What are the legal risks of renewals?

Re-insurers seeking to access new markets must be aware of a host of vital issues which to ignore could have dire consequences - warned a leading reinsurance lawyer during Reinsurance Week at Baden-Baden.

Colin Croly head of Barlow Lyde and Gilbert's reinsurance and international risk team told the audience at The Review's Baden-Baden breakfast briefing that insurers entering new markets should do so with their eyes wide open.
Those delegating authority to an agent should be aware that the agent would be the underwriter's public face in certain markets in both claims and underwriting, he said. And although under English Law an agent's duty was not to make a secret profit at the expense of the principal and to exercise reasonable skill and diligence in conducting business on its behalf - this did not always turn out to be the case, he said.

"A principal should not rely on these implied duties and commercial goodwill to maintain control of its agent," said Mr Croly.

"Aim to align such competing interests and put in place sensible controls to govern the agent's actions."

Simon Cooper, partner in the reinsurance and international risk team at BLG, warned it was vital to have details such as the identity of the individuals to whom authority was delegated and remuneration documented.

Such a document should also cover how a dispute should be resolved and how to terminate the authority or replace the agent. In addition how the business would be run-off should be considered before underwriting started, said Mr Cooper.

Resolving questions such as whether the underwriting agent would have an ongoing role with claims handling once the business was in run-off was also vital, he said.

Mr Cooper said that licensing restrictions in some emerging markets meant that some business should be written through a 'front'. However this could lead to some legal and practical problems.

"Where a front is necessary the reinsurer will want to control as much as possible the content of primary wordings and make reinsurance back to back," he said.

In addition reinsurers should also pay attention to governing law clauses in contracts.

"Some words or terms can be given different meanings depending on which country's laws govern interpretation," said Mr Cooper. And this gives rise to uncertainty.

"Insurance laws in some emerging markets are relatively untested so there is no coherent body of precedent to guide go the likely result of specific cases," he added.

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