C1        This Chapter addresses the allocation basis of a contract of reinsurance. Reinsurance is commonly underwritten on a “losses occurring” or “risks attaching” basis (Wasa International Ins Co Ltd v Lexington Ins Co [2009] UKHL 40 [41] citing Balfour v Beaumont [1984] 1 Lloyd’s Rep 272). The PRICL therefore provides for a default understanding of the notion of “losses occurring” (Article 4.2) and “risks attaching” (Article 4.3). The parties to a contract of reinsurance are nevertheless free to contractually modify or derogate from the default understanding. The terms and conditions of the contract will, as a matter of principle, take precedence over the default rules laid down in the PRICL (see Article 1.1.3).

C2        This Chapter is also applicable where the exact words “losses occurring” or “risks attaching” are not used, but a common intention of the parties to allocate losses according to a “losses occurring” or “risks attaching” basis – as it is provided for in and understood by the PRICL – is established by means of contract interpretation (for the applicable rules on contract interpretation, see Chapter 4 PICC).

C3        The parties to a contract governed by the PRICL may also agree on a different, less common allocation basis (e.g. “accounted for”, “losses discovered”). The PRICL defines neither of these allocation mechanisms. Therefore, the mode of operation of such allocation bases should be described comprehensively in the contract.