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🔄 '''Outward reinsurance clause''' is a provision found in insurance [[Definition:Mergers and acquisitions (M&A) | M&A]] agreements — typically within the [[Definition:Share purchase agreement (SPA) | SPA]] or [[Definition:Business transfer agreement (BTA) | business transfer agreement]] — that governs how the target company's existing [[Definition:Reinsurance | outward reinsurance]] arrangements are treated upon completion of the transaction. Because reinsurance contracts are critical to an insurer's risk profile, [[Definition:Capital adequacy | capital adequacy]], and [[Definition:Solvency | solvency]] position, the clause addresses whether existing [[Definition:Treaty reinsurance | treaties]] and [[Definition:Facultative reinsurance | facultative]] placements will continue, be novated, or require renegotiation as a result of the [[Definition:Change of control provision | change of control]].

⚙️ Most outward reinsurance clauses require the seller to maintain the target's reinsurance program in its current form through closing, preventing cancellation or material amendment without buyer consent — an obligation closely tied to the [[Definition:Ordinary course covenant | ordinary course covenant]]. They also allocate responsibility for notifying [[Definition:Reinsurer | reinsurers]] of the ownership change and securing any required consents, since many reinsurance contracts contain change-of-control provisions that allow the reinsurer to cancel on notice if ownership shifts. The clause may further address the economic treatment of [[Definition:Reinsurance premium | reinsurance premiums]] and [[Definition:Reinsurance recoverable | recoverables]] as between buyer and seller — particularly important for pro-rata treaties where premiums and losses are shared. In markets where [[Definition:Lloyd's of London | Lloyd's]] [[Definition:Syndicate | syndicates]] cede significant premium through the Lloyd's reinsurance structure, or where Asian cedants rely heavily on international retrocession, these provisions can become highly detailed.

🛡️ Getting the outward reinsurance clause right is essential because the buyer inherits the target's net risk position — and if key reinsurance treaties lapse or are voided at closing, the buyer may find itself exposed to far more [[Definition:Gross written premium (GWP) | gross]] risk than it priced into the deal. Disputes over reinsurance continuity have, in past transactions, led to significant post-closing [[Definition:Indemnity | indemnity]] claims and even regulatory intervention when the resulting net exposure threatened the target's compliance with [[Definition:Solvency II | Solvency II]], [[Definition:Risk-based capital (RBC) | RBC]], or equivalent capital frameworks. A well-structured clause therefore specifies clear timelines for reinsurer notification, allocates the cost of any replacement coverage, and includes [[Definition:Warranty | warranties]] confirming that no reinsurance contracts have been placed on non-standard terms that would impair transferability.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Reinsurance]]
* [[Definition:Treaty reinsurance]]
* [[Definition:Change of control provision]]
* [[Definition:Ordinary course covenant]]
* [[Definition:Reinsurance recoverable]]
* [[Definition:Share purchase agreement (SPA)]]
{{Div col end}}

Definition:Outward reinsurance clause - Revision history

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