What Is a Commutation?
A commutation is a settlement agreement reached between a reinsured and a reinsurer by which the reinsurance obligation is terminated by an agreement by the reinsurer to pay funds at present value that are not yet due under the reinsurance agreement. Similar to a policy buy-back with an insured, a commutation allows the reinsured to receive cash now to invest for the payment of claims that will come due in the future. The reinsurer’s obligations for future payments are terminated and the reinsurance contract is finally terminated in its fullest sense.
We at Risk Exchange, act for insurers and reinsurers on portfolio transfers, transfers of renewal rights, run-off and restructuring solutions.
We also advise reinsurers and cedants in bespoke reinsurance transactions and complex commutations, often combined with regulatory advice for capital funding or asset transfer.