What is treaty reinsurance?

Treaty reinsurance is automatic capacity for a defined class. The reinsurer agrees in advance to accept risks that meet the treaty. The cedent does not offer each policy for a separate yes. That sentence is the legal idea. The operations idea is harder: keep the wording, the bordereaux, the pricing inputs, and the accounts on the same year and the same definitions.

A treaty usually runs for a year of account and renews. It is a portfolio contract, not a pack per insured. Facultative — optional, risk by risk — is a different inbox. Mixing the two is how a facultative limit gets posted to a treaty year.

How it works

Three shapes do most of the work. Quota share is proportional: a fixed percentage of premium and of loss moves, usually against a ceding commission. Surplus is still proportional, but participation varies by risk size above a retention line. Excess of loss is non-proportional: the reinsurer responds when a loss, an event, or an aggregate exceeds an attachment, up to a limit.

Per-risk excess, catastrophe excess, and aggregate excess are different attachments and different event definitions. They are not interchangeable because a slide said XoL. The wording has to name the attachment, the limit, the reinstatement formula, the hours clause, the class, the territory, and the period. A broker summary of those terms is not the treaty.

Once the treaty is written, it becomes rows. Cedents send premium, claims, and commission bordereaux. Inbound work is map, validate against cited terms, exception, then book. Special acceptances are documents. A mailbox yes without a file is how you discover an extra occupancy at the loss.

Worked example

The wording is a 30 percent property quota share, class construction permitted, territory excluding a named flood zone, inception 1 January 2026. The inbound premium sheet lists ACME Construction Ltd, acme.example, policy ACME-PROP-2026, gross premium USD 180,000. Thirty percent of that premium is USD 54,000 if the row is in.

The schedule behind the policy still shows the fight this site uses everywhere. Slip-equivalent TIV on the placing file was USD 42,000,000. The location schedule totals USD 47,100,000 because a warehouse was added later. If that warehouse sits in the excluded zone, the ACME row is an exception, not 30 percent of a slightly larger total. If the warehouse is inside territory, the bordereau still has to use the share and the class in the wording, not the share in last year's spreadsheet header.

What goes wrong

The bordereau includes a class the treaty excludes and gets booked because the total looked close to last quarter. Ceding commission uses a rate from the placing email, not the clause. Profit commission uses a different earned premium basis than the contract. Currency is mixed without a rate as-at. Year of account follows the email date.

On excess of loss, attachment is paraphrased. Reinstatement becomes the word reinstatement instead of a formula. The hours clause is missing, so a weather event cannot be cut. Those are administration failures, not textbook failures.

Related reading

The topic hub is treaty reinsurance. Risk-by-risk placement is facultative reinsurance. The file side of automatic cessions is the bordereaux automation guide.