Offset / Set-off Clause
The offset clause allows the cedent and reinsurer to net mutual amounts owed under several contracts against each other instead of settling every payment individually.
- Clause type
- Condition
- Origin/Market
- Reinsurance market
- Favours
- Neutral
- Negotiability
- Negotiable
Purpose
Cedents and reinsurers frequently face each other across several contractual relationships at once – as cedent under one treaty and reinsurer under another, or across several underwriting years. The offset clause allows premiums, claims payments and commissions due under these relationships to be netted against each other, with only the balance transferred.
Effect and limits
Netting reduces administrative burden and settlement risk for smaller payment flows. It becomes critical in insolvency: many jurisdictions restrict or prohibit set-off against an insolvent party to protect equal treatment of creditors, so the clause can conflict with mandatory insolvency law and become partly unenforceable.
Negotiation and practice
A key negotiation point is whether only amounts under the same contract, or also amounts under different contracts and group companies, may be netted. Regulatory solvency reporting requirements can further constrain the use of offsetting.