Page 164 - M97TB9_2018-19_[low-res]_F2F_Neat2

7/2 M97/February 2018 Reinsurance

Introduction

Reinsurance wordings are the signed agreements which evidence contracts (or policies) of reinsurance
between the parties. In this chapter, we will review the main elements of those wordings in current use
in the London Market after some general comments about wordings in that market. Other examples of
wordings are included in the relevant chapters as the clauses refer more specifically to the interests
arising from those lines of business.
Contract clarity
It is imperative that wordings are clear in expression, avoid ambiguity and reflect the intention of the
Imperative that
wordings are clear in parties. Some of the common problems that can arise in relation to the drafting of wordings are as
expression follows:

• An incomplete statement of the parties, for example, if an excess of loss reinsurance is also for the
benefit of quota share reinsurers of the reinsured, the contract should say so. The slip headlines a
clause (or attachment) but completely omits its wording, leaving the parties to decide, for example,
which of the many claims cooperation clauses prevalent in the market should be applied.
• The careless use of definitions and defined terms. This could, for example, be the failure to define
terms properly or to identify them, when appropriate, in the main body of the wording.
• Illegible annotations or attachments, for instance, in the latter case, poor photocopies of original
documents scheduling covered risks.
• Clauses added by ‘cutting and pasting’ from other documents that have not been properly integrated
into the new wording, adding meaningless words or phrases to the wording.
• The inclusion of incompatible or contradictory clauses, for example, a ‘follow the settlements’ clause
and a claims control clause (see chapter 8, section C4). Is the reinsurer’s approval required to settle
the original claim?
• Misstatements in relation to which terms and conditions apply to different sections of cover, for
example, the application of sublimits or deductibles may be unclear.
The London Market continues to address these (and related issues) by various means including, for
example, employing solicitors to draft (and validate or approve) wordings, using ‘base wordings’, Reference copy for CII Face to Face Training
meaning model or ‘as expiring’ wordings, whenever appropriate, continuing to develop standard
wordings and clauses through the work of its various market committees, and compiling wordings
databases (or repositories).

Reinforce
7 Before you move on, make sure you are aware of the common problems that can arise in relation to the drafting of
Chapter wordings.

Policy documentation
Wordings are used to prepare formal policy documents as evidence of cover. Alternatively, and
Wordings are used to
prepare formal policy increasingly following the introduction of the MRC standard, the parties agree that the MRC – with all its
documents as elements and where the terms, conditions and so on of the reinsurance are either set out in full in the
evidence of cover
risk details section, or referenced there and follow the stipulated MRC provisions – will constitute the
sole evidence of cover, and no additional formal policy documentation will be prepared for, and
produced to, the reinsured.
Signing
All wordings (and amendments) must be signed and dated by all of the parties to the contract. A
All wordings must be
signed and dated by reinsurer’s participation is shown next to its stamp, and is known as its written line. In certain
all parties circumstances (for example, where the total of the written lines exceeds 100%), this line will be adjusted
(or signed) and a schedule of all of the reinsurers’ participations attached to the wording.
If a formal policy is prepared, it will need to undergo a separate signing process. This is becoming rarer
in the London Market now that the MRC is commonly the sole contract document. Xchanging, the
business process provider, continues to provide this service on request.