Cash Call Clause
The cash call clause entitles the cedent to demand an immediate advance payment from the reinsurer for a large individual loss, instead of waiting for the regular periodic account.
- Clause type
- Claims provision
- Origin/Market
- Reinsurance market
- Favours
- Insured
- Negotiability
- Negotiable
Purpose
Reinsurance payments are normally made as part of periodic account settlements (quarterly or annual). For a very large individual loss, this delay could put significant strain on the cedent’s liquidity, particularly where it must itself pay the policyholder on short notice. The cash call clause allows the cedent, above a defined threshold, to demand an immediate individual payment outside the regular account.
Effect and limits
The reinsurer must pay within an agreed short deadline once the cedent has provided evidence of the loss amount and its due date. The clause is usually limited to losses above a minimum amount, so as not to unnecessarily increase administrative burden for smaller losses.
Negotiation and practice
The threshold, the payment deadline and the required evidence (loss notification, reserve estimate, proof of payment) are the main negotiation points. Where reinsurers provide security (trust accounts, letters of credit), the cash call clause is often combined with recourse to that security in the event of late payment.