6 February 2024 2 min read

🤝 Contractual clauses : common mistakes in reinsurance treaties

Reinsurance Tutorials #11 - Season 3

Hi everybody 👋


Today, and for the eleventh Reinsurance Tutorials video of the season, we will talk about "Contractual clauses : common mistakes in reinsurance treaties"


This subject will be addressed by CCR Re experts Madeline Jauvat and Perrine Carolo.


Let’s start! 


[Perrine Carolo] : Hello I am Perrine Carolo, Underwriter & Actuary - Life & Health in France and Europe at CCR Re. And today, I am with Madeline.


[Madeline Jauvat] :
Hello I am Madeline Jauvat, Reinsurance Legal Advisor at CCR Re. And we are together today to talk about the contractual clauses, the common mistakes one can make in reinsurance treaties.



[Perrine] : As an introduction, quick reminder:

  • Reinsurance treaties are more and more codified with an increase in the number of clauses, and a distinction between general and special conditions. The legal certainty is developing, with a strong legal input in order to frame the contractual relationship.
  • In terms of clauses, a distinction has to be made between contractual clauses and compliance, even if compliance is also part of the contracts. These two kinds of clauses complement each other. On the one hand contractual clauses are more about the contract scope. On the other hand, compliance will provide legal requirements such as “LAB-FT” (anti money laundering) and “SI” (international sanctions).


Let’s take a look at the common misconceptions we can find in clauses.



[Madeline] : Let's see the sanctions

Let’s start with Sanction clauses, which have become more and more standardised on the LMA3100 model. The aim is to ensure that reinsurers comply with international sanction regulations. Cedant companies can’t require them to make settlements in violation of the reinsurer’s applicable regulations. Insured people under sanction cannot benefit from reinsurer’s guarantee.

That concept of compliance with international sanctions should not be confused with contractual sanctions which can apply in the event of a breach of obligations by a party under the treaty. In this scenario, where a party's breach causes damage to its co-contractor, the latter may benefit financial compensation.



[Perrine] : Let's see the contractual clauses now, and more specifically the distinction of periods

In contractual clauses, mistakes can be made between the different periods mentioned in the contract. First, let’s define the validity period of the contract : the reinsurance contract is taken for a reference period, usually from January 1st to December 31st. This is mainly the case in France and Europe, whereas the Middle East, Asia and Latin America have more quarterly renewals.

It is different from the risk coverage period, which the treaty also has to define. The validity period usually matches the risk coverage period of the reinsured insurance contract. The most common case is “loss occurring”, which means the claim will be compensated if it happens during the validity period of the reinsurance contract.

Otherwise, the treaty will be in “risk attaching”, which implies that the contract between the insured person and the insurer has to be underwritten during the validity period of the reinsurance contract (the claim can then occur after the end of the validity period of the reinsurance contract).



What about the arbitration vs applicable jurisdiction in contractual clauses?



[Madeline] : These two clauses are often cumulated, because of a misunderstanding of the articulation between the two conflict resolution’s methods.

  • Conflict can be resolved by a state jurisdiction (for example the French courts)
  • Conflict can also be resolved through arbitration, with the establishment of an arbitral tribunal. This is often the preferred option because of its many advantages: intervention of experts, fast procedure and confidentiality of the procedure. The cost may be higher than state courts because of the arbitrator’s compensation.


These methods are not compatible: the conflict is either solved by arbitration or judged by a state court. The only way to allow the coexistence of the two clauses is by defining a limited scope of application of the arbitration clause, stating for example that arbitral tribunal is only competent to judge a claim admissibility.


Anyway, the reinsurance treaty defines an applicable jurisdiction for the contract, and therefore a judicial system is inherently attached to it.



[Perrine] : Thank you for watching this video. Thanks Madeline!


[Madeline] : Thanks Perrine. Thank you all, and goodbye.




Bye for now 👋

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