead of receiving individual notice of each specific claim covered, the treaty reinsurer will generally receive periodic reports providing basic information on the losses paid.
This type of reinsurance is beneficial for both the insurer and reinsurer as it provides stability and predictability in the transfer of risk.