5. Reinsurance Flashcards
How is reinsurance usually placed
As in insurance market - subscription + towers
What is surplus line proportional reinsurance
Cedant retains X line and the reinsurer the match that line
When is commission paid by reinsurer to reinsured
Quota share proportional - as acting like broker
What is insured called in retrocession C
Retrocedant
What market practice argument can be made for claims control clause
If not labelled to be CP, it is market practice for it to be, so if both parties are sophisticated insurers, both would have known = CP
Ratio from Wasa International
Couldn’t give PP different definition under English law - parties didn’t intend for policy to respond regardless of when damage occurred or period to which losses related
Why is facultative reinsurance rarely used
Administratively time-consuming and no certainty cover will be available
Two cases on incorporation of underlying terms of original policy
Butcher and Was a International
What case showed that labelling of clauses is not determinative
Eagle Star
What kind of payments does FtS clause usually exclude
Ex gratia payment
Two kinds of proportional reinsurance
Quota share and surplus
What does reinsurance help to do
Spread loss and utilise financial resources effectively
What is non-proportional reinsurance
Cedant decides how much of risk to cede and retain (NOT SHARED)
What was the outcome in ICA v SCOR
Only the first part of the clause was a CP, and had only breached the latter part, so still liable
Example of collateral terms not incorporated into reinsurance C
Arbitration of law/J clauses
What are the 3 things to comply w/ before reinsurer bound by settlement of cedant
If within terms of RI, if within terms of underlying C, and if settled in honest and business-like manner
Facts of Wasa International
‘Policy period’ had different meaning under Pennsylvanian (original C) and English (reinsurance C) law - former, only need some damage in PP to recover 100% remediation, but latter only liable for damage in PP
Two general types of reinsurance - how can it be split
Proportional or non-proportional
What is the point of a claims cooperation clause
Keep reinsurer informed - prompt notification + settlement dependent on reinsurer approval
What is XL reinsurance
Reinsurer indemnifies cedant for losses in excess of X figure for a single loss
Why are ex gratia payments usually excluded from FtS
No legal liability, so not business-like manner and not within terms of RI
Case on claims control takes precedence over FtS
Eagle Star
What is facultative reinsurance for
Specific risk underwritten, as a one-off
Ratio from Butcher
Intention for reinsurance to indemnify cedant for valid insurance liability, so same outcome should result for both parties
What is insurer called in retrocession C
Retrocessionaire
If FtS incorporates original terms of policy as well , where do you start
Consider Hill to see if settlement to be followed, and then see if any terms (not) incorporated and can be relied on to avoid liability (Butcher and Wasa)
What is clash cover
Protects cedant from paying out on multiple claims from same loss
What is quota share
% of policy ceded
What was the outcome in Eagle Star
Clause was claims control and CP to liability, and CP took precedence over FtS clause
What case gives the test for if reinsurer bound by settlement of cedant under FtS clause
Hill v Mercantile
Case on claims cooperation
ICA v SCOR
Facts of ICA v SCOR
CP to liability of notification + no settlement w/o approval
How does cedant decide how much reinsurance required if non-proportional
Determines ‘Probable Maximum Loss’
What is proportional reinsurance
Risk and premium shares between cedant and reinsurer
Eagle Star on FtS clauses
Any CP (even if not labelled as such) takes precedence over FtS clause
What does having reinsurance help insurer to do in terms of building business
Increase market share by expanding UW capacity, raise profile and therefore increase profit
Facts of Eagle Star
Claims control clause labelled as coop and not stated to be CP
What kind of payments are usually recoverable under FtS clause
W/o prejudice payments
What is a treaty reinsurance policy
Entered into annually, covering either all or part of business, and reinsurer automatically covers risks which meet criteria
What are the benefits of treaty reinsurance
Reduces admin and gives certainty
Example of wording used to incorporate terms of underlying CoI
‘Ts&Cs as original’
What is the main point of a claims co-op clause (other than keeping insurer informed)
Requiring insurer to approve settlements beforehand
Facts of Butcher
Original policy governed by Norwegian law, reinsurance by English. BoW clause under original, which meant could avoid policy under English law, but not under Norwegian as not causative of loss
is there still a material non-disclosure if due to failure of broker
Yes
If there is no FtS clause, what is the burden on the cedant
Has to prove legal liability under original policy and that reinsured has to indemnify under RI C
What happens if CP to liability not complied with
Avoids liability
What is the contract called if insurance on reinsurance
Retrocession
What is important to consider when choosing reinsurer
Rating
How does reinsurance help to utilise financial resources effectively
Avoids need to hold capital in reserves
What is the downside of fac/oblig
Leaves reinsurer vulnerable to cedant’s UW judgment, reflected in a higher premium
What is the burden on the cedant if there is an FtS clause
No need to prove liability
Three cases on FtS clauses
Eagle Star, ICA v SCOR and Hill v Mercantile
What case distinguished itself from Butcher
Wasa International
What is stop loss reinsurance
Triggered when cedant’s aggregate losses exceed X
What happens if losses over cover in XL reinsurance tower
Reinsured bears loss itself
For what two reasons is it unlikely reinsurer will contract out of IA
Administrative burden to comply w/ s.17 IA on transparency, and would be viewed unfavourably by cedant
What happens if bare condition not complied with
Damages for prejudice caused
Case applying to claims control clauses
Eagle Star
What case suggested that claims co-op takes precedence over FtS EVEN IF not CP
ICA v SCOR
What is a claims control clause
Reinsurer has right (not O) to manage the claim
What terms are not incorporated into reinsurance C from CoI
Those that don’t make sense, or if collateral
Hill v Mercantile key
3 FtS
What is fac/oblig reinsurance
Cedant chooses what to cede, and reinsurer has no choice but to accept
Case on claims co-operation clause takes precedence over FtS
ICA v SCOR
How do you work out aggregate losses for stop loss reinsurance
Bundling losses and defence costs together
What strong presumption is used for incorporating terms
Strong presumption of back to back cover under proportional facultative policy
What is reinsurance
Insurance on insurance
Is there a contractual relationship between direct insured and insurer?
No
What is the downside of treaty reinsurance
Reinsurer has no choice in accepting (reflected in higher premium)
What is the key idea from Butcher and Wasa International when using back to back policies
Will look to the intentions of the parties to determine what is incorporated
What happens if insurer has several different reinsurance programmes covering same loss - how to claim
Fac policy first, then specific class treaty, then general business treaty
When is XL reinsurance commonly used
For cat cover
How is XL reinsurance distinct from stop loss?
Former kicks in for single** loss, whereas latter kicks in for **aggregate losses
