Insurance Cutoff (Cutoff Cancellation)

Definition

The term insurance cutoff refers to a provision in a reinsurance contract that specifies the date after which the reinsurer is not liable for losses when the insured terminates the agreement.  The insurance cutoff date allows the insured to understand when the financial responsibilities of the reinsurer end.

Explanation

When one of the parties to a reinsurance agreement decides they would like to discontinue the arrangement, they will provide a provisional notice of cancellation to the counterparty to the agreement.  Also known as a cutoff cancellation, the insurance cutoff language in the contract will specify how much longer the reinsurer continues to have financial responsibilities to the insured.  This language becomes important when there is the potential for a claim related to personal injury, which can oftentimes occur well after a reinsurance contract expires.

A reinsurance contract oftentimes has what's referred to as a runoff provision, which is used to clarify each party's obligation after the contract expires.  While a contract may limit the reinsurer's runoff timeline to twelve months, they can also require the reinsurer to remain liable for losses for all in-force risks until the next anniversary date of the original contract.

Related Terms

custodial agreement, discretionary beneficiary, privity, continuous contract, estate, assignable contract, provisional notice of cancellation, bare trust, complex trust