Extended expiration clause
A clause in a catastrophe treaty that covers the whole of an event in progress at the expiry date, as if it had occurred entirely during the period, so that a hurricane straddling two treaties is not cut in two.
A per-event excess of loss treaty covers events occurring during its period, often a year ending on a renewal date. An event that begins before expiry and continues afterward poses an allocation problem: its losses would be split between two treaties, with two retentions, depriving the cedent of part of its protection although it suffered a single event. The extended expiration clause solves this by providing that if an event is in progress at expiry, the expiring treaty covers all of it, as if it had occurred entirely during its period, provided no loss from that event is claimed under the following treaty. It works together with the hours clause, which sets an event's maximum duration. Its importance depends on the calendar: the June 1 and July 1 renewals fall at the start of hurricane seasons, those of January 1 in the middle of the European winter storm season. A missing or badly drafted clause leaves the cedent exposed to a double retention precisely on events that straddle renewal dates.
Textbook case: a winter storm hits Europe from December 31 to January 2. The cedent's treaty, 50 million in excess of 10 million, expires at midnight on December 31. Thanks to the clause, the storm's 45 million of losses are attached to the expiring treaty and form a single 35 million claim, instead of two losses each subject to the 10 million retention.
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