Legal Definitions - reinsurance treaty

A reinsurance treaty is a long-term contract between an insurer and a reinsurer that covers different types of risks, such as professional liability or property. The reinsurer agrees in advance to accept the transfer of covered risks from the insurer. Instead of receiving individual notices for each claim, the reinsurer receives periodic reports with basic information on the losses paid.

For example, an insurance company may have a reinsurance treaty with a reinsurer that covers all of their property insurance policies. If the insurance company experiences a large loss due to a hurricane, they can transfer a portion of that risk to the reinsurer through the treaty. The reinsurer will then pay a portion of the claim based on the terms of the treaty.

Another example could be a reinsurance treaty that covers all of an insurer's professional liability policies. If the insurer has multiple claims against them for malpractice, they can transfer some of that risk to the reinsurer through the treaty. The reinsurer will then pay a portion of the claims based on the terms of the treaty.