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📋 '''Cut-through endorsement''' is a provision attached to a [[Definition:Reinsurance | reinsurance]] contract that gives the original [[Definition:Policyholder | policyholder]] — or a specified third party — a direct right to collect from the [[Definition:Reinsurer | reinsurer]] if the ceding [[Definition:Insurance carrier | insurer]] becomes insolvent or fails to pay a covered claim. Under standard reinsurance arrangements, only the [[Definition:Ceding company | ceding company]] has a contractual relationship with the reinsurer; the policyholder has no standing to pursue the reinsurer directly. A cut-through endorsement deliberately pierces that privity barrier, creating an enforceable obligation that runs straight from the reinsurer to the insured.

⚙️ The endorsement typically specifies the circumstances under which the reinsurer's obligation to pay the policyholder is triggered — most commonly the [[Definition:Insolvency | insolvency]], [[Definition:Liquidation | liquidation]], or receivership of the ceding insurer. When activated, the reinsurer pays the policyholder directly rather than channeling funds through the insolvent estate, effectively bypassing the [[Definition:Insurance guaranty association | guaranty association]] and creditor-priority processes that would otherwise govern distribution of the ceding company's assets. Because these endorsements alter the normal reinsurance credit hierarchy, they are subject to regulatory scrutiny; some U.S. state [[Definition:Insurance regulation | insurance regulators]] restrict or condition their use to ensure that other policyholders of the insolvent insurer are not disadvantaged.

🔒 For large commercial insureds, [[Definition:Captive insurance company | captive]] arrangements, and structured [[Definition:Program business | program business]], cut-through endorsements provide a critical layer of [[Definition:Counterparty risk | counterparty risk]] mitigation. A policyholder with significant [[Definition:Exposure | exposure]] — say, a multinational corporation purchasing high-limit [[Definition:Property insurance | property]] or [[Definition:Liability insurance | liability]] coverage — may insist on a cut-through endorsement when the fronting [[Definition:Fronting carrier | carrier]] is less financially robust than the reinsurer standing behind the program. Without it, the insured would be an unsecured creditor in a liquidation, competing with every other claimant for cents on the dollar. The endorsement therefore functions as a practical guarantee that the strongest balance sheet in the chain stands directly behind the promise to pay.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Reinsurance]]
* [[Definition:Fronting carrier]]
* [[Definition:Ceding company]]
* [[Definition:Insolvency]]
* [[Definition:Insurance guaranty association]]
* [[Definition:Counterparty risk]]
{{Div col end}}

Definition:Cut-through endorsement - Revision history

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