Follow the settlements, allocation and aggregation

The decision of Burton J in IRB Brasil Resseguros SA v CX Reinsurance Co Ltd [2010] EWHC 974 (Comm), an appeal from an arbitration award, raised a series of key questions of reinsurance law: what is the meaning of a qualified ’follow the settlements clause’, how are losses arising over a period of years to be allocated as between those years, and what was the meaning of ‘event’ in the ultimate net loss clause of an excess of loss reinsurance agreement.

IRB Brasil: the contracts

The claimant reinsurers were participants in an excess of loss reinsurance programme which protected the reinsured’s worldwide casualty book of business for the period 1976 to 1983. There were 25 relevant reinsurance contracts. The reinsurance contained a qualified ‘follow the settlements’ clause: