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C8A Premium reserves (or deposits) clause
This clause allows a reinsured to retain additional premium by requiring the reinsurer to deposit a fixed
proportion of prior written premium.
The original purpose of the clause was to ensure that the reinsured suffered no financial impairment if,
Clause remains a
legal requirement in for example, all of the original business was cancelled and it needed to return the original premium, or it
some countries was necessary to make significant claim payments in a short period of time and reinsurers could or
would not, for whatever reason, meet their obligations in the required time frame. The clause remains a
legal requirement in some countries, including a number of states in the USA. Otherwise, many
reinsurers strongly resist its inclusion.
As an alternative method to a cash deposit, reinsurers may provide another form of collateral, for
example, an LOC or a pledge or deposit of securities.

C8B Loss reserves (or deposits) clause
This clause allows the reinsured to establish reserves for the reinsurer’s proportion of amounts
outstanding to the treaty.
In the event of cancellation of the treaty, the reinsurer may be required to pay the reinsured its
proportion of the outstanding losses (often 90%). In this situation, you would expect the agreement to
provide for the loss reserve to be adjusted periodically until all liability on the part of the reinsurer was
extinguished, or the parties otherwise agreed. The reinsurer should also receive interest on the monies
deposited with the reinsured.
Consider this…
Can you distinguish premium and loss portfolios from premium and loss reserves?

C9 Loss participation clause

This clause requires the reinsured to participate as co-reinsurer if a stated loss ratio is exceeded. Reference copy for CII Face to Face Training

For example:
In the event that the loss ratio for any contract period exceeds (%), the reinsured shall retain each
percentage increase in loss ratio up to a maximum of (%) loss ratio for the contract period applicable.
7 Large losses for the sake of this calculation shall be capped at (£).
Chapter Loss Ratio: Shall be calculated by dividing the Total Losses by the Earned Premium and expressed as a

percentage.
Total Losses: Shall mean the losses paid in the current year plus the reserve for outstanding losses at the
end of the current year.
Earned Premium: Shall mean the premium income of the current year plus the premium reserve from the
preceding year less the premium reserve for the current year.

The key elements of the clause are: (1) the definition and the amount of the loss ratio which, if exceeded,
triggers the reinsured’s co-reinsurance; and (2) the extent of that co-reinsurance.
In the example, the reinsured retains all of those claims which correspond to a particular range of loss
ratio. Alternatively, the parties may agree to share such claims at a fixed or variable rate, or for the
reinsured to retain all of those claims which exceed a particular loss ratio.

C10 Event limitation clause

Refer to section D4 This clause limits the amount of claims recoverable under the treaty for a defined event to a stated
for limits
monetary amount. Either as an alternative or in addition to the event limitation clause, an aggregate limit
may be imposed on cessions for risks exposed to particular perils in particular locations (for example,
earthquake risk in high risk zones).
Reinforce
Before you move on, ensure that you have a note of the clauses used in proportional wordings.