Reinstatement Clause
The reinstatement clause governs whether, and on what terms, the coverage limit of a contract used up by a loss is restored for further events.
- Clause type
- Extension
- Origin/Market
- Reinsurance market
- Favours
- Insured
- Negotiability
- Negotiable
Purpose
The reinstatement clause governs whether, and on what terms, the coverage limit of a contract used up by a loss is restored for further events. Non-proportional contracts usually cover a limited number of full limits per contract year. After a loss, the clause restores the limit – against a reinstatement premium (pro rata to the exhausted cover and sometimes to the remaining term) or free of charge to an agreed extent.
Effect and limits
After a major event, reinstatement determines whether protection exists for the remainder of the term – a central point of renewal negotiations in active catastrophe seasons. Without remaining reinstatements, no further protection exists on that layer for the rest of the contract period.
Negotiation and practice
Number of reinstatements (for example “two at 100 percent additional premium each”), calculation basis (pro rata amount, pro rata temporis), automatic versus consent-based reinstatement, and aggregate limits for the total liability of the contract year are the key negotiation parameters. The interaction with the hours clause affects how quickly reinstatements are consumed.