Assumption Endorsement

Assumption Endorsement states that , should the original insurer become insolvent, any claim covered by the reinsurance will be paid directly to the policyholder by the reinsurer, rather than through the traditional channels. This is not intended to increase the risk to the reinsurer but, rather, to expedite the claims process. Also called a "cut-through endorsement."

The assumption, or cut-through, endorsement derives its name from the fact that it "cuts through" the proverbial "red tape" so often associated with insurance claims, providing prompter, hassle-free payments of claims, at least in theory.

Reinsurance, also known as insurance for insurers or stop-loss insurance, is the practice of insurers transferring portions of risk portfolios to other parties by some form of agreement to reduce the likelihood of paying a large obligation resulting from an insurance claim. The party that diversifies its insurance portfolio is known as the ceding party. The party that accepts a portion of the potential obligation in exchange for a share of the insurance premium is known as the reinsurer.

Generally, the policyholder knows nothing about the reinsurance process or even whether part of all of the policy has been submitted to a reinsurance treaty. The policyholder's contract is with the insurance company that issued it.

However, in the rare cases where an insurer becomes insolvent, the reinsurer who bought part or all of the risk, is required to directly reimburse the policyholder. The various states also have reserve funds that would pay any claims and or reimburse premiums, but this can be a protracted process. 

This generally wouldn't be the case with an impaired insurer. An impaired insurer is an insurance company that is potentially unable to fulfill its policy obligations, and has been placed under rehabilitation or conservation. An impaired insurer is not insolvent, but does pose a potential threat to its policyholders. States consider impaired insurers a risk because they may be unable to fulfill obligations afforded to its citizens in the case of an emergency.

According to the National Association of Insurance Commissioners, state insurance law governs insurer insolvencies. This is contrary to insolvencies in most industries, which are subject to the federal Bankruptcy Code. The NAIC considers an insurer insolvent if a state insurance commissioner has taken legal action to place the insurer into liquidation, rehabilitation, or conservatorship. In most states, when an insurer is placed into receivership, the state commissioner of insurance is appointed its statutory receiver