Handled properly, commutation can free both cedant and reinsurer from the uncertainty that so often creeps into legacy business. Intelligent Insurer investigates.
The obligation to pay out on reinsurance can exist for decades after the initial agreement was made, and may even outlast the lifespan of the reinsurance company. Commutation, whereby cedant and reinsurer formally end their contract by agreeing on a lump sum to be paid to the cedant to cover any future claims, is often the most attractive solution for both parties.
Commutations first caught on in the 1990s when several large reinsurers went into run-off or insolvency. Since then, commutation has become an attractive prospect for live companies wanting to protect their reinsurance assets, control their exposures or reduce their running costs. Even the biggest reinsurers, such as Munich Re and Swiss Re, have embraced the solution.
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Commutation, Cedants, R&Q Insurance Investments, Jim Moran, R&Q Commutations, Daniel Maranger, Kiran Soar, Ince & Co