Page 342 - M97TB9_2018-19_[low-res]_F2F_Neat2

12 12/12 M97/February 2018 Reinsurance
Chapter A5 War

This term can cover any risk from full war coverage on hull or cargo to ‘peripheral’ war-related risks, such
as nationalisation, requisition, expropriation and deprivation. It also covers terrorist attacks on ships
and drilling rigs, not to mention riots affecting cargoes in warehouses.

A5A Extent of cover and exclusions
War risks are covered at special conditions but always in conjunction with, and in the same proportion
as, the ordinary maritime risks.

A5B Underwriting considerations
A way of reinsuring a war risk account is to cede to a proportional treaty and to buy excess of loss cover
to bring the net retained line to an acceptable and defined amount. When negotiating war risks
reinsurance on a marine account, detailed information is required about the content of the account,
since it may include a wide variety of risks not covered by any institute war clauses. Reinsurers may
reduce liability by placing limitations on the coverage provided by the insurer.

Be aware
The paramount war clause relates to cargo and determines that war risks cover is subject to terms and conditions
no wider than those of the relevant London Institute War Clauses, or that the reinsured shall follow the limitations of
the UK Waterborne Agreement. War risks cover can be cancelled at seven days’ notice on either side.

Accumulations
The marine market has the expertise and the capacity to write war risks and it is usual for marine
reinsurers to include political risks in their war account. Such risks can be difficult to define by the usual
expression ‘any one event’. In this instance, a reinsurer may consider some form of aggregate in respect
of losses within a defined country during the contract period.
Suitable types of reinsurance
The surest way for an insurer to reduce its war lines to an acceptable and definite net retained amount is
Reinsure on a Reference copy for CII Face to Face Training
proportional basis to reinsure on a proportional basis and protect the retained line or percentage by an aggregate excess
loss cover relating to all losses occurring during a year. This avoids the problem of defining an event but
can also mean a heavy increase in the outflow of war premium. This may be a tough choice for the
insurer to make, but can be preferable to relying on a market or legal decision regarding the final
definition of ‘war’ to avoid a substantial payment without the protection of reinsurance coverage.

B JELC Excess Loss Clauses

The London marine reinsurance market commonly contracts using the Joint Excess Loss Committee
(JELC) Excess Loss Clauses.
By way of introduction, the JELC is run by Lloyd’s and the International Underwriting Association (IUA),
The JELC is run by
Lloyd’s and the IUA and promotes standardised wordings and clauses for excess of loss reinsurance contracts. The current
version of the clauses is dated 1 November 2003 and comprises 16 clauses and an annex of ten
additional clauses. A copy is reproduced as appendix 7.1, which is available on RevisionMate.

B1 Excess loss clauses

Together these clauses form the basic wording, if required, and include:
• Reinsurance clause: a feature of this clause is the condition precedent to liability under the contract
that settlement by the reinsured is in accordance with the terms, conditions and exclusions of the
original policies (ex gratia payments are excluded).
• Event clause: loss or damage must arise from one event – the market reinsures, and allows
aggregation, on an ‘event’ rather than a ‘cause’ basis.
• Exclusion clauses: these exclusions include war, seepage and pollution, war risks and terrorism. The
seepage and pollution (or environmental contamination) clause excludes claims from seepage,
pollution and contamination, however it provides cover in certain circumstances (for example, a
sudden event). This engenders the obvious conclusion that claims from gradual pollution are
excluded. Cover is also available when within defined coverage types or liability regimes, or general
average.