Intermediary Clause
The intermediary clause contractually designates the broker as payment agent between cedent and reinsurer, so that payments to the broker are treated as payment to the other party.
- Clause type
- Condition
- Origin/Market
- Reinsurance market
- Favours
- Insured
- Negotiability
- Market standard
Purpose
Reinsurance is placed in many markets through brokers who collect premiums from the cedent and pass them on to the reinsurer, and claims payments in the other direction. The intermediary clause determines who bears the risk if the broker becomes insolvent before forwarding the funds.
Effect and limits
Under the market-standard wording, payment to the broker is treated as payment to the reinsurer (for premiums) or to the cedent (for claims) – so the cedent does not bear the broker’s credit risk for premiums it has already paid. Without the clause, the reinsurer could still demand premium from the cedent after a broker’s insolvency, even where the cedent has already paid the broker.
Negotiation and practice
Reinsurers sometimes prefer alternatives such as trust accounts or netting arrangements to limit their own counterparty risk vis-à-vis the broker. The precise wording determines which party bears the intermediary’s credit risk.