A hold harmless agreement or indemnity clause is a legal contract that outlines the responsibility of one party to shoulder the legal or financial burden of another party in case of a lawsuit or any other legal action. This type of agreement is common in various industries, including the insurance and reinsurance industry.

In reinsurance, a hold harmless agreement is often referred to as a reinsurance indemnity clause. It is a provision in a reinsurance contract that requires the reinsurer to indemnify the ceding insurer against losses that the ceding insurer may incur due to claims brought by policyholders. Essentially, the reinsurer agrees to cover any claims that may arise from the policies that they reinsure, thereby assuming the risk from the ceding insurer.

The reinsurance indemnity clause is an essential component of the reinsurance agreement, as it establishes the liability of the reinsurer. Without this clause, the ceding insurer would bear the entire risk of losses associated with the policies they issue. This would not only be financially burdensome but also limit the ceding insurer`s ability to underwrite more policies.

The reinsurance indemnity clause may also include a “follow the fortunes” provision. This provision obligates the reinsurer to follow any decision or settlement made by the ceding insurer when it comes to claims. This means that the reinsurer agrees to abide by the ceding insurer`s decisions, which are based on their experience with the policyholders.

The hold harmless agreement or reinsurance indemnity clause is crucial in the insurance and reinsurance industry because it helps to allocate risk between the parties involved. Without the agreement, there would be no clear liability, and the ceding insurer would be fully responsible for any claims, regardless of their cause.

In conclusion, the hold harmless agreement or reinsurance indemnity clause is a critical aspect of any reinsurance contract. It establishes the liability of the reinsurer and ensures that the ceding insurer can underwrite policies with confidence, knowing that they will not face significant financial losses due to legal claims by policyholders. As such, it is essential to understand the terms and conditions of the reinsurance agreement fully.