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assumption of liability agreement

An assumption of liability agreement is a separate agreement between a company designated as the reinsurer and a policy-issuing company entered into for the benefit of an insured.

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It makes the reinsurer directly liable to the insured in the event of the insolvency of the issuing company. The reinsurer typically is a licensed company in the states where the insured requires coverage, thus giving insureds access to an insurer that is subject to state regulation. Another important provision specifies that the agreement takes precedence over any other reinsurance contracts or arrangements between the reinsurer and the primary insurer. These agreements are almost always made between affiliated insurers.