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35 COMMUTATIONS AND NEGOTIATED SETTLEMENTS

Reinsurance Practice and the Law

Chapter 35

COMMUTATIONS AND NEGOTIATED SETTLEMENTS

INTRODUCTION: TERMINOLOGY AND DEFINITIONS

Defining a commutation

35.1 The essence of a commutation agreement is that ordinarily, in exchange for a payment by the reinsurer to the reinsured, both parties are released from all future liabilities under the reinsurance contract. Importantly, a commutation agreement is a separate contract from the reinsurance contract. It is a separate contract which (a) kills the reinsurance contract and (b) creates a new liability. This has implications for outwards reinsurance or retrocession recoveries.

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