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12 12/6 M97/February 2018 Reinsurance
Chapter

Maximum gross and net lines being written should be provided and loss experience figures should cover
as long a period as possible.
The reinsurer will also be interested to know:

• if there are any known accumulations or values in any one area, as may be the case where a number of
craft are moored in a harbour; or
• whether there are any special conditions to be applied, such as claims to be admitted only if more
than one vessel is involved in any particular incident.

Question 12.3
Why would the reinsurer want to establish if building risks are to be included?

Total loss only (TLO) reinsurance is a highly effective method of covering a hull portfolio against large
Effective method of
covering a hull losses. In hull business, the surplus reinsurance of large losses affecting individual risks can present
portfolio against large underwriting problems in the determination of criteria for establishing and grading retentions.
losses
Furthermore, in the case of working excess of loss covers difficulties arise in calculating premiums
according to the burning cost method.
TLO reinsurance is effected either by the facultative coverage of individual risks or, more frequently, by
way of facultative obligatory covers. Here the direct insurer reinsures only the risk of a total loss, with the
parties agreeing on specific premium rates and maximum underwriting limits for the individual risk
group up to which the insurer may reinsure the TLO risk.
To avoid difficulties in determining the replacement value, the sum insured of a hull policy is always
regarded as an agreed value determined by the policyholder and the insurer. The standard TLO cover
contains a valuation clause which states that a constructive total loss may only be asserted if this cost
exceeds the full sum insured.

Be aware
This may force a ship-owner to have a ship repaired even though such a repair can be uneconomical. Under such
circumstances, insurers have agreed to a ‘compromised total loss’ where the ship-owner keeps the wreck but Reference copy for CII Face to Face Training
insurers pay out a smaller amount than obliged under the TLO policy.

Following this business practice in the direct insurance market, TLO reinsurance treaties frequently
provide cover not only for actual and constructive total losses but also for compromised total losses.

A2 Cargo

Cargo refers to goods and merchandise imported or exported from or to various parts of the world.
Insurable interest
exists on the part of Insurable interest exists on the part of both buyer and seller at some point during a voyage and, as a
both buyer and seller consequence, the terms of any contract may provide either for the buyer or seller to insure. Cargo is
at some point during
a voyage usually insured against all maritime and transit risks, including war perils. Freight can also be insured
because if cargo is lost or damaged someone will have to stand the loss of the cost of carriage.
Containerisation merits special consideration. This is because of aggregation of high limits on one
container ship or in any one container terminal ashore, together with the difficulty of establishing when
any damage occurred to the contents, which are probably not surveyed from the time of packaging to the
time of unloading at a destination.
Containerisation has, to an extent, eliminated or reduced the incidence of theft and pilferage claims.
However, several instances are recorded of whole containers being stolen, complete with contents, so
creating a very different loss pattern for the goods in question and a greater risk of a major claim than
was likely before.

A2A Extent of cover and exclusions
It is not only certain insured objects like living animals that are generally excluded from cargo treaties,
but also high value cargo and isolated warehouse and storage risks which have no direct relationship
with a marine risk. With regard to cargo and specie, the cover is subject to a condition known as the
Waterborne Agreement (that is, a marine market agreement whereby underwriters will only cover goods
against war risks while they are on the vessel subject to a time limit after arrival at the port of
destination).