A termination provision in a reinsurance contract stipulating that the reinsurer shall remain liable for loss under each reinsured policy in force until its expiration date.

Those rights of the insured which, under the terms of the policy, automatically transfer to the insurer upon settlement of a loss. Salvage applies to any proceeds from the repaired, recovered, or scrapped property. Subrogation refers to the proceeds of negotiations or legal actions against negligent third parties and may apply to either property or casualty coverage.

The schedule within the Annual Statement that provides information on a company’s reinsurance transactions.

Reinsurance accepted by a second reinsurer in a Surplus Treaty. It is that amount which exceeds the total of the original insurer’s net retention and the full limit of the first surplus treaty.

A clause in U.S. reinsurance contracts, typically utilized for non-U.S. reinsurers, whereby the reinsurer agrees to submit to any court of competent jurisdiction in the United States, which provides a legal basis for the enforcement of arbitration awards. The clause names a U.S. agent to accept service of process on behalf of the reinsurer for purposes of the ceding company gaining U.S. jurisdiction against the reinsurer. It is not intended to supersede the contracting parties’ obligation to arbitrate disputes, but to provide a mechanism to enforce awards.

The reduction of the amount owed by one party to a second party under one agreement or transaction by crediting the first party with amount the second party owes the first party under other agreements or transactions for the purpose of determining the amount, if any, the first party owes to the second.
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See: Offset.

A clause in some reinsurance agreements providing that, should any part of the agreement be found illegal or otherwise unenforceable, the remainder of the agreement will continue in force while the illegal part will be severed from the agreement, or in some cases, modified to remove the illegality. Severability may apply to the entire agreement or be limited to a specific provision that may present enforceability issues. For example, in jurisdictions where punitive damages are uninsurable, a severability clause in an Extra Contractual Obligations provision (or as a separate clause) will preserve the overall enforceability of the provision, even though a portion of the ECO provision has been invalidated.

A special purpose vehicle designed to allow investors to assume the risk and share in the profits or losses on a group of insurance policies (a “book of business”) written by a particular insurer or assumed by a particular reinsurer (collectively “re/insurer”). A re/insurer will usually only cede the premiums associated with a book of business to such an entity if the investors place sufficient funds in the vehicle to ensure that it can meet claims if they arise. Typically, the liability of investors is limited to these funds. The vehicle is often formed as an independent company and to provide additional capacity to the re/insurer to write property catastrophe business or other short tail lines. The original capacity is usually provided through a quota share or similar type arrangement. The re/insurer normally charges a fee (ceding commission) for originating and managing the sidecar business and may sometimes also receive a profit commission if the book of business is profitable. Because the investors’ capital is usually intended to be invested in this vehicle for a short-term, the sidecar has a limited existence, often for only one year, after which investors may withdraw their investment. These structures have become quite prominent in the aftermath of Hurricane Katrina as a vehicle for re/insurers to add risk bearing capacity, and for investors to participate in the potential profits resulting from sharp price increases in re/insurance.