It is not uncommon for (re)insurers to accept a share of any facultative placement by attaching their written share with some subjectivity…. You may want to call them “administrative booby-traps” – they are, factly depending on how those wordings were being written! Depending on the case as to who is the stronger of the parties – if the risk is oversubscribed, then it is the cedant to call the shot and remove those (re)insurer(s) who are deemed impediments to the placement process. Otherwise, the cedant is at the mercy of those putting in the subjectivity clauses. Sometimes brokers may face the brunt of it all if they are engaged with the retail as well as influencing the reinsurance placement process.
We wrote in our previous posting on “No bumpy ride but just one big hole in between the Retakaful clause”, which is a good illustration of how subjectivity can affect the facultative markets. In this particular case it is about a thorn in between the Conventional and the Retakaful markets – Syariah compliance….leh!
The ambiguous type
I always believe, a small dose of subjectivity doesn’t necessary hurts but if the clauses are badly worded, to an extent such they have split meanings – insurance executives may have a hard time understanding their real meaning. Even if they did check with the other side, the real meaning may not be necessarily conveyed…. And when an eventual, yet sizeable claim occurred, there will be lots of argument over the meaning and finger pointing with accusation of who and who had told me……..
An example is a clause stipulating, “…..subject to no other losses other than those already declared.” While the markets understand this subjectivity simply means as, no other losses between the date of confirmation of fac RI participation and the inception of the risk, but if there is a loss occurring immediately after the RI confirmation but made known to the cedant after the hold cover, the (re)insurer’s share in that risk immediately ceased? You may disagree but the very vaguely worded clause seems to indicate this position! Do you want to test it with a very large and sizeable claim? While we have a pole stuck behind our back, we do not have any to the back of the Insured! We called this as lacking in back-to-back or mirroring the facultative RI covers…..
Another case in point would be the subjectivity of “storage risks written as such” attaching to the Cargo policy. Eventhough this was the norm applied from the past but can the drafter be more specific in the 21st century? Can’t we just tag the clause with some agreed period, ie. 120 days……?
The question of leadership?
Are those leading within the reinsurance markets made up of third class graduates, to the extent they are not too capable of drafting a decently worded subjectivity clause? Are those handling the day-to-day documentation “drop-outs” at college level, thus leaving ambiguously written clauses passed through our underwriting eyes? As business becomes a little bit more congested and therefore unforgiving; someone out there may not be so friendly after all, especially the aftermath of a large claim.
The Administratively burdensome type
Some of the subjectivity clauses can be burdensome for the cedant administratively. A good case in point is Swiss Re Fac RI General condition…. This placement clause has been around for quite a while.
While we appreciate Swiss Re’s attempt to attain better clarity in their intention but in the process this was being translated into something difficult administratively and as seen above, lacks practicality. Of course if we need to make this works, then we would have to factor the meaning of this Condition into the original policy, which means the broker and Insured must know exactly their responsibility and the repercussion within the realm of the contract.
We would rather not write those risks where full placement can only be achieved with those cumbersome subjectivities where mirroring with the original policy is never possible. Guess…. our market is not ready or rather lacks the necessary discipline for this extremely well written clause.
Hey! Where is my magnifying glass, I am gonna put this asshole claims under the frying pan! Thus it is a tactical problem if we cannot achieve any back-to-back cover (a water-tight would be good) from our facultative placement process….. There are already cases from the past where claims were being disputed – case in point would be one such case involving a sizeable fire loss down south – there was an “Oil & Gas” subjectivity mentioned in the reinsurance acceptance, only thing when the fire occurred. Parties involved are trying to argue as to the real meaning of the subjectivity clause – “…..carrying out activities of Oil & Gas incidental to the Insured’s business….”; so there you go… arguing over the subject of “incidental”.
Is this something contrary to Bank Negara’s JPI/GPI 8? Have you read this BNM’s circular?