P21 Reinsurance Clauses

Front 1

US intermediary clause

Back 1

The clause specifies that reinsurance premium paid by a reinsured to a broker shall be deemed to be paid to a reinsurer. claim and refunds of premium made by a reinsurer to the reinsured’s broker shall not be deemed to have been paid to the reinsured,until received by the reinsured.

Front 2

Hours clause

Back 2

Defines the terms ‘event’ or ‘loss occurrence’ by reference to all losses arising from the same insured peril occurring within a specified number of consecutive hours Typically, to 72consecutive hours for windstorm, earthquake, 672 hours for volcanic event

Front 3

Freeze extension

Back 3

Gives the reinsured the option to aggregate all claims occurring in the UK during a period of 168 consecutive hours, which result from physical damage caused by the weight of snow and water damage from burst pipes and/or melted snow.

Front 4

Territorial scope clause

Back 4

Defines territorial scope of reinsurance contract e.g. location insured, territories in which policies were issued. Can be worldwide.

Front 5

Local jurisdiction clause

Back 5

Ensure that claims falling to the reinsurance cover shall be settled in accordance with the law of those countries specified in the territorial scope. The clause is commonly a condition of motor or liability treaties,

Front 6

Environmental contamination clauses

Back 6

LMC1 is intended to exclude liability for losses arising from gradual pollution from the reinsurance cover of public liability and general third party policies covering operations located in North America.LMC2 is intended to specifically exclude from reinsurance cover any liability for losses from pollution (both sudden and accidental and gradual) for operations located in the USA and Canada.

Front 7

LGT clauses

Back 7

These clauses limit the cover provided by a treaty in respect of North American exposures.LGT397 –excludes legal liability for claims arising out of operations in North America.

LGT398 –limits reinsurance cover to costs inclusive for claims occurring in the legal jurisdiction of the USA and Canada.

LGT399 –excludes punitive damages from recovery under the treaty.

LGT400 – where policy cover is on a claims made basis, reinsurance cover applies only where a retroactive date has been specified

Front 8

Extended claims reporting clause

Back 8

Longer version of the claims reporting and co-operation clauses. The clause may state that reporting must be immediate and is a condition precedent to the liability of the reinsurer.The reinsured must report to the reinsurer all claims that are valued at an amount, irrespective of liability, which exceeds a specified percentage of the retention e.g. 75%.The reinsured must report to the reinsurer bodily injury claims within specified high value categories e.g. multiple fatalities,brain injury, spine injury, severe burns.Claims that may involve annuity or periodical payments.

Front 9

Common account protection clause

Back 9

If the reinsurance is for common account protection, e.g. an excess of loss treaty that protects the reinsured and its quota share reinsurers, the clause should provide that the reinsurance also applies to the portion ceded to the quota share reinsurers.

Front 10

Cut through clause

Back 10

US law allows that, in the event of insolvency of an insurer, policyholders with claims not paid by the insurer prior to insolvency have a cut through right to reinsurers for their share of claims. The cut through clause provides for such a right to be a contractual obligation within the treaty wording.“Cut through” to reinsurers is not permitted in English law.

Front 11

Termination/special cancellation clause

Back 11

This clause allows the reinsurance agreement to be immediately terminated by either party. This can be due to a major alteration to the character of either party or to the commercial or political background against which the reinsurance agreement was concluded including solvency of reinsurer or reinsured.

Front 12

Insolvencyclause G86

Back 12

G86 is the standard insolvency clause wording. It states that, in the event of insolvency of the reinsured, the liability of the reinsurer shall be determined on the basis as if the reinsured had not gone into liquidation, subject to any rights of set-off. This means that the reinsured’s liquidator will receive the reinsurance recoveries and they will count as assets.

Front 13

Claims notification clause

Back 13

Usually states that written notice to be given to the reinsurer as soon as reasonably practicable of any claim made against the reinsured in respect of the reinsured business or of its being notified of any circumstances that could give rise to such a claim.The reinsured shall furnish the reinsurer with all information known to the reinsured and shall thereafter keep the reinsurer fully informed.

Front 14

Claims cooperation clause

Back 14

In addition to claims notification requirements states that it is the duty of the reinsured to co-operate with the reinsurer and any other person or persons designated by the reinsurer in the investigation, adjustment and settlement of notified claims.

Front 15

Claims control clause

Back 15

Conveys an express right upon the reinsurer to appoint adjusters and/or representatives to act on their behalf to control all investigations, adjustments and settlements in connection with any notified claims.

Front 16

Claims advice and settlement clause

Back 16

Sets out when reinsurer should be notified about large losses When reinsurer should settle claims That reinsurerswill bear a proportion of the loss expense incurred by the reinsured Reinsured to notify reinsurer of total losses Whether reinsurer is required to reinsure ex gratia payments

Front 17

Follow The Fortunes/Settlements

Back 17

A reinsurance clause requiring that reinsurers follow the loss settlements of their reinsureds.

