Cash call
A proportional treaty clause allowing the ceding company to demand immediate payment of the reinsurer's share of a large loss, without waiting for the quarterly account.
Under a proportional treaty, flows between ceding company and reinsurer are normally settled through a current account: each quarter, the cedant prepares a statement of ceded premiums, commissions and paid losses, and the balance is settled. This mechanism suits ordinary losses. It becomes untenable after a major loss: the cedant must pay its policyholders at once, while the reinsurer's share would reach it only at the next account, sometimes months later. The cash call clause fixes this lag. Above a threshold set in the treaty, the cedant may ask the reinsurer to pay its share of a loss immediately, on presentation of supporting documents, within a short deadline. The threshold is a negotiated parameter: too low, it burdens administration; too high, it leaves the cedant carrying the cash for mid-sized losses alone. The clause protects the cedant's liquidity, and how well it is honored is a concrete indicator of a reinsurer's quality: a reinsurer slow to meet cash calls after a catastrophe imposes on its cedant a liquidity risk that its rating did not show. That is why cedants track each panel reinsurer's payment times.
Textbook case: a 40 percent quota share treaty provides for a cash call above 2 million euros. A factory fire costs the cedant 12 million; it calls 4.8 million from its reinsurers, payable within fifteen days, instead of waiting for the next quarterly account.
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