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Reinsurance Terminology
Explained: Bordereau and Other
Terms of Art
Reinsurance contracts are lled with exotic and, to the
uninitiated, mind-numbing words like "treaty," "facultative
certi cate," "cede," "bordereau," "follow-the-fortunes,"
"honorable engagement," "ultimate net loss," and more. Although
previous commentaries addressed some of these words, I
thought we should examine a few of these terms of art.

 Larry Schi er  March 2021

 Reinsurance

Terms of art are often used to set a particular industry or profession

apart from others by using jargon that has a "special" meaning only
understood by those working in that industry or profession. As
Professor Kingman Brewster Jr. said, "Incomprehensible jargon is the
hallmark of a profession."

Let's start with the basics. While many reinsurance contracts have the
words "contract" or "agreement" in their titles, many others use
words like "treaty" or "facultative certi cate." Moreover, reinsurance
contracts, regardless of how they are titled, are generally categorized
by people in the reinsurance industry as either treaties or facultative
certi cates. So, what is a treaty or a facultative certi cate?

What's in a Name?
A "treaty" is the name given to a reinsurance contract that covers a
portfolio of business. For example, if under a reinsurance contract, a
reinsurer is obligated to share in the premiums and losses of all the
insurance company's medical malpractice policies written in the
United States during the treaty period, that reinsurance agreement is
called a treaty. Why a reinsurance contract covering a portfolio of
business is called a treaty is a bit of a mystery lost in the annals of
time, but we know for sure that it is not an international agreement
between two sovereign states but a reinsurance agreement between
an insurance company and a reinsurance company covering a large
number of insurance policies that the insurance company intends to
write during the period.

If, however, the reinsurance contract only covers a speci c risk

insured by an insurance policy, for example, the property of the
Empire State Building in New York, the reinsurance agreement is
known as a "facultative certi cate" of reinsurance. A facultative
certi cate is better known as a "fac cert." According to the Guy
Carpenter & Co. LLC Glossary, the word "facultative" connotes that
both the primary insurer and the reinsurer usually have the faculty or
option of accepting or rejecting the individual submission (as
distinguished from the obligation to cede and accept, to which the
parties agree in most treaty reinsurance).

Next time you hear someone talk about a reinsurance treaty, you will
know it is a reinsurance contract covering a segment of the insurance
company's policies. And, if they ask about a fac cert, you will know it
is reinsurance of a speci c policy covering a speci c risk.

To Cede or Not To Cede

The word "cede" appears in various forms throughout the world of
reinsurance. First, the direct insurance company that purchases the
reinsurance from a reinsurance company is called the "cedent," the
"ceding insurer," or the "ceding company" (as well as the reinsured).
Next, the policies and risks underwritten by the direct insurance
company are "ceded" by the insurance ceding company to the
reinsurer and a "ceded" risk is called a "cession."

For example, if an insurance company writes homeowners insurance

and enters into a reinsurance contract on a proportional basis where
the reinsurer shares in 80 percent of the premiums and losses, the
ceding company cedes 80 percent of the premiums and losses on all
its homeowners insurance policies, and each policy that it writes is a
cession to the reinsurance contract.

And, just to make it more confusing, a reinsurer that cedes a portion

of its business to another reinsurer is called a "retrocedent" and the
assuming reinsurer is called the "retrocessionaire." Where does this
all come from?

The word "cede" comes from the Latin verb cēdere, which means go,
go away, withdraw, or yield. While in English, "cede" generally means
to give up, surrender, or transfer rights, in reinsurance, it means
transferring the risk from the insurance company to the reinsurance
company. The party that transfers the risk and cedes the underlying
insurance liability is the cedent (or retrocedent if a reinsurer is
assuming reinsurance risk).
In the United Kingdom, and sometimes in the United States and
elsewhere, cedent is often spelled "cedant." Many years ago, I did
some grammatical research and concluded that the word is correctly
spelled "cedent." But whether you use cedent or cedant, it means the
buyer of a reinsurance contract.

Bordereau De ned
As one delves into the more technical aspects of a reinsurance
contract, the term "bordereau" often comes up. The uninitiated may
immediately recoil from a word like bordereau, but those who have
been around the block know that a bordereau is just a list or report.
But is it just a list?

The venerable Robert W. Strain de ned bordereau as follows.

 Furnished periodically by the reinsured, a detailed
report of reinsurance premiums or reinsurance
losses. A premium bordereau contains a detailed list
of policies (or bonds) reinsured under a reinsurance
treaty during the reporting period, re ecting such
information as the name and address of the primary
insured, the amount and location of the risk, the
e ective and termination dates of the primary
insurance, the amount reinsured and the
reinsurance premium applicable thereto. A loss
bordereau contains a detailed list of claims and
claims expenses outstanding and paid by the
reinsured during the reporting period, re ecting the
amount of reinsurance indemnity applicable thereto.
Bordereau reporting is primarily applicable to pro
rata reinsurance arrangements and to a large extent
has been supplanted by summary reporting.1

The IRMI.com Glossary de nition of bordereau is "a report providing

premium or loss data with respect to identi ed speci c risks. This
report is periodically furnished to a reinsurer by the ceding insurers
or reinsurers." A single report or list is a bordereau. When describing
more than one bordereau, add an "x" after the "u" to make the term
plural: "bordereaux."

