Special Termination Clause
The special termination clause gives either or both parties the right to end the reinsurance treaty early upon defined trigger events such as a rating downgrade, change of control or solvency concerns.
- Clause type
- Termination
- Origin/Market
- Reinsurance market
- Favours
- Neutral
- Negotiability
- Negotiable
Purpose
Beyond ordinary termination at the end of the treaty year, situations arise where a party legitimately does not want to wait until the regular expiry – for example if the reinsurer loses its rating or falls into a critical solvency position, or if the cedent undergoes a change of control. The special termination clause lists such triggers exhaustively and allows immediate or short-notice termination.
Effect and limits
The clause operates only prospectively (terminating the not-yet-earned portion of cover); losses already incurred generally remain covered unless a run-off arrangement is agreed. The listed triggers are usually objectively verifiable (rating level, regulatory action, merger) to avoid disputes over the legitimacy of termination.
Negotiation and practice
Key negotiation points are the specific thresholds (for example a rating below a given level), the notice period following the trigger, and whether termination is accompanied by a portfolio transfer or a run-off of the risks in force.