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💰 '''Clawback''' is a contractual provision that allows one party to reclaim compensation, commissions, or profit-sharing payments previously distributed, typically triggered when subsequent performance fails to meet agreed-upon thresholds or when misconduct is discovered. In the insurance and [[Definition:Reinsurance | reinsurance]] industry, clawback mechanisms appear in contexts ranging from [[Definition:Managing general agent (MGA) | MGA]] [[Definition:Profit commission | profit commission]] agreements and [[Definition:Binding authority agreement | binding authority contracts]] to executive compensation plans and [[Definition:Insurance-linked securities (ILS) | ILS]] fund structures, serving as a retrospective alignment tool between risk and reward.

⚙️ The mechanics vary depending on the relationship and structure involved. In [[Definition:Delegated underwriting authority (DUA) | delegated authority]] arrangements, a [[Definition:Coverholder | coverholder]] might receive a provisional profit commission based on estimated [[Definition:Loss ratio (L/R) | loss ratio]] performance at a certain development point; if claims subsequently deteriorate beyond the contractually defined threshold, the [[Definition:Insurance carrier | carrier]] can invoke a clawback to recover part or all of the previously paid commission. In [[Definition:Catastrophe bond | catastrophe bond]] and ILS structures, [[Definition:ILS fund manager | fund managers]] may face clawback provisions that require the return of performance fees if portfolio losses exceed specified levels over a multi-year measurement period. Executive compensation clawbacks have also gained prominence following regulatory reforms in the United States under Dodd-Frank, in the European Union under [[Definition:Solvency II | Solvency II]] remuneration guidelines, and across Asian jurisdictions where supervisory authorities increasingly demand deferred and reversible pay structures for senior insurance executives.

⚖️ These provisions exist because insurance is an industry where the true cost of risk often reveals itself years after a transaction closes. A profitable-looking [[Definition:Underwriting year | underwriting year]] can turn sour as [[Definition:Long-tail | long-tail]] claims develop, and without clawback rights, intermediaries or managers would retain earnings that ultimately belonged to capital providers bearing the losses. From a governance perspective, clawbacks discourage excessive risk-taking and short-termism — key concerns for [[Definition:Prudential regulation | prudential regulators]] and [[Definition:Credit rating agency | rating agencies]] alike. They also play a practical role in maintaining trust between [[Definition:Lloyd's of London | Lloyd's]] syndicates and their [[Definition:Capital provider | capital providers]], between cedants and reinsurers in [[Definition:Quota share | quota share]] treaties, and between investors and fund managers in the ILS space.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Profit commission]]
* [[Definition:Delegated underwriting authority (DUA)]]
* [[Definition:Insurance-linked securities (ILS)]]
* [[Definition:Reserve development]]
* [[Definition:Executive compensation]]
* [[Definition:Binding authority agreement]]
{{Div col end}}

Definition:Clawback - Revision history

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