Aggregate Extension Clause
The aggregate extension clause allows several smaller individual losses arising from the same natural event to be aggregated for the purposes of a catastrophe excess of loss cover, instead of each falling below the retention individually.
- Clause type
- Extension
- Origin/Market
- Reinsurance market
- Favours
- Insured
- Negotiability
- Negotiable
Purpose
Cat XL treaties are designed for major events, yet many natural perils cause a large number of smaller losses that individually fall below the retention but are significant in aggregate. The aggregate extension clause extends the treaty so that such individual losses are combined into a single aggregated loss occurrence and applied jointly against the retention.
Effect and limits
Without the clause, the cedent would retain many small losses itself even though, cumulatively, they amount to a major loss economically. The clause works closely together with the definition of the loss occurrence (hours clause, loss occurrence definition) and is limited to the same trigger event within the same time period.
Negotiation and practice
Determining which losses still belong to “the same event” is the key point of dispute for large accumulation losses; clear alignment with the hours clause reduces room for interpretation. Cedents with a high frequency of smaller accumulation losses (hail, windstorm) benefit particularly from this extension.