Treaty reinsurance mechanism by which the reinsurer aligns with the exclusion conditions of the underlying direct policy, provided that policy complies with defined standards.
The Difference in Conditions (DiC), in the context of LMA cyber treaty reinsurance clauses (LMA 5630 and 5631), is a provision allowing the reinsurer to follow the war and cyber operation exclusion of the cedant's underlying direct policy, provided that policy contains an exclusion compliant with the definition of a Type 3 clause (under Lloyd's Y5381 classification). In the absence of such compliance, the reinsurer benefits from its own autonomous exclusion. This mechanism is distinct from the traditional follow-the-fortunes principle (automatic alignment with the direct loss): here, alignment only applies if the direct clause meets a predefined compliance standard. For the reinsurer, the DiC provides a double safeguard: the standalone exclusion applies by default, and Type 3 compliance of the underlying policy opens the possibility of closer alignment. For the cedant, this imposes underwriting discipline: any drift of its direct clause outside Type 3 removes the DiC benefit for the reinsurer, potentially altering the economic balance of the treaty.
A reinsurer covers a cyber quota-share treaty under LMA 5630. The cedant uses LMA 5567A (Type 3 compliant) in its direct policies. The reinsurer can follow the cedant's exclusion via the DiC provision. If the cedant migrates to a non-compliant variant (for example a type 4 with wider write-back), the DiC no longer applies, and the reinsurer falls back on its own LMA 5630 exclusion.
DiC, DIC, différence de conditions, clause d'alignement sur le sous-jacent