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Reinsurance Terminology Bordereau and Other Terms
Reinsurance Terminology Bordereau and Other Terms
Reinsurance Terminology
Explained: Bordereau and Other
Terms of Art
Reinsurance contracts are lled with exotic and, to the
uninitiated, mind-numbing words like "treaty," "facultative
certi cate," "cede," "bordereau," "follow-the-fortunes,"
"honorable engagement," "ultimate net loss," and more. Although
previous commentaries addressed some of these words, I
thought we should examine a few of these terms of art.
Let's start with the basics. While many reinsurance contracts have the
words "contract" or "agreement" in their titles, many others use
words like "treaty" or "facultative certi cate." Moreover, reinsurance
contracts, regardless of how they are titled, are generally categorized
by people in the reinsurance industry as either treaties or facultative
certi cates. So, what is a treaty or a facultative certi cate?
What's in a Name?
A "treaty" is the name given to a reinsurance contract that covers a
portfolio of business. For example, if under a reinsurance contract, a
reinsurer is obligated to share in the premiums and losses of all the
insurance company's medical malpractice policies written in the
United States during the treaty period, that reinsurance agreement is
called a treaty. Why a reinsurance contract covering a portfolio of
business is called a treaty is a bit of a mystery lost in the annals of
time, but we know for sure that it is not an international agreement
between two sovereign states but a reinsurance agreement between
an insurance company and a reinsurance company covering a large
number of insurance policies that the insurance company intends to
write during the period.
Next time you hear someone talk about a reinsurance treaty, you will
know it is a reinsurance contract covering a segment of the insurance
company's policies. And, if they ask about a fac cert, you will know it
is reinsurance of a speci c policy covering a speci c risk.
The word "cede" comes from the Latin verb cēdere, which means go,
go away, withdraw, or yield. While in English, "cede" generally means
to give up, surrender, or transfer rights, in reinsurance, it means
transferring the risk from the insurance company to the reinsurance
company. The party that transfers the risk and cedes the underlying
insurance liability is the cedent (or retrocedent if a reinsurer is
assuming reinsurance risk).
In the United Kingdom, and sometimes in the United States and
elsewhere, cedent is often spelled "cedant." Many years ago, I did
some grammatical research and concluded that the word is correctly
spelled "cedent." But whether you use cedent or cedant, it means the
buyer of a reinsurance contract.
Bordereau De ned
As one delves into the more technical aspects of a reinsurance
contract, the term "bordereau" often comes up. The uninitiated may
immediately recoil from a word like bordereau, but those who have
been around the block know that a bordereau is just a list or report.
But is it just a list?
Why Bordereau?
The word "bordereau" derives from the middle French word
"bordrel" and from the old French word "bort," which means edge or
margin. Merriam-Webster Dictionary shows the rst known use around
1858, but A Treatise on the Law of Principal and Agent, Chie y with
Reference to Mercantile Transactions (Paley, William. 3rd ed. New York:
Banks, Gould, 1847) mentions bordereau in the context of a
statement or memorandum listing the details of negotiable
instruments. Earlier uses can also be found if you search the Internet
or hang out in dusty corners of business libraries. As with most terms
of art, "bordereau" was used instead of report or list by reinsurance
professionals and became common usage in the industry in the
1800s.
Types of Bordereaux
The term bordereau is used to describe most lists or reports of
premium or losses required under the reinsurance contract from the
reinsured to the reinsurer. In the facultative context, where an
individual risk is reinsured, a bordereau is not necessary. The
premium report is the reinsurance premium paid for the facultative
certi cate for that individual risk. On the loss side, typically, there is
individual loss reporting. But, if a facultative certi cate generates
multiple losses emanating from an individual risk, monthly or
quarterly reports listing all claims and all payments on claims
attributable to that single risk may be deemed a bordereau.
A. Name of Insured
B. Policy Number
C. E ective/Expiration Dates
D. Type of Transaction (New, Renewal,
Endorsement, or Cancellation)
E. Policy Limit
F. Premium
G. Ceding Commission
H. Net Premium
Conclusion
Terms of art and industry jargon are o -putting to many. The
reinsurance industry is littered with these terms. Yet, words like
"treaty," "fac cert," "cede," and "bordereau," once their meaning is
known, are no longer mysterious and are easily understood and put
to common use.
1992.
2 Robert F. Salm, "Reinsurance Contract Wording," Reinsurance, Athens, TX: Strain
Pub, 1980.
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