What treaty reinsurance is
Treaty reinsurance is an agreement under which the insurer cedes to the reinsurer not a single risk but a whole portfolio: all policies of a given class written during the treaty period that fall within its terms. The reinsurer does not review each risk individually; it accepts the portfolio as a whole, relying on the cedent's underwriting guidelines and past statistics.
In Russian practice such a contract is usually called "obligatory", from the Latin obligatio, "obligation". Strictly speaking, an obligatory treaty binds both parties; the differences from mixed forms are explained in the obligatory reinsurance section.
Treaty versus facultative
| Parameter | Treaty | Facultative |
|---|---|---|
| What is ceded | A portfolio of risks in a class | One risk or one policy |
| Decision on the risk | Automatic under treaty terms | Separately for each risk |
| Term | Usually one year, renewed annually | Term of the original policy |
| Workload | High at set-up, low per risk | High for every placement |
In practice the two forms complement each other: the treaty covers the regular flow of business, while facultative cover handles large and non-standard risks that do not fit the treaty.
Forms of treaty
- Obligatory. The cedent must cede, and the reinsurer must accept, every risk within the treaty.
- Facultative-obligatory. The cedent chooses which risks to cede, and the reinsurer must accept those offered.
- Obligatory-facultative. A rare reverse structure: the cedent must offer risks, and the reinsurer may decline.
Structure of a reinsurance program
Treaties can be proportional (quota share, surplus) or non-proportional (per risk or per event excess of loss, stop loss). An insurer usually combines several treaties into a program: a quota share eases the capital burden, while a per event excess of loss protects against catastrophes. The retention is set according to capital, risk appetite and the cost of reinsurance.
How a treaty is placed and renewed
- The cedent prepares information: a portfolio description, the distribution of risks by sum insured, several years of premium and loss statistics, and its underwriting guidelines.
- An intermediary or the cedent itself sends the offer to reinsurers; the lead sets the price and terms, and the others sign their shares.
- The treaty is usually concluded for a calendar year; during its term the cedent sends bordereaux or summary accounts of premiums and losses.
- Before renewal, the parties review the terms based on the results of the expiring period.
Practice in Russia
Reinsurance is governed by Article 967 of the Civil Code and Law No. 4015-1, while the Bank of Russia sets the rules for recognizing reinsurance in technical reserves and financial stability calculations. A key feature is the mandatory cession to JSC Russian National Reinsurance Company (RNRC), founded by the Bank of Russia: insurers must offer it a share of the risks they cede to reinsurance (50% of the ceded obligations as a general rule). As a result, RNRC usually participates in Russian insurers' obligatory programs as one of the reinsurers.
Since 2022, Western reinsurers have largely withdrawn from Russian treaties, and transactions with counterparties from unfriendly states are restricted. Programs are being restructured: RNRC and Russian reinsurers take more capacity, retentions grow, and some risks are placed with reinsurers from countries that have not joined the sanctions. The security and payment route of each participant are checked separately.
What matters in a treaty
- A clear scope: classes, territory, exclusions (war, terrorism, sanctions-related risks, cyber).
- The attachment basis: risks attaching during the period or losses occurring during the period.
- Claims notification and settlement clauses, settlement currency and dispute resolution.
- Early termination terms and what happens to the portfolio when a reinsurer exits.
How Polis Re helps
Polis Re specialists help insurers prepare portfolio information, select reinsurers and reinsurance intermediaries, compare terms and program structures, and support the placement and renewal of treaties. Definitions are in the insurance glossary. To discuss a program, submit a request.