As the reinsurance market begins to head off to the Rendezvous Conference, few will disagree that there is a sense of déjà vu (again) of navigating a continuing soft market with consequent rating/pricing pressures.
Some agenda items form a legal/risk perspective are however different this year. We have seen for example more potentially catastrophic events than at the same pre Rendezvous stage last year, and the market has been reminded of the potentially catastrophic consequences of wildfires, specifically in North America, since Fort McMurray in May. In 2007 the well-known US wildfires of that year generated treaty disputes over aggregation and proximate cause leading to arguably unintended consequences. Reports suggest that disruption to the electricity network is again a concern but whilst power companies may not be in the firing line and exposed to claims as they were in 2007, such losses may generate instead more focus on contingent business interruption exposure.
The legal environment, at least for those transacting business under English law, is however now completely different.
First, the Insurance Act 2015 has come into force, on 12 August 2016, and it applies to reinsurance as well as insurance.
Unless the Act is agreed contracted out reinsurers will need to ensure even more that they ask the right questions to assess risk and to consider the underwriting information received carefully. Fronting insurers and captives particularly will need to review afresh the enquiries they should be making about the subject matter and the underlying business. Captives will also need to be alive to the fact that directors who hold positions on Boards of both insured and the captive may be deemed to have relevant knowledge for disclosure test purposes under the Act.
Reinsurers and brokers are likely to be alive already to the potential mismatch between the legal regimes applied to reinsurance contracts written pre-August 2016 and risks ceded thereafter. The Act and its provisions is also a statutory reminder that in the era of more detailed electronic records, the legal onus will be even more on the reinsurer to show, by reference to its own systems and controls, that a fair presentation would have led to a different outcome if the reinsurer wishes to take a placing point-the commercial pressures of a soft market notwithstanding. The Act also reminds – if reminder were needed – that there is an increasing evidential importance for the reinsurer to record his reasons for agreeing to write a risk or not.
Looming on the UK legal horizon is the change in English law next year, from May 2017, whereby insurers must pay claims within a reasonable time or otherwise pay damages for the loss caused by delayed payment in addition to their indemnity obligation. For reinsurers, this brings with it a need for them to understand how their reinsureds are going to deal with such exposures and to consider appropriate wordings to deal with those potential exposures in their reinsurance wordings. At this stage, how the economics of this statutory new claim will play out, is uncertain.
Finally, but not least, this year we now have Brexit. No one can accurately predict what the relationship between the UK and the EU will look like after its conclusion whenever and however that may arise. However, reinsurers operating in or out of the UK may be in a better position to suppose that change may not be materially significant, because under current regulations the EU will in terms permit reinsurers operating in non EU countries to do business with the EU provided those countries have designated and acceptable solvency and regulatory requirements that are equivalent to those required of EU member states.
With the UK making it quite clear that it will adopt the highest standards of regulation and capital solvency and with the London market’s long and recognised standing and history of risk capital provision and speciality expertise, one would not expect the London market to be deemed unacceptable for reinsurance provision to EU reinsureds. If there is a full Brexit and no otherwise agreed single market access, carriers remaining based in the UK will though need to remain mindful of any local country by country requirements. A timely reminder that knowledge of local market legal and regulatory requirements will come onto agendas if a full Brexit results arose just recently when guidance was issued on 30 August 2016 by the German Federal Financial Supervisory Authority, reminding what designated “third country" reinsurers may and may not do by way of providing and offering reinsurance to the German marketplace.