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11/30 M97/February 2018 Reinsurance

J4A Extent of cover

Commercial guarantees are
Types of policy designed to provide an employer
with an indemnity against loss of
Fidelity guarantee policies money or stock as a result
covering named employees or of an employee’s default.
a specified position.
A blanket policy goes further and
provides protection against the
dishonesty of staff generally.
Comprehensive and electronic
crime bonds.

J4B Exclusions

Typical exclusions in this line of business would be:
• losses caused by a person who is known to have committed dishonest and fraudulent acts;
• losses generally covered by other forms of insurance;
• losses resulting from bodily injury;
• indirect losses, e.g. loss of interest, losses due to business interruption;
• negligence, stocktaking or inventory losses;
• bankers’ blanket bonds;
• unauthorised trading and money laundering risks;
• liability risks;
• espionage, blackmailing, extortion, libel and similar risks; and
• other bonds and guarantees of any kind.
J4C Underwriting considerations Reference copy for CII Face to Face Training

Where reinsurers are providing proportional coverage for this class it is especially important that they
have confidence in the reinsured’s ability to carry out appropriate underwriting checks since they are
effectively following the reinsured’s fortunes. Other considerations include:
• The need to obtain comprehensive information about the original insured and a full claims experience.
• A detailed description of the reinsured’s activities including accounting, security and supervisory
mechanisms in place to discourage, prevent and detect dishonest activity.
• Cover limits applicable to each employee or position.
• A full description of exactly what risks it is that the insured wants to cover.

J4D Types of reinsurance purchased
Facultative insurance is often used because fidelity guarantee is not a volume line of business and so it
fidelity guarantee is
not a volume line of allows the reinsurer to judge individual risks carefully. However, some treaty reinsurance is acceptable
business provided there is a clear risk definition, as any one risk can mean:

• per employee/person;
• per event;
• per person and event;
• per year; or
• in the annual aggregate/per policy.
Surplus reinsurance treaties create some difficulties with regard to the administration of policies with
varying sums insured.
Example 11.12
A policy provides for three risk categories, namely delivery driver, cashier and accountant with respective sums
insured of £50,000, £150,000 and £250,000. While the net retention under the surplus treaty amounts to £50,000,
the highest sum insured of £250,000 is the basis for the allocation of the whole policy.
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Chapter