Interlocking Clause
For a single event straddling the boundary between two consecutive treaty years, the interlocking clause provides that only one retention and one limit apply to the entire event, instead of charging both years separately.
- Clause type
- Condition
- Origin/Market
- Reinsurance market
- Favours
- Insurer
- Negotiability
- Negotiable
Purpose
Natural events such as prolonged storm series or flooding can span the renewal date of a cat XL treaty. Without a specific rule, the cedent could split the event into two parts and apply a retention in each of the two treaty years. The interlocking clause prevents this by providing that a single retention and limit apply to one connected event, typically allocated to the earlier or larger affected treaty year.
Effect and limits
The clause protects the reinsurer against a double application of the retention for the same economic event but can disadvantage the cedent by making less total cover available than under separate treatment. It works closely together with the loss occurrence definition and the hours clause, which determine when a single event is deemed to exist in the first place.
Negotiation and practice
Negotiation focuses in particular on which treaty year the event is allocated to and whether a proportional split between years is possible. On renewals of cat XL programmes, consistent wording across consecutive treaty years should be ensured.