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Contract Wordings (Chapter 7) Flashcards

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1
Q

What is the Market Reform Contract (MRC)?

A

a standardized document used in the London insurance market to streamline the placement of insurance and reinsurance contracts

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2
Q

Who adopts MRC in the contract process to reduce errors and improve efficiency?

A

brokers, underwriters, and insurers

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3
Q

What is known as ‘its written line’?

A

A reinsurers participation shown next to its stamp.

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4
Q

How are companies defined in law & why?

A

By its number Not name, the latter being
readily amended by resolution

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5
Q

What is the subject matter of reinsurance in a facultative placement?

A

It is the reinsured’s interest in a particular insurance contract.

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6
Q

What is the subject matter of reinsurance in a Treaty Reinsurance placement?

A

a particular account or book of
insurance business

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7
Q

What is known as the ‘Interest Clause’ in treaty reinsurance?

A

The business reinsured (or covered) clause that sets out what business the
reinsurance agreement covers

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8
Q

Are the limitations & obligations of the reinsured and reinsurer governed by the Insurance contract or reinsurance contract?

A

Reinsurance Contract

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9
Q

What is the most common form of Faculative non-proportional reinsurance?

A

Excess of loss reinsurance

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10
Q

When does an excess of loss non-proportional reinsurance policy kicks in?

A

Any loss exceeding the retention limit.

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11
Q

In what clause are the retained & limit of cover amounts detailed in?

A

The Ultimate Net Loss (UNL) clause.

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12
Q

What is the UNL?

A

Sum actually paid by the reinsured in settlement of a claim

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13
Q

What are the 2 basis of sharing claims costs and expenses between the reinsured and the reinsurer?

A

‘costs in addition’ or ‘costs
inclusive’

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14
Q

How does the ‘costs inclusive’ basis works between the 2 parties for claims costs and expenses?

A

Added to the indemnity claim for the purpose of applying the minit & deductible.

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15
Q

How does the ‘costs in addition’ basis works between the 2 parties for claims costs and expenses?

A

Pro-rated across each party’s share of the
indemnity claim, and paid in addition to the limit

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16
Q

What is the application of the Insurance Act 2015 towards non-payment of premium to reinsurers when there is a premium payment ‘warranty’ stating a particular date?

A

to exclude losses that occurred before the breach was remedied

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17
Q

What is the application of the Insurance Act 2015 towards non-payment of premium to reinsurers when there is a premium payment ‘condition’ stating a particular date?

A

provides cover up to the deadline date and for the policy’s subsequent
cancellation or termination

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18
Q

What is the outcome where an English court has jurisdiction over a dispute between the reinsured and
reinsurer and the dispute concerns a claim on the original insurance governed by a foreign
law in a foreign jurisdiction?

A

it would be the law of the foreign jurisdiction that would apply to
that ‘claim’

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19
Q

What is the outcome where the
reinsurance contract does not explicitly bind the reinsurers to the law governing the original
policy.

A

the reinsurance contract may not be held to follow the original settlement, where such
a settlement is, by English law, clearly outside the terms of the contract of reinsurance.

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20
Q

What is the special termination (or) cancellation clause?

A

It provides that one or both parties may terminate (cancel) the agreement immediately.

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21
Q

How is the special termination (or cancellation) clause invoked?

A

By written notice served onto the other party.

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22
Q

When is the special termination (or cancellation) clause invoked?

A

Due to significant change in character, commercial, political background of the other party.

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23
Q

What is the effect of termination in a non-proportional setup?

A

The liability of the reinsurer ceases outright apart from losses that occurred before termination.

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24
Q

What is the effect of termination in a proportional setup?

A

Terminated on a ‘Portfolio Transfer’ or ‘Run-Off’ basis.

