What does the Following of Fortunes clause stipulate?

The Following of Fortunes clause is a significant provision in reinsurance agreements that ensures the reinsurer is bound by the same terms and conditions as the reinsured party. When this clause is included, it means that the reinsurer agrees to follow the fortunes of the reinsured, accepting the same risks and covering the same losses as stated in the original insurance policy. This clause helps to create alignment between the interests of the reinsurer and the reinsured, as it ensures that the reinsurer is subject to the same outcomes—both good and bad—experienced by the reinsured.

This arrangement provides a measure of consistency and trust in the reinsurance relationship, allowing the reinsurer to support the reinsured’s claims without the need to renegotiate or change the fundamental terms established in the original policy. By committing to follow the fortunes of the reinsured, the reinsurer effectively invests in the overall risk profile previously agreed upon, which fosters a cooperative approach to claims management and risk sharing.