Net Retained Lines Clause
The net retained lines clause requires the cedent to keep a specified share of every ceded risk for its own account, ensuring an alignment of interest with the reinsurer.
- Clause type
- Condition
- Origin/Market
- Reinsurance market
- Favours
- Insurer
- Negotiability
- Market standard
Purpose
If a primary insurer cedes a risk in full and retains no share itself, its incentive for careful underwriting and claims handling declines – the risk is then borne economically only by the reinsurer. The net retained lines clause therefore requires the cedent to keep a minimum share of every risk falling under the proportional treaty for its own account.
Effect and limits
If the cedent breaches the clause – for example by ceding the risk fully onward under further reinsurance arrangements – the reinsurer may refuse or reduce cover for the affected risk. The clause refers to net retention after taking other reinsurance arrangements into account, not to gross underwriting.
Negotiation and practice
The level of the required minimum retention and the treatment of exceptions (facultative cessions for large risks, intra-group reinsurance) are key negotiation points. For proportional treaties, the clause is a core element of the trust relationship between the parties.