Reinsurance - 1 LECTURES IN INSURANCE LAW REINSURANCE...

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1 LECTURES IN INSURANCE LAW REINSURANCE Introduction As earlier stated earlier, insurers rely on the principle that by the operation of the law of chance, the premiums received for a large number of risks will, for any given period of time, be more than enough to meet the liabilities incurred. Acceptance of insurance for an unduly large sum against one event, endangers the principle, and in such a case insurers reinsure at least part of the risk with another insurer. Definitions Reinsurance therefore consists of a new insurance, effected by a new policy, on the same risk which was before insured, to indemnify the insurer, in whole or in part from his previous liability. It presupposes a head policy and by agreement, by way of complete or partial indemnity to the insurer-but the risks covered may be narrower or even wider in form. It is not a contract of perfect indemnity. In Andree vs Fletcher [1787] 2 TR 161 Lord Mansfield defined a contract of reinsurance thus: A reassurance is a contract of indemnity between the original and a collateral insurer by which the first is indemnified by the latter from the risk he has undertaken in respect of the subject matter insured” The following working definition has been suggested in Macgillivray on Insurance Law(Chapter 23) “ ….a reinsurance contract is one whereby for a consideration one agrees to indemnify another wholly or partially against loss or liability by reason of a risk the latter has assumed under a separate and distinct contract as the insurer of a third party” English authorities do not provide a satisfactory definition and the evolution of reinsurance in its various forms has made it difficult to achieve a comprehensive definition. However from the cases certain accepted characteristics of modern insurance emerge: (i)privity , (ii) there are two separate contracts, (iii) it is subject to the general principles and rules of law applying to insurance contracts-good faith, subrogation, insurable interest and illegality. Although parliament in UK has legislated on reinsurance for nearly 250 years the statutes have tended to assume the existence of a definition-Section 4 of the Marine Insurance Act 1745 1
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2 prohibited reinsurance when the primary insurer became insolvent, died or became bankrupt. For over 100 years reinsurance in UK was severely restricted to and prohibition remained until the Revenue Act No 2 of 1864 which provided that marine reinsurance was lawful subject to provision of stamp duty(court cases only decided whether agreements which bore the appearances of reinsurance treaties could be described as agency agreements to keep them outside the Stamp Duty Act Contracts of reinsurance are contracts of insurance and attract authorization under the Insurance Companies Act of 1982.Unauthorised original contracts have effect upon reinsurance as stated in section 132 of the Financial Services Act 1986.
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  • Summer '16
  • jane shah
  • Law, Reinsurance, reinsured

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