What is 'Continuous Contract'

A continuous contract is a reinsurance contract that does not have a fixed contract end date, and which will continue to be renewed and be in effect until one of the parties in the contract terminates it. Continuous contracts are different from standard reinsurance contracts in that they do not provide coverage for only a fixed period of time.

BREAKING DOWN 'Continuous Contract'

When entering into a reinsurance contract, the parties involved may decide that they want a continuous contract in order to renew the policy indefinitely. The contract language will define the risks covered and will also indicate the procedures that either party can follow in order to provide a notice of termination. The notice could be a written notice provided one month before the contract is set to renew, or may follow whatever notice period to which both parties agree. The validity portion of the insurance contract may say, for example, that the contract is considered continuous unless both parties indicate that it is not to be considered as such.

Notice of termination must be given within the time set forth in the termination clause or the contract will continue for another term. Both reinsureds and reinsurers are often in a quandary over whether to provide notice of termination or to allow the contract to continue. For such cases, a practice has developed whereby one or both parties will send a provisional notice of cancellation (often called a "PNOC"). The provisional notice gives the parties a chance to assess the relationship, receive the annual update information for the treaty, and then decide whether they should continue the contract. If the decision is made to continue, the PNOC is withdrawn and the contract continues without interruption beyond the anniversary date.

Early Termination of Continuous Contracts

While a continuous contract may be renewed for an indefinite period of time, it will only remain in force for a specified contract period at any time. This means that both parties have the ability to end the contract while not breaking the terms of the agreement by ending the contract while it is still active. This type of contract is a fixed period contract, with a provision allowing for periodic renewal.

If the insurance contract is terminated earlier than what the two parties agreed, the insurer will still receive the premium that it is entitled to for the period of time that it has provided coverage. In most cases, the amount of premium earned is dependent on the amount of time for which the coverage has been provided, though in some cases, the two parties may have agreed to an alternative schedule not based on time.

  1. Provisional Notice Of Cancellation ...

    A provisional notice of cancellation is a notice that one party ...
  2. Contract Unit

    A Contract Unit is the actual amount of the underlying asset ...
  3. Futures Contract

    An agreement to buy or sell the underlying commodity or asset ...
  4. Breach of Contract

    A breach of contract is the violation of terms agreed upon by ...
  5. Forward Delivery

    Forward delivery is the final stage in a forward contract when ...
  6. Bilateral Contract

    A bilateral contract is a reciprocal arrangement between two ...
Related Articles
  1. Trading

    The Difference Between Forwards and Futures

    Both forward and futures contracts allow investors to buy or sell an asset at a specific time and price.
  2. Tech

    Are Smart Contracts the Best of Blockchain?

    Smart contracts may be one of the best innovations to accompany blockchain development.
  3. Retirement

    Converting An IRA Annuity To A Roth: Know The Rules

    We look at the past and current legislation that governs IRA annuity conversions.
  4. Retirement

    Should Your 401(k) Be in an Annuity?

    Housing your retirement plan inside a variable annuity contract offers some big advantages, but only if you are close to retirement.
  1. How are futures used to hedge a position?

    Futures contracts are one of the most common derivatives used to hedge risk. Learn how futures contracts can be used to limit ... Read Answer >>
  2. What is a forward contract against an export?

    Understand forward exchange contracts in exporting, and learn the purpose of using a forward contract and its advantages ... Read Answer >>
  3. How do futures contracts roll over?

    Learn about why futures contracts are often rolled over into forward month contracts prior to expiration, and understand ... Read Answer >>
  4. How can I calculate the notional value of a futures contract?

    Learn how the notional value of a futures contract is calculated, and how futures are different from stock since they have ... Read Answer >>
Trading Center