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Chapter 7 Contract wordings 7/21

If the business to be ceded includes longer term policies such as contractors’ all risks, the twelve-month
limitation on the original policy period would have to be extended to encompass, for example, 36
months plus twelve months maintenance period.
Accounts year basis
On this basis, reinsurers agree to assume liability for claims occurring during the period of the
Reinsurers assume
reinsurance, irrespective of the inception dates of the original policies giving rise to the claims. The date liability for claims
the loss occurs is the date of loss which must fall within the reinsurance policy (and original policy) occurring during
period of reinsurance
period.

This agreement shall take effect in respect of all losses occurring on or after the (date) under policies in
force, issued or renewed.

C3B Termination
As illustrated in section B1A, a proportional reinsurance treaty is typically a continuous contract without
Clause will state the
an automatic termination date. The parties, therefore, reserve the right to terminate (or cancel) the notice period
contract on written notice. The clause will state the notice period, the effective date for the cancellation
and confirm that cessions made during the notice period continue to bind the parties. This right is in
addition to any right of termination set out in the special termination clause.
Often the reinsurer and/or the reinsured will give notice of cancellation for the purpose of forcing a
review and renegotiation of one or more of the terms and conditions of the treaty. The reasons can
include:
• the treaty results are good and the reinsured wants to increase the ceding commission;
• the treaty results are poor and the reinsurer wants to reduce the ceding commission and/or impose
restrictions to the cover; or
• the reinsured wants to increase its retention because the premium income is increasing and the
results are good and, at the same time, may want to increase the amount of reinsurance capacity.
Of course, the purpose may be to cancel the treaty outright because, for example, the results are poor or
it no longer fits a party’s business objectives or requirements. Reference copy for CII Face to Face Training

A typical termination clause is as follows:
This Agreement may be terminated by either party giving notice of termination on the basis set out in the
Schedule (e.g. 3 months), such notice to expire on the date stated in the Schedule (e.g. any 31st
December). Notice of termination shall be given in writing which shall be deemed to include cable, telex, Chapter
facsimile or other means of instantaneous communication. In the event of either party giving notice of
termination in accordance with the provisions set out in the Schedule then such notice shall be 7
automatically deemed to have been given by both parties. During the period of notice the Reinsurer shall
continue to participate in all cessions covered by the terms of this Agreement.

Basis of termination
In this 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 See section C7 for
portfolio transfer
liabilities (claims and return premiums) and run-off premiums are calculated and transferred over to the clause
new year of account.
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.

Question 7.3
A proportional treaty on an ‘accounts year’ basis covers all losses on policies issued or renewed during a particular
year. True or false?