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Chapter 7 Contract wordings 7/13

This provision must be specifically invoked in writing and, if so invoked, interest will accumulate until
payment of the original amount due plus interest is received by the innocent party (or the intermediary).
The clause should define the applicable rate of interest as, for example, the London Interbank Offered
Rate (LIBOR) plus 1% or the six-month US Treasury Bill rate, as quoted by a particular newspaper or
journal on a particular day, and set out how the interest is to be calculated.
The Enterprise Act 2016 implies a term into the Insurance Act 2015 which affects any (re)insurance Refer to chapter 8,
section D5 for more
contracts governed by the law in England and Wales entered into on or after 4 May 2017. The term states on this term
that if a (re)insured makes a claim under the contract, the (re)insurer must pay any sums due in respect
of the claim within a reasonable time. If breached, the (re)insured may seek contractual damages from
the (re)insurer.
It is yet to be seen what impact this new law will have on existing late payments clauses. It is likely that
the clauses will exclude the Act in whole or in part, expressly or impliedly.
B2C Loss reserves clause

This clause allows the reinsured to establish reserves for the reinsurer’s proportion of amounts
outstanding to the treaty. This clause is also known as a loss funding or an unauthorised reinsurance
clause.
In some countries, such a reserve is a legal requirement in circumstances where, for example, the
In some countries,
reinsurer is considered ‘unauthorised’ or ‘unlicensed’ and does not qualify for credit with the regulatory reserve is a legal
authority having jurisdiction over the reinsured and its reserves. In other words, potential reinsurance requirement
recoveries from certain reinsurers are not deductible in reporting for regulatory purposes.

Form of reserve clause
By this clause, the reinsurer agrees to fund these reserves in one of three main forms:
• funds withheld;
• cash advances (also known as OCAs, that is, outstanding cash or claims advances); or
• letter of credit (LOC), provided the chosen method is acceptable to the particular regulatory authority.
While funds withheld and cash advances are self-explanatory, LOCs are not. Reference copy for CII Face to Face Training
An LOC is a document (or letter) issued by a mutually acceptable bank at the request (and expense) of
the reinsurer to the reinsured. It will be issued for a limited period and be for an amount equal to the
reinsurer’s proportion of the outstanding reserves to the treaty.

B3 Law and dispute resolution clauses Chapter

B3A Law and jurisdiction clauses 7
These clauses record the parties’ choice of law and tribunal for the reinsurance contract.
The first part of the clause identifies the (proper) law(s) which governs the reinsurance agreement. The
parties should take care in describing the governing legal system as there is, for example, no such thing
as UK law. The UK is a political entity that encompasses more than one body of law. Similarly, in a
federal country such as the USA, the reference should be to the law of the applicable state not the
country.
The second part of the clause identifies the courts having power and authority to administer justice
between the parties to the reinsurance agreement. A court has jurisdiction in a dispute if it has the
power to decide that dispute. Under an exclusive jurisdiction clause, the parties agree that no other
place than that stated shall determine disputes between the parties.

A typical wording is:
This Contract shall be governed by and construed in accordance with the Laws of England and Wales and
shall be subject to the exclusive jurisdiction of the English courts.

In the absence of express choice, it will be for any court to decide on the applicable law and jurisdiction.
Clearly, if the parties and the risk in question are located in the same country, choice of law and
jurisdiction are unlikely to be a concern to the parties. However, if they are not, it is important to have
considered, at the outset, the likely consequences of choosing one system of law and/or jurisdiction
over another.