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Chapter 1 Purpose of and the parties involved in reinsurance 1/15 Chapter

If a potential reinsured provides full information to a reinsurance broker and that reinsurance broker fails 1
to pass all material facts to the reinsurer, giving rise to a right to avoid the contract, the reinsured cannot
defend the action for avoidance by reference to the fact that it provided all information to the broker.
Instead, the contract will be avoided and the reinsured must look to its broker to recover damages for its
negligent act and omissions.
There are circumstances in which a reinsurance broker may, in fact, be an agent for both the reinsurer
and the reinsured. In some circumstances, the reinsurance broker will have underwriting authority on
behalf of a reinsurer (see section F6) while, at the same time, be the reinsured’s broker for the purpose
of placing the risk. In these circumstances, it is important to look at the act being performed at any given
time in order to ascertain whether the broker was acting as an underwriting agent and therefore for the
reinsurer, or as broker and therefore for the reinsured.

In the UK, brokers must be authorised and regulated by the Financial Conduct Authority (FCA). In the
In the UK, brokers
USA, each state has specific laws to regulate the activities of brokerage firms, although there is limited must be regulated by
Federal involvement to identify gaps in the state-based system. However, there are other intermediaries the FCA
operating in the reinsurance market whose primary role is also the placement of reinsurance business.
Like a broker, their role will involve:

risk
management
issuing
some forms mid-term
of documentation changes
on behalf of
reinsurers

providing checking the
market Role of other security ratings Reference copy for CII Face to Face Training
intelligence intermediaries of reinsurers

claim
negotiating notification
renewal
and recovery
reviewing
client needs

F2 Role of the broker

The traditional role of the broker is the placing of reinsurance business. For this function to be performed
successfully there must be a party wishing to buy and another party wishing to sell. The broker’s skill is
identifying buyers and sellers and negotiating a deal involving the availability of a product or service at a
sufficiently attractive price that both buyers and sellers wish to strike a bargain.

Question 1.6
Agents and other intermediaries with non-insurance backgrounds may introduce business to insurance companies
from private individuals and small trading companies seeking insurance. Why is it likely that only professional
reinsurance brokers and other suitably qualified parties have a role to play in creating reinsurance relationships?

The broker is typically remunerated by a deduction of brokerage from the premium paid to the reinsurer.