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7/4 M97/February 2018 Reinsurance

It is equally important for clarity as to the identity of reinsurers as legally there is a separate contract
Each contract is for
the particular between the reinsured(s) and each individual reinsurer. Each contract is for the particular reinsurer’s
reinsurer’s participating share only. In other words, the reinsurer does not agree to pay for defaulting co-reinsurers,
participating
share only and the wording should include a several liability clause (see section B5 – a reinsurer’s liability is
several not joint). In practice, the reinsured is defined in the risk details section, and subscribing
reinsurers are listed at the end of the security details section, of the MRC.
Subject matter of the reinsurance
What the parties have agreed to reinsure is the subject matter of the reinsurance, that is, the reinsured’s
interest in a particular insurance contract in the case of facultative reinsurance or, a particular account or
book of insurance business in the case of treaty reinsurance.
A facultative reinsurance wording should reference and incorporate the original insurance wording and,
Wording should
include a detailed in the absence of a copy of that wording, give a thorough and detailed description of all of its key
description of all key features (or reference the Unique Market Reference (UMR)). These key features include:
features

name of the
original insured
a list of any
additional or the original risk
unusual clauses

Key features
the standard
(or model) wording the original period
(if applicable) Reference copy for CII Face to Face Training

deductibles limits

7
Chapter In treaty reinsurance, the business reinsured (or covered) clause sets out what business the reinsurance

agreement covers. It is also known as the interest clause.
Typical descriptions include: ‘all business classified by the reinsured as professional liability business’
and ‘all fire and allied perils business…and any other classes written in the reinsured’s fire department’
and ‘all risks on interests of any description in their whole account (this whole account including hull,
cargo, liability, war (hull/cargo), energy (drilling rig))’.
Alternatively, the description may reference the reinsured’s ‘participation in’ a particular binder, contract
or programme. In the context of a motor account, the description may include liability of the reinsured as
‘Article 75 Insurer’ under the provisions of the domestic regulations of the Motor Insurers’ Bureau or
overseas equivalent.
The business description often ends with the phrase ‘or business which would otherwise have been
allocated to such accounts but for the fact that there is no separate allocation of premium’. So, for
example, exposures written as part of a package policy that would naturally fall within the account (and
therefore this reinsurance contract) but are, perhaps, incidental to the main purpose of the package
policy and not separately priced, are protected even though the reinsurance contract receives no
allocation of premium for that exposure.

By contrast, the clause may also extend coverage to include risks considered by the reinsured to be
incidental to the main business. In any event, ‘incidental’ is imprecise and to be avoided where
possible.
In the next section, we will look at facultative and treaty wordings in turn, answering the remaining
question for each form of reinsurance.