“reinsurance cession”

7/28/2019 Reinsurance Cession

1/34

REINSURANCE


2/34

95. A contract by which theinsurer procures a third person

to insure him against loss or

liability by reason of an original

insurance (also known as

Reinsurance Cession).


3/34

definition:

It is a contract whereby one party, the

reinsurer, agrees to imdemnify another

(reinsured) either in whole or in part,

against loss or liabilihich the later may

sustain or incure under a SEPARATE OR

ORIGINAL contract of insurance with athird party, the original insured


4/34

EXAMPLE:

X insurance company issued an insurancepolicy of a building to Y. Here the contract

is between X and Y.


5/34

X company, TO REDUCE ITS

POTENTIAL LIABILITY under the contract

reinsures the risk or part of it with Z

insurance company. Here another contact

of insurance is entered into by X and Y.


6/34

METHODS OF CEDING


7/34

Automatic reinsurance The reinsured is

bound to cede and the reinsurer is

obligated to accept a fixed share of the

risk which has to be reinsured under thecontract. (Prof. De Leon, p. 305)

EXAMPLE: An automatic treaty may

require insurer to cede any homeowner

policy with a dwelling at or above 300,000

pesos


8/34

Advantage: as to the insurer, it avoids any

delay in inssuing its policy.


9/34

Facultative reinsurance There is no

obligation to cede or accept participation in

the risk each party having a free choice.

But once the share is accepted, theobligation is absolute and the liability

thereunder can be discharged only by

payment. (Equitable Ins. & Casualty Co.vs. Rural Ins. & Surety Co., Inc. 4 SCRA

343)


10/34

ROBLEM: X company( insurer) and Y

company( reinsurer) entered into a

reinsurance contract. Pursuant to the said

agreement, Y reinsured an amount of2000 pesos per reinsurance application.

Subsequently, A reinsurance application,

covered by a fire insurance of a buildingwas burned.


11/34

X company paid the amount of the loss. Y

company refused to reimburse X company

since the matter not having been referred

to the decision of two arbitrators or umpire,which, it is claimed, is the condition

precedent agreed upon in Article VIII of

the Reinsurance Agreement entered intobetween them.


12/34

ANSWER: The term "facultative" is used

in reinsurance contracts, and it is so used

in this particular case, merely to define the

right of the reinsurer to accept or not toaccept participation in the risk insured


13/34

but once the share is accepted, as it was

in the case at bar, the obligation is

absolute and the liability assumed

thereunder can be discharged by one andonly way payment of the share of the

losses. There is no alternative nor

substitute prestation.


14/34

Advantage: the insurer receives the

reinsurer's underwriting opinion before the

policy is issued.

Protection to reinsurer: by agreeing to

accept bussiness automatically, the

reinsurance in protected by the

requirement that the original insurer

retains its full retention limit.


15/34

4. Retrocession A transaction whereby

the reinsurer in turn, passes to another

insurer a portion of the risk reinsured. It is

really the reinsurance of reinsurance.

(Prof. De Leon, p. 305)


16/34

section 96. where an insurer obtains

reinsurance, except under reinsurance

treaties, he must communicate all the

represetations of the original insured, andalso all the knowledge and information he

possessess, whether previously or

sebsequently acquired, which are materialto the risk.


17/34

Ratonale: the risk insured against in a

contract of reinsurance is the probabillity

that the insurer may be compelled to

indemnify for the loss under the policyissued by him.


18/34

Effect: Generally, the insured cannot be

charged for fraudulent concealment by

reason of the fact that he failed to disclose

matters material to the risk thereafter.However Section 96 covers KNOWLEGE

and INFORMATION possessed by the

insurer "whether previously orsubsequently acquired, which are material

to the risk. Thus, a policy may be

AVOIDED where the insured conceals


19/34

Example: X insurance company, issued a

fire policy of a building owned by Y. Z

insurance company accepted a

reinsurance coverage under the policy. Ymarried H, an ex- convict for arson. All

members of the board of X company were

invited during the wedding. p.sebsequentlythereafter the building was completely

destroyed.(prof. De Leon, p. 310)


20/34

Section 97. A reinsurance is pressumed to

be a contract of indemnity against liability

and not merely against damage.


21/34

NATURE:

Indemnity against liability-- The subject of

the contract is the primary insurer' s risk

and not the property insured under the

original policy. Such contract agrees to

indemnify the insurer not against the

actual payment made but against theliability incurred. Thus, payment made to

the insured s not a condition precedent to

his demanding payment to the insurer.


22/34

Rule on subrogation available- the

reinsurer, on payment of a loss, acquire

the same rights by subrogation as are

acquired in similar cases where theoriginal insurer pays a loss.


23/34

Contract separate from the original

insurance policy- The practice is for the

reinsurer to pay the insurer even before

the latter has indemnified the originalinsured.


24/34

Contract based on original policy- the

reinsured' s risk must be the same as that

covered by the original policy upon which

thhe reinsurance must be made.


25/34

Insurable interest requirement applicable-

the doctrine of insurable interest is

applicable in reinsurance, hence the

primary insurer is not entitled to to contractfor reinsurance exceeding the policy

ceded to the reinsurer. Similarly, the

reinsurer cannot provide coverage for therisk beyoond the scope of the coverage

provided by the primary insurer.


26/34

I. RIGHTS AND LIABILITIES

A. Reinsurance is a contract between the

reinsured and the reinsurer by which the

latter agrees to protect the former from the

latter from the risk assumed. The reinsurer

is not liable to the insured either as surety

or otherwise UNLESS THE CONTRACTSO PROVIDES.


27/34


28/34

LOSS

reinsurer- not liable to the reinsured for a

loss under an original policy or for an

amount more than the sum actually paid to

the insured. It cannot be held liable for a

loss which have taken place within the

terms of the original policy.


29/34

Insured- cannot recover from the reinsurer

beyond the subscription of the latter under

the contract of reinsurance.


30/34

. LIABILITY OF REINSURER TO

ORIGINAL INSURED

a. Contract of reinsurance solely between

insurer and reinsurer- the contract of

reinsurance is solely between the insurer

and the reinsurer. The original insured has

absolutely no interest in the contract and isa total stranger to it. Hence, the original

insured has no cause of action against the

reinsurer but only against the insurer.


31/34

b. Contract of reinsurance with stipulation

in favor of original insured. - The contract

of reinsurance may contain provisions

wherby the reinsurer binds himself to paythe policy holder any loss for which the

insurer may become liable. Thus, the

original insured has a right both againstthe insurer and the reinsurer.


32/34

contract of reinsurance amounting to

novation of original contract- the original

insured may maintain an action against

the insurer in cases in whichcircumstances attending the making of the

contract of reinsurance amount to a

novation of the original contract...


33/34

... So that the originsl insurer is released

from all obligations thereunder. Provided

that the insured consents with the insurer

and reinsurer with the novation.


34/34

When is this EFFECTED?

carried into effect by surrender of the

oriiginal policy and inssuance of a new

policy including the same terms and

conditions, by the so called reinsurer.

Hence, the ooriginal insurer is substituted

by the reinsurer so that the reinsurerbecomes the immediate insurer of the

subject of the original policy.

“reinsurance cession”

Documents