Issuance of wording for reinsurance advance/projected settlement payments

Background

Reinsurance Property Catastrophe contracts can allow for the provision of advance or projected settlements based on the Reinsureds ultimate exposure or anticipated payment patterns following a large catastrophic event.

To protect Reinsurers against the potential credit risk associated with payment of advance funds, a wording has been available since 2010 to support adjuster comments when agreeing this type of presentation. The LRCG has identified the need to update this document in response to an increase in advance settlement requests seen during the 2017 hurricane season and specifically the requirement for Reinsureds to provide pertinent levels of information to support their request.

Objectives

• Ensure an enhanced visibility to the broking community and that all MAs consistently use this wording.
• To increase the requirement on ceding companies to provide certain information (paid, outstanding & IBNR figures) to Reinsurers to substantiate these advanced payments.
• It is imperative that Lloyd’s MAs continue to support these requests to remain relevant in an ever increasing competitive industry. Any amendments should ensure there is a continued protection for Reinsurers over the potential credit risk providing the financial security in the event of a Reinsured becoming insolvent.

Completed Status

Both UK & US legal counsel have been engaged to develop the 2010 wording to ensure it is sufficient for current market requirements. A standard response for adjusters to use on ECF has also been created. Additionally, a set of formal guidelines have been drafted to assist the market when presented with this type of settlement request.

The proposed wording has been presented to the LRCG community and received their combined agreement.

This new wording and guidelines will be circulated to the LRCG and wider claims community for immediate use, to ensure a consistent approach throughout the market.