Page 174 - M97TB9_2018-19_[low-res]_F2F_Neat2

7/12 M97/February 2018 Reinsurance

Special acceptance may require the approval of all reinsurers but, more usually, only the leader and will
be memorialised in an endorsement to the contract. Reinsurers may find that this clause deems
acceptance of the risk if they fail to respond to the request within a certain period. Usually, the clause
will provide that all previous special acceptances are carried forward automatically from predecessor
contracts (and their renewal), subject perhaps to no material change. If so, they are commonly listed in a
schedule to the renewal contract.

B2 Payment clauses
These clauses are concerned with the payment of monies between the parties, and may be divided into
three types.

Types of
payment clause

currency loss reserves
clauses clause

late payment
clause
We will review each of these in turn.

B2A Currency clauses
These clauses set out the relationship between the currency of the original premium and/or claim
transactions, and the corresponding reinsurance (premium and/or claim) transactions.

At its simplest, the contract may require all reinsurance transactions to be made in a single currency: Reference copy for CII Face to Face Training
All transactions hereunder shall be payable in United States Dollars. All amounts received by the reinsured
or their agents or representatives in currency other than United States Dollars shall be converted into
United States Dollars at the rate of exchange which such transactions have been entered in the reinsured’s
books. Claims payable in currencies other than United States Dollars shall be converted into United States
7 Dollars at the rate of exchange ruling in the reinsured’s books on the date of settlement by the reinsured.
Chapter Therefore, if the original claim is paid in sterling, the US dollar equivalent – to be paid by reinsurers –

will be calculated by reference to the rate of exchange used by the reinsured in its books on the date
that it paid the original claim. By contrast, the parties may agree to settle premiums and claims in the
original currencies.
In situations where claims payments may be required in a combination of currencies, the clause in a
non-proportional treaty should require the deductible and limit to be apportioned in the proportion that
the amount of each currency bears to the total amount of the reinsured’s loss. To complete the
calculation, it is necessary to reduce the separate currency amounts to a common currency and the
clause should stipulate the relationship (or rates of exchange) between the various currencies.

Question 7.2
If a reinsured paid US$1m and £100,000 in original indemnity and surveyor’s costs, respectively, what is payable by
a reinsurer under an excess of loss reinsurance contract with a deductible of $800,000 and in which the rate of
exchange for these purposes is £1 = $2?

B2B Late payments clause
This clause requires the defaulting (or debtor) party to pay interest on any amounts past due under the
contract. In casualty reinsurances, it is also known as a remittance clause.
Some contracts will deem amounts owed to the reinsured and not ‘in dispute’ as overdue if not paid
within a period of, for example, 45 days of the date of receipt of a satisfactory proof of loss or payment
demand, depending on the particular loss settlements clause. In this context, a loss is usually
considered ‘in dispute’ where there is a pending arbitration or litigation or where the loss has been
denied or coverage queried.