Hours Clause
In catastrophe reinsurance treaties, the hours clause defines the time window within which individual losses from a natural event may be aggregated into a single loss occurrence.
- Clause type
- Definition
- Origin/Market
- Reinsurance market
- Favours
- Insurer
- Negotiability
- Negotiable
Purpose
In catastrophe reinsurance treaties, the hours clause defines the time window within which individual losses from a natural event may be aggregated into a single loss occurrence. Typical windows are 72 hours for windstorm, earthquake and terrorism, and 168 hours or more for flood and freeze. The cedent may choose the start of the window within the course of the event to optimise its recovery – for example in multi-day storm series.
Effect and limits
Whether a storm series counts as one event or several determines retentions, limits and reinstatements under the treaty – and therefore millions in recoveries. After major natural catastrophes, event definition is regularly at the core of coverage disputes; the clause structurally limits the reinsurer’s exposure.
Negotiation and practice
The window length per peril, the combinability of several perils (for example windstorm and flood) and geographic boundaries should be negotiated consistently with the portfolio’s exposure. The interaction with the reinstatement clause should be considered during contract drafting.