7

Casualty Excess of Loss

by Richard M. Shaw*

     In this chapter the author discusses the characteristics, uses, issues, and considerations that relate to clauses applicable to casualty excess of loss reinsurance contracts. Among reinsurance contracts, the casualty excess contract is perhaps the most intriguing. Because of possible variations, virtually every significant issue that a reinsured company (henceforth in this chapter, "the company") and reinsurer face in the market must be addressed in drafting the contract. These issues include among others the definition of occurrence, trigger of coverage, adequacy of notice of loss, interlocking and event coverage, aggregate extension coverage and aggregate extraction, reinstatements and aggregate caps, and adjustable premium formulas.

     Despite many options in the design of casualty excess of loss reinsurance contracts, the options lead to three basic types:

1) Aggregate Casualty Excess of Loss. The reinsurer indemnifies the company for an aggregate amount of loss in excess of a specified retained aggregate amount of losses incurred by the company over a specified period of time (e.g., one year), up to a limit of a specified aggregate amount. These amounts of retention and limit may be described in the reinsurance contract in dollar amounts, in percentages, or as a combination of both.

2) Per Occurrence1 Casualty Excess of Loss. The

reinsurer indemnifies the company for the amount of all losses in excess of a specified retained aggregate amount of losses incurred by . . .


*Assistant Vice President and Associate General Counsel, Reliance Insurance Company, 4 Penn Center Plaza, Philadelphia, Pennsylvania 19103. The author extends his sincere appreciation to Robert M. Mangino, Senior Vice President and Corporate Secretary, Swiss Re America Corporation, Robert E. Evans, Jr., Senior Vice President and General Manager, Allmerica Re, Paul B. Ingrey, President of F&G Re, Inc., and the senior management staff of Reliance Reinsurance Corp., for their valuable assistance in the preparation of this chapter. The reader is cautioned that the sample clauses illustrated are representative of those used by the author and others in drafting reinsurance contracts tailored to specific reinsurance programs. The clauses may differ from clauses found in similar contracts drafted by others. An autobiography of the author appears at the end of the chapter.

1 Not all reinsurance contracts, retentions, or limits are based on an occurrence. However, because the use of occurrence is so prevalent in reinsurance contracts, the term will be used throughout this chapter. The reader is cautioned that other terms are used in some reinsurance contracts.

[Home Page] [The Editor] [The Books] [The Book Flyer] [The Order Form]