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25
What happens when a proportional contract is terminated on a 'Portfolio Transfer' basis?
The outstanding liabilities (claims + return premiums) & run-off premiums are calculated & transferred over to the new year account.
26
What are return premiums?
Amount refunded to policy holder's due to cancellation, modifications, overpayment.
27
What happens when a proportional contract is terminated on a 'Run-Off' basis?
The reinsurer remains liable for all losses arising from policies until their natural expiration or cancellation.
28
What are run-off premiums?
premiums associated with policies that remain active even after an insurance company stops writing new business. (Eg. After merges or ceasing of operations)
29
What is the 'Special Acceptances Clause'?
It permits the reinsured to submit business not covered by the reinsurance contract to the reinsurer for special acceptance.
30
What is the effect to the reinsurer if they do not respond to the request made under the 'Special Acceptances Clause'?
It would imply that they are in acceptance of the business.
31
What are the 3 types of payment clauses?
Loss Reserves, Late Payment, Currency Clauses
32
What is the effect of the Currency Clause?
To set out the single currency that all transactions are to be made in.
33
What does the 'Late Payment' clause require from the defaulting (or debtor) party to pay?
Interests on any amounts past due under the contract.
34
What is known as the remittance clause under casualty reinsurances?
The late payment clause.
35
What does the Enterprise Act 2016 imply if a reinsured makes a claim under tie contract (Late Payment Clause)?
the (re)insurer must pay any sums due in respect of the claim within a reasonable time
36
What is the purpose of the "Loss Reserve Clause" under the reinsurance treaty?
It allows the reinsured to establish reserves for the reinsurer's proportion of amounts outstanding under the treaty.
37
What are the other names that the "Loss Reserve Clause" is known as?
a loss funding or an unauthorised reinsurance clause
38
What does the 'Law & Jurisdiction Clauses' put on record?
the parties’ choice of law and tribunal for the reinsurance contract.
39
The first part of the clause identifies the (proper) law(s) which governs the reinsurance agreement. (Which clause is this making reference with?)
Law and jurisdiction clauses
40
The second part of the clause identifies the courts that have the power and authority to administer justice between the parties to the reinsurance agreement. (Which clause is this making reference with?)
Law and jurisdiction clauses
41
What does the 'Dispute Resolution Clause' set out?
how the parties have agreed to go about resolving any disputes that arise between them under the reinsurance contract
42
What is does the 'Access to records clause' permits?
Reinsurers right to examine the reinsured's books/records pertaining to the reinsurance contract.
43
What does the 'Underwriting Policy Clause' invoke?
That the reinsured's seeks approval from the reinsurer for any drastic changes to the underwriting policy
44
Where are the following clauses found 'Extra contractual obligations (ECO) and excess of policy limits (XPL) clauses' ?
are typically found in wordings where the reinsured is domiciled in the USA
45
What is the ECO clause (Extra Contractual Obligations) purpose?
extends the scope of the treaty to damages arising from the reinsured’s bad faith or negligence in handling claims.
46
What is the ECO clause (Extra Contractual Obligations) purpose?
provides for reinsurance coverage in the event of payments owed by the original policyholder, typically to a third party under a liability cover, exceed original policy limits, but are of the kind and nature of the risk insured.
47
What is the purpose of the 'Insolvency clause'?
sets out the effect the reinsured’s insolvency will have on the reinsurance contract. Unless specified otherwise the reinsurer is bounded to settle its proportion of the loss despite if the reinsured is unable or has not settled any payments due to insolvemcy.
48
What are 'Boilerplate clauses'?
are standard clauses with little reinsurance content to them.
49
What is set out in the 'Cession Clause'?
sets out the nature and the main terms of the proportional reinsurance. It is also known as the ‘reinsurance clause’ or the ‘treaty detail’
50
What is the cession limit?
is the maximum monetary amount that may be ceded to the treaty in respect of each risk,
51
What is the cession retention?
The amount retained by the reinsured.
52
Commencement Clause. When does a cover under a reinsurance contract begin when cover is written in a 'Underwriting basis'?
Reinsurers agree to assume liability for claims on risks or original policies issued or renewed during the period of the reinsurance.
53
Commencement Clause. When does a cover under a reinsurance contract begin when cover is written in a 'Accounting Year basis'?
reinsurers agree to assume liability for claims occurring during the period of the reinsurance.
54
What are the 2 basis of termination for a reinsurance contract?
on a portfolio transfer or run-off basis.
55
What is the effect of cancellation on a portfolio transfer basis?
the outstanding liabilities (claims and return premiums) and run-off premiums are calculated and transferred over to the new year of account
56
What is the effect of cancellation on a 'run-off' basis?
the reinsurer remains liable for all losses arising from policies covered by the contract until their natural expiration or cancellation
57
What is the purpose of the 'Premium reserves (or deposits) clause?
This clause allows a reinsured to retain additional premium by requiring the reinsurer to deposit a fixed proportion of prior written premium. (To help cater for claims or cancellation/to increase liquidity)
58
What is the effect of the 'Loss participation clause'?
requires the reinsured to participate as co-reinsurer if a stated loss ratio is exceeded
59
What is the loss ratio formula?
calculated by dividing the Total Losses by the Earned Premium and multiply by 100 (expressed as a percentage)
60
What is the 'Total Losses' formula?
the losses paid in the current year plus the reserve for outstanding losses at the end of the current year.
61
What is the 'Earned Premium' formula?
the premium income of the current year plus the premium reserve from the preceding year less the premium reserve for the current year
62
What is the purpose of the 'Event limitation clause'?
To limit the amounts of claims recoverable under the treaty for a defined event.
63
What is the 'net retained lines clause'?
states that the contract applies only to the amount of loss retained by the reinsured for its own account after relevant deductions
64
Index clause
ndex insurance is an innovative type of insurance that pays out based on a predetermined index, such as rainfall levels, temperature, or crop yields, rather than assessing individual losses
65
Commutation clause
- Settles all claims under a reinsurance contract. - Reinsurer’s liabilities (past, present, and future) are extinguished. - In exchange for a single payment, the reinsured releases the reinsurer from all obligations.
66
Sunset Clause
requires the reinsured to notify claims within a certain period, beyond which the contract ceases to respond. In other words, the sun sets on claims not reported to reinsurers within, for example, five years of expiry of the reinsurance treaty.

Reinsurance (4 decks)

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