Services Commutation / Collection Services

Commutations- Evaluation, Analysis, and Negotiation

Commutation is an established and effective method of discharging reinsurance obligations and executing finality on both assumed and ceded relationships. Ranging from the simplest treaties overburdened with administrative costs to the most complex treaties carrying substantial reserves, the commutation route brings positive and immediate benefits to each contracting party. On ceded reinsurance, effective collection through commutation will often minimize bad debt exposure.

The proliferation of reinsurance disputes in the recent past has demonstrated the high cost and inherent uncertainty associated with litigation and arbitration. Commutation was, and is, an alternative dispute resolution mechanism that continues to be attractive and relatively straightforward. Commercial settlement of liabilities, where each party is apprised of the full sets of facts underpinning the settlement, remains the preferred option.

The means to achieve commutation is, nevertheless, a professional exercise, calling into play a variety of specialist skills. Handled poorly, commutation can, of course, increase exposure rather than provide mitigation. In material cases, therefore, the absence of these skills can be crucial.

Chiltington has an unrivalled reputation for procuring commutations on assumed and ceded portfolios. Our knowledge and experience, particularly in the high hazard classes, and our multi-disciplinary skill base means that we can perform any and all of the required functions efficiently and effectively.

We achieve commutations by taking a pro-active approach. We believe that establishing the material facts surrounding the relationship(s) to be commuted is fundamental to achieving the best result.

On assumed business we therefore initially assemble the key contractual, representational, and statistical facts and reconcile amounts between the parties. The gathering of facts is secured through correspondence and meetings with the ceding company and may be complemented through inspection of records if this is the most expeditious method and amounts are substantial or where information is not forthcoming. Based on the facts established, a range for the negotiations is established with the client.

Dialogue with the cedent and face to face discussion then takes place, either with or without client representation, to negotiate the terms on which the commutation can be effected. All negotiations will be conducted on a without-prejudice basis to ensure that the client's position is protected and all rights are reserved, particularly in cases involving the resolution of disputes.

On ceded business we will again assemble facts, reconcile amounts, and seek to determine, in the first instance, why the reinsurer is not settling balances. An ability to evaluate the true solvency of a reinsurer (or its parent) may be part of that process. We are uniquely equipped to monitor such solvency through our international presence. Moreover, through the use of our consulting expertise, we are able to address and resolve any technical obstacle which is causing delay in payment or a failure by the reinsurer to recognize the full extent of its liabilities. Again, face to face discussion will typically take place on a without-prejudice basis to negotiate the commutation terms.

Where necessary, Chiltington will involve other professionals, such as actuaries to assist in the fact-building process. Overall, a unique skill which distinguishes Chiltington is our ability to build a consensus between the parties as to the key factual elements. This leads to a fair and equitable commutation price, acceptable to cedent and reinsurer alike.