Cancellation — the termination of an insurance policy or bond, before its expiration, by
either the insured or the insurer. Insurance policy cancellation provisions
require insurers to notify insureds in advance (usually 30 days) of canceling a
policy and stipulate the manner in which any unearned premium will be returned.
As respects reinsurance, cancellation is used in the following contexts: (1)
Runoff basis means that the liability of the reinsurer under policies that
became effective under the treaty prior to the cancellation date of such treaty
shall continue until the expiration date of each policy. (2) Cutoff basis means
that the liability of the reinsurer under policies that became effective under
the treaty prior to the cancellation date of such treaty shall cease with
respect to losses resulting from accidents taking place on and after said
cancellation date. Usually the reinsurer will return to the company the
unearned premium portfolio, unless the treaty is written on an earned premium
basis.