Insurers have been using loss portfolio transfers
("LPTs") for decades for a host of reasons. An LPT
is a great way to move a legacy book of business off the balance
sheet. What is often forgotten
is the interplay between the LPT and existing reinsurance
contracts. This is especially so when the LPT is more
retrocessional than reinsurance.
Reinsurers and retrocessionaires are not always in the loop
while an LPT is being negotiated. When they learn about an LPT
(sometimes from a press release) they may not be thrilled.
The LPT may affect various contract provisions in existing
contracts. Some reinsurers and retrocessionaires may view an
LPT of an entire book of business as a "get out of jail free
card." The question is whether that is, in fact,
true. Of course, review of the relevant contracts and how
they work together is critical to any analysis of whether an LPT
changes anything about existing reinsurance or retrocessional
relationships.
