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Chapter 10 Property reinsurance 10/13

Therefore, the reinsured has cover to protect it above its retention or deductible up to a specified limit,
Reinsured has cover
or limits, where the cover is arranged in layers, should an event or catastrophe cause damage over a to protect it above its
widespread area resulting in losses to many small risks, the cumulative effect of which could be retention or
deductible up to a
financially severe for the reinsured. specified limit
Catastrophe treaties are intended to protect the reinsured against the risk of an accumulation of claims
arising out of a specific, unexpected, sudden and external happening which:
• can be located in time and place; and
• is the proximate cause of each and every loss giving rise to the claim under the treaty.

C3A How losses are defined
Sometimes it can be difficult to separate the circumstances which together constitute the catastrophe;
take damage by earthquake tremors, all following each other in a short space of time.
Consider this…
An important consideration is whether this chain of events represents one or more earthquakes.

To the ordinary person, they would probably all constitute the same seismic activity and therefore the
same earthquake. This is an important issue for the reinsured because if all the tremors are regarded as
separate earthquakes, the reinsured has to bear the deductible for each one and there may even be no
claim to the treaty. Obviously, this would not have been the intention when the cover was arranged.
To avoid disputes, reinsurers have introduced the hours clause. This recognises the difficulties in Refer to chapter 7,
section D4 for the
defining the damage arising out of perils of nature such as earthquake, and others such as riot or civil hours clause
commotion in the context of a specific event.
The clause serves to provide a definition of when the treaty covers all damage arising out of the same
insured event within a specified number of hours, although in reality there may be interludes when there
is no activity.

There is a variety of these ‘hours clauses’ in use: a specimen of one such clause is set out below for ease of Reference copy for CII Face to Face Training
reference:
The term ‘Loss Occurrence’ shall mean all individual losses arising out of and directly occasioned by one
catastrophe. However, the duration and extent of any ‘Loss Occurrence’ so defined shall be limited to:
A. 72 consecutive hours as regards a hurricane, typhoon, windstorm, rainstorm, hailstorm and/or
tornado
B. 72 consecutive hours as regards earthquake, seaquake, tidal wave and/or volcanic eruption
C. 72 consecutive hours and within the limits of one City, Town or Village as regards riots, civil
commotions and malicious damage
D. 72 consecutive hours as regards any ‘Loss Occurrence’ which includes individual loss or losses from
any of the perils mentioned in A, B and C above
E. 168 consecutive hours for any ‘Loss Occurrence’ of whatsoever nature which does not include
individual loss or losses from any of the perils mentioned in A, B and C above
and no individual loss from whatever insured peril which occurs outside these periods or areas, shall be
included in that ‘Loss Occurrence’.

The Reinsured may choose the date and time when any such period of consecutive hours commences and
if any catastrophe is of greater duration than the above periods, the Reinsured may divide that catastrophe
into two or more ‘Loss Occurrences’, provided no two periods overlap and provided no period commences
earlier than the date and time of the happening of the first recorded individual loss to the Reinsured in that
catastrophe.

The hours clause is also incorporated into property treaties where weather perils are insured, which can
affect property over hundreds of square miles and last several days, as in the case of flood, hurricanes, Chapter
tornadoes and cyclones. Here, the imposition of the clause will have the effect of limiting the reinsurer’s
liability for one weather condition. The commencement of the hours period is chosen by the reinsured, 10
but the operation of the clause cannot commence before the date and time of the first loss reported to
the reinsured.