Front 18

Commission Clause

Back 18

Sets out what % of reinsurance premium is to be retained by the original reinsured to reflect their acquisition/administration costs

Front 19

Loss Reserves Clause

Back 19

Allows the reinsured to establish reserves for the reinsurer’s proportion of amounts outstanding to the treaty.. Reinsurer may be required to pay 90% of outstandings to the reinsured in the event treaty is cancelled

Front 20

Portfolio Premium And Loss Transfer Clause

Back 20

Sets out that reinsurer shall assume liability for its share of all risks in force (premium portfolio) and all losses outstanding (loss portfolio assumption) with reinsured having option to withdraw premium portfolio and loss portfolio at expiry.

Front 21

Payment Of Claims Clause

Back 21

Sets out how claims are paid either individually as cash losses (payments above agreed limit) or part of periodic settling of accounts..

Front 22

Submission Of Accounts Accounting Clause

Back 22

Sets out accounting arrangements for documentation and payment between reinsured and reinsurer.

Front 23

Loss Participation Clause

Back 23

States that reinsured will participate by way of co-reinsurance in the loss if the treaty loss ratio exceeds loss ratio exceeds a stated ratio.

Front 24

Record Of Cessions Clause

Back 24

Reinsured required to make a record of all cessions including renewal and alterations in a bordereau form. The reinsurer invariablydoes not require the bordereau to be provided

Front 25

Profit Commission Clause

Back 25

States the additional commission due to the reinsured which is determined by the result of the treaty years.

Front 26

Errors & Omissions Clause

Back 26

To provide reinsurance cover for risks inadvertently omitted from the bordereau of cessions or where a cessions not undertaken correctly.

Front 27

Financial Downgrading Provision

Back 27

Gives right of cancellation to reinsured if reinsurer’s security ratingis downgraded.

Front 28

Underwriting Policy Clause

Back 28

States that reinsured will not change its underwriting policy after commencement of the reinsurance without prior approval of reinsurer.

Front 29

Cession Clause

Back 29

Sets out the nature and the main terms of the proportional reinsurance Sets out that is obligatory that the reinsured cede and the reinsurer accept the amount of the cession.

Front 30

Event Limitation Clause

Back 30

Limits the amounts recoverable for a defined event e.g. an earthquake to a specific amount.

Front 31

Premium Reserves Clause

Back 31

Allows a reinsured to retain additional premium by requiring the reinsurer to deposit a fixed proportion of premium. Legal requirement in some countries.

Front 32

Premium Clause

Back 32

States that cessions to treaty are subject to same conditions as original business and that reinsured will pay reinsurer its share of the original gross (or net) premiums

Front 33

Sunset clause

Back 33

Requires the reinsured to notify claims within a certain period beyond which the contract ceases to respond.

Front 34

ACOD/A ACOD/B ACOD C

Back 34

Occupational disease clauses stipulating what constitutes one event and what is the date of occurrence

Front 35

Net Retained Line Clause

Back 35

States that the reinsurance only applies to that proportion of any insurance which the reinsured has retained for its own account. i.e. net of any other reinsurance recoveries

Front 36

Extended Expiration Clause

Back 36

States that if reinsurance period expires whilst a loss occurrence is in progress all losses would be covered as if the expiry of the treaty period was at expiry of the loss period.

Front 37

Index or stability clause

Back 37

On Motor and liability excess of loss treaties. Purpose is to maintain relative values of the retention and cover prevailing at settlement of claim to those at commencement of treaty.

Front 38

Simultaneous payments clause

Back 38

Requires reinsurers to pay the reinsurance claim at the same time as the reinsured pays the claim. Reinsured usually agrees to give two weeks notice of payment.

Front 39

Loss corridor clause

Back 39

Sets out an additional amount to be retained by the reinsured usually on a working layer under a Casualty treaty.

Front 40

Change in law clause

Back 40

Protects reinsurers from a change of law. If the change is considered to significantly increase reinsurer’s liability, the parties agree to revise the terms and conditions.

Front 41

Reinstatement clause

Back 41

Sets out the number of times the limit under the reinsurance will automatically be reinstated after a loss

Front 42

Interlocking clause

Back 42

Distributes loss between involved years when on a risk attaching treaty an occurrence or event impacts risks which attach to two treaties.

Front 43

Salvage and subrogation clause

Back 43

Sets out how salvage and recoveries are distributed between reinsured and reinsurer.

Front 44

Aggregate extension clause

Back 44

Allows reinsured to present as one loss separate or unrelated losses which it covered on an aggregate basis on original policy e.g. Products Liability,

Front 45

Ultimate Net Loss Clause

Back 45

Clause which defines what is meant by Loss on a non-proportional treaty wording e.g. includes loss adjusters fees but excludes claims handling costs of cedent's own staff.

Front 46

Currency Fluctuation Clause

Back 46

Clause which deals with how the policy deals with situations where the reinsured pays losses in currencies other than the reinsurance currency.

Front 47

Excess Limits Award

Back 47

Where a court sets aside a policy limit and awards claimants an amount in excess of the policy limit. This clause states that treaty will apply subject to treaty limits.

Front 48

Run off clause

Back 48

On losses occurring treaties. Requires the reinsurer to provide 12 months cover in respect of risks that are still in force at expiry of the current period of reinsurance.