Why Bordereau?
The word "bordereau" derives from the middle French word
"bordrel" and from the old French word "bort," which means edge or
margin. Merriam-Webster Dictionary shows the rst known use around
1858, but A Treatise on the Law of Principal and Agent, Chie y with
Reference to Mercantile Transactions (Paley, William. 3rd ed. New York:
Banks, Gould, 1847) mentions bordereau in the context of a
statement or memorandum listing the details of negotiable
instruments. Earlier uses can also be found if you search the Internet
or hang out in dusty corners of business libraries. As with most terms
of art, "bordereau" was used instead of report or list by reinsurance
professionals and became common usage in the industry in the
1800s.

Interestingly, the errors and omissions clause found in many

reinsurance contracts was developed when all information received
by the reinsurer was presented on comprehensive bordereaux. The
clause ensured that coverage was provided even though an item was
inadvertently left o the bordereaux.2 See our Expert
Commentary, "When Errors Occur in a Reinsurance Relationship"
(December 2002).

Types of Bordereaux
The term bordereau is used to describe most lists or reports of
premium or losses required under the reinsurance contract from the
reinsured to the reinsurer. In the facultative context, where an
individual risk is reinsured, a bordereau is not necessary. The
premium report is the reinsurance premium paid for the facultative
certi cate for that individual risk. On the loss side, typically, there is
individual loss reporting. But, if a facultative certi cate generates
multiple losses emanating from an individual risk, monthly or
quarterly reports listing all claims and all payments on claims
attributable to that single risk may be deemed a bordereau.

In the treaty context, a premium bordereau is merely a detailed

report of the premiums ceded to the reinsurers from each of the
underlying policies subject to the proportional reinsurance treaty.
Typically, the premium bordereau will set out policy-level detail,
including the gross premium, the brokerage if any, and the ceded
premium, along with basic details for each policy ceded to the treaty.
The premium bordereau is also the initial method by which the
reinsurer nds out the exact details of the business being written by
the reinsured and assumed by the reinsurer.

Most reinsurance contracts will specify the reporting requirements

for the periodic premium bordereau. I am sure by now all reinsurers
have standardized the bordereau format and accept them
electronically either in a proprietary format based on the reinsurance
accounting system being used or in a common format like Excel.
Certain statistical organizations and industry compilers of
information in certain markets have standardized electronic
bordereau reporting. For those using blockchain technology for
reinsurance, the detailed information found on the bordereau will
now be one of the blocks on the chain.

The premium bordereau generally goes directly to the reinsurer's

accounting function so that the ceded premium can be booked.
Nevertheless, it is important for the reinsurer to examine the
premium bordereau for anomalies in either the premium volume or
the risk information being supplied. The premium bordereau also
serves as an important tool for the reinsurer when selecting certain
risks for audit if the reinsurer engages in periodic audits of the
business being ceded to the treaty.

A proportional treaty typically will have reporting requirements for

losses, and these often manifest as a loss or claims bordereau. The
reinsurance contract will set out the information requirements for
the loss bordereau. Generally, the loss bordereau will contain risk
details such as the insured's name, claimant's name, policy number,
claim number, e ective date, date of loss, loss reserve, expense
reserve, and any paid losses or expenses. The loss bordereau, like the
premium bordereau, is provided in electronic format and often in a
standardized design. On a quota share treaty, the loss bordereau is
often the only way the reinsurer will obtain information about the
losses being ceded to the treaty unless there are special reporting
requirements for certain risks or certain losses. Like the premium
bordereau, the loss bordereau will be the tool against which the
reinsurer will make selections when doing a claims audit.

Reinsurance Contract Requirements

Not every reinsurance contract requires premium bordereau
reporting. Very often, reporting clauses require summary accounting
information rather than the individual risk detail typically found in
bordereau reporting. For example, a reporting clause may provide
simply as follows.
 The Company shall render a monthly account within
__ days after the end of the period. This account shall
summarize premiums, return premiums, allowances
for commissions, losses paid, loss adjustment
expenses paid, and salvage recovered. The account
shall also re ect the balance due by either party.

These monthly or quarterly reports are merely account statements

summarizing the business under the treaty and do not provide
policy-level detail. Where the reinsurance contract does not prescribe
detailed bordereau reporting, the reinsurer must audit periodically to
test the business being ceded and to ensure compliance with the
terms of the reinsurance contract.

Where bordereau reporting is required, the reinsurance contract will

express the detailed information required. For example, here's the
following.
 The Company shall furnish the Reinsurer with the
following:

1. Bordereau within 30 days after the last day of each

month, payable within 60 days after the last day of
each month. The bordereau is to include the
following items:

A. Name of Insured
B. Policy Number
C. E ective/Expiration Dates
D. Type of Transaction (New, Renewal,
Endorsement, or Cancellation)
E. Policy Limit
F. Premium
G. Ceding Commission
H. Net Premium

Conclusion
Terms of art and industry jargon are o -putting to many. The
reinsurance industry is littered with these terms. Yet, words like
"treaty," "fac cert," "cede," and "bordereau," once their meaning is
known, are no longer mysterious and are easily understood and put
to common use.

1 Robert W. Strain, editor, Reinsurance Contract Wording, Athens, TX: Strain Pub,

1992.
2 Robert F. Salm, "Reinsurance Contract Wording," Reinsurance, Athens, TX: Strain

Pub, 1980.

Opinions expressed in Expert Commentary articles are those of the author and

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articles and other IRMI Online content do not purport to provide legal,

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