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Chapter 7 Contract wordings 7/23

Accordingly, a following reinsurer even agrees to make ex gratia (as a favour) settlements, provided they
are agreed by the leading reinsurer. There is also a clear statement that reinsurers are to share in all
salvages and recoveries.

C6C Payment of claims clause
Typically, claims are paid (or remitted) either individually as cash losses or collectively as part of the Refer back to
section C4
periodic rendering and settlement of accounts: ‘in relation to the former, the parties will agree a cash
loss limit. When this limit is exceeded, the reinsured may request immediate payment, circumventing
the periodic settlement process’.

The purpose of such a provision is to avoid cash flow problems inherent in the settlement of large gross
Purpose of such a
losses out of the net retained funds of the reinsured. provision is to avoid
cash flow problems
C7 Portfolio transfer clause
This clause is concerned with the transfer of liability for pre-existing business, a portfolio, from one set
of reinsurers to another. You may see similar clauses entitled ‘portfolio acceptance and withdrawal’.

C7A Premium portfolio
The parties may agree that reinsurers assume liability (from prior year or outgoing reinsurers) for all
policies in force (that is, the premium portfolio) at a certain date. In return, the reinsured agrees to pay
reinsurers a sum of money known as an incoming premium portfolio (or similar). There is no contract
between incoming and outgoing reinsurers.
In this way, (incoming) reinsurers assume liability for the unexpired risk of cessions made in the Refer back to
chapter 4,
immediately preceding treaty year in return for the unearned premium reserve for those risks. A premium section B2
portfolio may also be withdrawn, typically at the reinsured’s option, as well as assumed. If withdrawn,
(outgoing) reinsurers agree to transfer the unexpired risk of cessions made in the current year, and pay
over the unearned premium reserve for those cessions.
C7B Loss portfolio Reference copy for CII Face to Face Training

The parties may agree that (incoming) reinsurers assume liability (from outgoing reinsurers) for all losses
outstanding (that is, the loss portfolio) at a certain date. In return, the reinsured agrees to pay reinsurers
a sum of money known as an incoming loss portfolio (or similar) that represents the reinsurer’s share of
the estimated outstanding losses at that date. Chapter
So, incoming reinsurers accept responsibility for claims outstanding to the prior treaty and receive the
outstanding loss reserve for those outstanding claims, although the reserve is often discounted (for 7
example, from 100% to 90%). Similarly, at the end of the treaty period, again typically at the reinsured’s
option, responsibility for the outstanding claims is transferred with the outstanding claims reserve. It is
usual to include a provision that, if a loss is settled for an amount materially different from its reserve,
the account (or transfer) can be reopened and an appropriate adjustment made.

C7C Portfolio transfer clause
The clause will specify whether there is a:

• premium portfolio assumption;
• premium portfolio withdrawal;
• loss portfolio assumption; and/or
• loss portfolio withdrawal.
It does not follow automatically that because there is a premium portfolio assumption, there is also a
Each element must be
withdrawal, and the same apples to claims. Similarly, it should not be assumed that because there is agreed between the
premium assumption (or withdrawal), there is automatically a claims assumption (or withdrawal). Each parties
element must be agreed between the parties as must the method of calculation for the premium
portfolio, for instance, on a twelfths or twenty-fourths basis.
Appendix 7.2, available on RevisionMate, contains a copy of the portfolio premium and loss transfer
clause (IUA 09-021 (P271)). This topic is discussed in detail in chapter 4.

C8 Premium and loss reserves (or deposits) clauses
The parties may agree to the retention by the reinsured of premium and/or loss reserves (or deposits).