Page 9 - Reinsurance Management IC85

The Insurance Times

a. A contract of reinsurance cannot exist unless
there is already a contract of direct insurance.
The basic legal principles of utmost good faith,
insurable interest, indemnity, subrogation and
contribution also apply to reinsurance contracts.
Since present day reinsurances are done under
automatic treaties where very little information
is passed on to the reinsurer, the principle of
utmost good faith becomes very fundamental
and the trust between the reinsurer and the
ceding company must be absolute.

b. A reinsurance contract is independent of the
original insurance contract and does not establish
any kind of legal link between the insured and the
reinsurer. The insured cannot claim from the
reinsurer directly in case the direct insurer fails to
pay. In case of liquidation of the direct insurer,
the money received under reinsurance contracts
goes into a general pool for the benefit of all
creditors pari passu.

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