Asia Pacific based Clyde & Co lawyers answer important questions on the Reinsurance industry.

China

(1) Must reinsurers follow the settlements of their cedants, in the absence of an express term in the reinsurance agreement?

Yes, in accordance with Article 6 of the Rules on the Reinsurance Business of P&C Insurance Companies ("Article 6"), CIRC-regulated P&C reinsurers must follow the settlements of their cedants. Although we have not sighted any similar requirement for life reinsurers, we assess it is highly likely that CIRC would require life reinsurers to follow Article 6 in practice.

(2) If there is an express or implied term to follow the settlements in the reinsurance agreement, is the reinsurer obliged to follow in all circumstances?

Generally yes. However Article 6 states that a reinsurer shall not be obligated to follow a cedant's settlement if the cedant makes a (i) gratuitous or bona fide settlement; or (ii) "forced" settlement where the cedant is in self-inflicted financial stress.

(3) Is a reinsured obliged to cooperate with a reinsurer in the absence of an express term in the reinsurance agreement?

No. A now-repealed regulation did formerly require the reinsured to co-operate in some circumstances, but this regulation was repealed 11 years ago, specifically to relieve a reinsured of any such obligation, in all circumstances.

(4) If there is an express or implied term to cooperate with the reinsurer, what is the consequence of a breach?

Simple breach of contract remedies - damages.

India

(1) Must reinsurers follow the settlements of their cedants, in the absence of an express term in the reinsurance agreement?

No it is not necessary as the reinsurer may always question if the cedant did not act in good faith or after conducting a reasonable investigation.

(2) If there is an express or implied term to follow the settlements in the reinsurance agreement, is the reinsurer obliged to follow in all circumstances?

While an express or implied term to follow the settlements in the reinsurance agreement limits a reinsurer's defences, it does not make a reinsurer liable for risks beyond what was agreed upon in the reinsurance agreement. The reinsurer retains the right to question whether the cedant's liability stems from an unreinsured loss. A loss would be unreinsured if it was not contemplated by the original insurance policy or if it was expressly excluded by terms of the certificate of reinsurance. The Reinsurer may also question if the cedant did not act in good faith or after conducting a reasonable investigation.

(3) Is a reinsured obliged to cooperate with a reinsurer in the absence of an express term in the reinsurance agreement?

No, the Reinsured may have a different view on the settlement from the Reinsurer. For example, the Reinsured cannot decline its liability towards its insured even if the Reinsurer disagrees on the claim settlement. After settling the claim, the Reinsured can always commence a legal action against the Reinsurer to recover the claim amount from the Reinsurer.

(4) If there is an express or implied term to cooperate with the reinsurer, what is the consequence of a breach?

If the term is a condition, the insurer will have to show that it suffered prejudice in order to claim a remedy. If the term is a condition precedent, no prejudice need be proven.

by Vineet Aneja, Partner, Clasis Law*

*Clasis Law is Clyde & Co's associated firm in India