“This defines what a loss
is made up of for the purpose of
applying the treaty. Note that the
insurer must be liable under the
terms of the original policy. This
is to eliminate an “ex gratia “
payment – a settlement made for
commercial reasons by the
insurance company where there
is no coverage or only doubtful
coverage under the policy. For
example, such a payment might
be made to placate a very good
agent or insured. But that is a
business matter and not properly
the subject matter of nonproportional
reinsurance.”