REINSURANCE: A clause in a reinsurance treaty whereby the reinsurer undertakes to follow the fortunes of the insurer. Thus, if the insurer settles a claim ex-gratia, the reinsurer may be expected not to deny liability for his share in the settlement.
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UK: a clause in reinsurance contracts under which the reinsurer is committed to following the decisions on claims made by the direct insurer.
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UK:A proportional reinsurance principle, not always stated in the policy, under which the reinsurer shares the same fate as the cedant in regard to the underwriting and contractual risks. It does not include the cedant’s commercial risk, i.e. total business risk or ex-gratia payments unless agreed or allowed under any relevant clause.
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A provision in reinsurance agreements, not always specifically identified as such, in which it is agreed that the reinsurer is bound to the same fate as the cedant with respect to risks covered.
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REINSURANCE: Follow the fortunes generally provides that a reinsurer must follow the underwriting fortunes of its reinsured and, therefore, is bound by the decisions of its reinsured in the absence of fraud, collusion or bad faith. It requires a reinsurer to accept a reinsured’s good faith, business-like reasonable decision that a particular risk is covered by the terms of the underlying policy. The term is often used interchangeably with follow the settlements, and there may be overlap between the affect of follow the fortunes and follow the settlements when the “risk” is what generated the loss. Follow the fortunes is focused on “risk” determination, not necessarily tied to a loss settlement.
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REFERENCE: See: “Reinsurance, Follow the Fortunes.”