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time of recapture. Such a provision is intended to give
reinsurers the ability to recover their investments in the case
of early recaptures by a ceding company. Risk transfer is not
eliminated by a right of termination provision because losses
remain with the reinsurer if the ceding company does not
terminate the reinsurance.
It is common for a surplus relief reinsurance agreement to
terminate when it no longer provides surplus relief.
3. The 1988 and 1989 Retrocession Agreements
a. Overview
This litigation focuses on two retrocession agreements (the
Agreements) entered into between petitioner (as the
retrocessionaire) and an unrelated entity, Guardian (as the
reinsurer).8 The Agreements were mainly surplus relief
reinsurance agreements, and petitioner’s costs connected to the
Agreements were minimal. The form of the Agreements was (and
still is) common in the insurance industry.
Petitioner and Guardian agreed that the first agreement (the
1988 Agreement), executed on December 29, 1988, was effective
October 1, 1988. Petitioner and Guardian agreed that the second
agreement (the 1989 Agreement), executed on December 28, 1989,
was effective June 30, 1989. The effective date of the 1989
Agreement coincided with the last day of the second quarter in
which the 1988 Agreement was terminated, and it reflected the
efforts of petitioner and Guardian to continue their relationship
8 Guardian is a mutual company domiciled in New York.
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