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Chapter 7 Contract wordings 7/11

The following clause comes from a property catastrophe reinsurance contract:
The liability of the Reinsurer shall be limited to losses under policies covering property located within the
territorial limits of the United States of America, its territories or possessions, Puerto Rico, the District of
Columbia and Canada: but this limitation shall not apply to moveable property if the Reinsured’s policies
provide coverage when said moveable property is outside [those] limits.

A different approach is required for accident and liability reinsurances:
The contract shall be limited in scope to business underwritten in the United Kingdom and follow the
territorial scope specified in the Reinsured’s policies.

Alternatively, there may be no limit on the scope of the contract. The scope may be described as
There may be no limit
‘worldwide’ or be in respect of losses wherever they occur. In the light of the devastation caused by on the scope of the
hurricanes in recent years, it has become commonplace to see scope limited to ‘losses occurring in the contract
Gulf of Mexico’. Quite what is meant by the Gulf of Mexico should be defined precisely.

B1C Special termination (or cancellation) clause

This clause provides that one or both parties may terminate (or cancel) the agreement immediately by
serving written notice on the other if there is a significant change during the currency of the agreement in
the character of that other party, or in the commercial and/or political background, from that at
placement.

the introduction of law or
the insolvency of a party legislation restricting or prohibiting
the performance of the treaty

The termination Reference copy for CII Face to Face Training
events of a typical
clause include:

war or occupation of a country a material change in the
or territory where a party is ownership, management or Chapter
domiciled or has its head office control of the other party 7

In recent years, a reinsurer’s downgrading by a leading rating agency during the currency of the policy
has become another special termination event enabling a reinsured to terminate cover, which has been
incorporated into some treaties.

Activity
Check the ratings of the insurance or reinsurance entity you work for, or one with which your firm does business.

Effect of termination
In a non-proportional context, liability of the reinsurer ceases outright other than in respect of losses
which have occurred before termination. In a proportional context, a reinsurance contract may be
terminated on a portfolio transfer or run-off basis.
If the portfolio is transferred, which is usual for a continuous proportional contract, the outstanding Refer back to
chapter 4,
liabilities (claims and return premiums) and run-off premiums are calculated and transferred over to the section B2 for
new year of account. more details

If a run-off basis is elected, the reinsurer remains liable for all losses arising from policies covered by the
contract until their natural expiration or cancellation. The clause may also reserve the reinsurer the right
to take over the handling and settlement of losses.

B1D Special acceptances clause

This clause notes that a reinsured may submit business not covered by the reinsurance contract to the
reinsurer for special acceptance under the contract.