Assignment of Reinsurance securities

Aviation FinanceI have came across assignment of insurance by the Insured party(ies) to the financier where insurance company is required to acknowledge and confirm certain obligations as prescribed in the assignment of the insurance. I have also had the priviledge of reviewing some overseas documents pertaining to assignment of reinsurance (deed of assignment) issued by an insurance company in favour of a number of very large international financiers – which include venture capitalists. This seems to be a normal sort of assignment involving mega projects over at the middle eastern countries. The financiers just wanted a clean-cut process (without any impediments) when the loan is defaulted and the recovery exercises began. Insurance companies being a facilitator of the recovery process (if in any case  a major claim is triggered and the Insured(s) failed in their obligation) have to allow such requirement especially when the country is aiming towards realising herself as being an international hub (whatever that is..), ie. at least to be recognised as such.

However, the difficult side of things is really about the wordings that are contained in the deed. Lawyers representing the financiers would most likely use standard format for the deed to ensure that all possible legal gaps are closed down. This standardisation of deed wordings thus make it extremely difficult for the leading insurers to sign and therefore assign, especially where English laws are always used with no immunity or defence against suit.  In the event where the deed is enforced in contrary to the laws and regulation of the docmicile of the insurer, there is also no leeway or possibility of an escape clause to set aside the enforcement by the financier. The financier’s lawyers just refused to amend much of the originally proposed wordings, citing that they are very much market standards and practices.

While we can deal with such stringent requirement where the financing is all about construction and erection projects, we will definitely have difficulties in aceding to such request relating to aviation risks. Projects involving construction and erection are carried out within the insurer’s country of domicile and having a total loss situation is extremely remote. However, for aircraft risks, we are dealing with something very mobile and where the financier enforced the deed, the insurer is certain to encounter a total loss claim and that loss may occurred in an overseas country. In the process, substantial loss of lives is a reality; this means things are going under the microscope of both the press and the government.

The Central Bank (the industry regulator) would be following the details very closely. However, the deed provide a irrevocable clause that enable the financier to pursue the claims recovery and ultimately the reinsurance proceeds without having the need to seek the insurer concern or even in the process keeps the insurer in the dark. Deed of such assignment is just too oppressive for the insurer but we have to comply otherwise insurers would have to give up insuring these mega projects and/or aircrafts financed by foreign bankers.

Next we shall discuss the more detailed part of such deed of assignment of reinsurance……

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