ReinsuranceSection 97-100

Prepared By: Bianca Beltran and Hanna S. Pentiño

Submitted to: Atty. Bundac

Reinsurance • It is a contract whereby one party, the reinsurer, agrees to indemnify another, the reinsured (original insurer), either in whole or in part, against loss or liability which the latter may sustain or incur under a separate or original contract of insurance with a 3rd party, the original insured.

• It is sometimes referred to as treaties.

NOTE: Reinsurance may not be for a greater amount than the original insurance

Article 97. A contract of reinsurance is one by which an insurance procures a third person to insure him against loss or liability by reason of such original insurance.

Parties

Double-Insurance

Reinsurance

The insurer remains as the insurer of the original insured

Insurer becomes an insured (reinsured) in the reinsurance policy

Only one insured Two separate insured

Subject matter is the property insured

Subject matter is the liability of the insured

Same interest is insured

Involves separate interests

Same peril is insured against in separate

policies

Different perils are insured against in separate policies

1.Reinsured is the original insurer

2.Reinsurer is also called the “ceding company” or the “direct-writing company”

VALUE OF REINSURANCE• From the standpoint of the insurer - reinsuring

companies benefit from contracts of reinsurance.• From the standpoint of he insured - the practice of

reinsurance is also beneficial to the insured in the following reasons:a. It gives insurance companies that practice in greater financial

stability and thus makes insured’s individual policy more reliableb. If a large amount of insurance is needed, the insured may obtain it

without negotiating with numerous companies

VALUE OF REINSURANCEc. It enables the insured to obtain protection promptly, without the

delay that would be required to divide and distribute the amount among many companies

d. All the insurance can be written under identical contract provisions, whereas otherwise these might vary with the different companies among whom the insurance is divided

e. Small companies are encouraged to divide large exposures for safety and enabled to accept a wide variety of applicants.

• From the standpoint of the public - contracts or “treaties” of reinsurance are plainly beneficial to the public inasmuch as they promote both efficiency and stability in the conduct of the reinsurance business.

Reinsurance

• Where an underwriter is seeking to insure his risks, his duty to disclose all material facts is no less than the similar duty imposed on a person seeking an original insurance.

• The duty in both cases is one of the strictest good faith since the risk insured against in a contract of reinsurance is the probability that the original insurer may be compelled to pay for the loss under the policy issued by him.

• Thus, a policy may be avoided where the reinsured conceals the fact that a loss has taken place or that the property is over-insured where he has knowledge thereof.

Article 98. Where an insurer obtains reinsurance, except under automatic reinsurance treaties, he must communicate all the representations of the original insured, and also all the knowledge and information de possesses, whether previously or subsequently acquired, which are material to the risk.

How may reinsurance be placed in effect?

1.Automatic - Under this, the ceding company (reinsured) is bound to cede (give off by way of reinsurance) and the reinsurer is obligated to accept a fixed share of the risk which has to be reinsured under the contract

How may reinsurance be placed in effect?

2.Facultative - Covers the liability on individual risk, there is no obligation either to cede or to accept participation in the risk insured, each party having a free choice. But once the shared is accepted, the obligation is absolute and the liability assumed thereunder can be discharged by one and only way —payment of he share of the losses. There is no alternative or substitute prestation.

Reinsurance Policy

• A contract of indemnity one insurer makes with another to protect the first insurer from a risk it has already assumed

• Contracts of insurance

Reinsurance Treaty

• Merely an agreement between two insurance companies whereby one agrees to cede and the other to accept reinsurance business pursuant to provisions specified in the treaty

• Contracts for insurance

NOTE: It is only after a reinsurance cession is made that the obligation of the insurer to pay the reinsurance premium arises.

Reinsurance• The peril insured against is the

risk that the insurer will suffer a loss when it will be required to pay the original insured.

Article 99. A reinsurance is presumed to be a contract of indemnity against liability, not merely against damage.

Reinsurance

• The subject of the contract of reinsurance is the primary insurer’s risk and not the property under the original policy.• Its nature are:

1. Contract is one of indemnity against liability

2. Contract that is separate from original insurance policy

3. Contract based on original policy4. Insurable interest requirement is

also applicable.5. Rule on subrogation applicable

Article 99. A reinsurance is presumed to be a contract of indemnity against liability, not merely against damage.

Reinsurance

• Contract, one of indemnity against liability — in reinsurance, the reinsurer agrees to indemnify the insurer, not against actual payment made but against liabilities incurred.

• Contract, separate from original insurance policy — the contract of insurance is independent of and separate from the contract of reinsurance.

• Contract based on original policy — the reinsured risk must be the same as that covered by the original insurance policy.

• Insurable interest requirement applicable — the primary insurer is not entitled to contract for reinsurance exceeding the limits of the policy ceded to the reinsurer. Similarly, the reinsurer cannot provide coverage for risks beyond the scope of the coverage provided by the primary insurer.

• Rule on subrogation applicable — In general, a reinsurer, on payment of a loss, acquires the same rights by subrogation as are acquired in similar cases where the original insurer pays a loss.

Article 99. A reinsurance is presumed to be a contract of indemnity against liability, not merely against damage.

Reinsurance

• No privity between the original insured and reinsurer.• The original insured cannot file an action to

recover from the reinsurer even if he has difficulty recovering from the original insurer.

• However, the original insured may be allowed to directly sue the reinsurer if the reinsurance policy contains a pour autrui in favor of the original insured as allowed under Article 1311 of the New Civil Code.

• Reinsurer is not a party in an action against the insurer. • Reinsurer need not intervene because it can

avail itself of any defense that the reinsured may have under the original policy.

Article 100. The original insured has no interest in a contract of reinsurance.

Reinsurance

• Liability of reinsurer to original insured• The original insured may stand in any of 3

relations towards the reinsurer in accordance with the terms of the particular contract of reinsurance.1. Contract of reinsurance solely between

insurer and reinsurer — Unless the reinsurance contract contains stipulation assigning the right of the insurer in favor of the insured, the latter, not being a privy to the contract, has no cause of action against the reinsurer, but only against the insurer.

2. Contract of reinsurance with stipulation in favor of original insured — the contract of reinsurance may contain a provision whereby the reinsurer binds himself to pay to the policyholder any loss for which the insurer may become liable.

Article 100. The original insured has no interest in a contract of reinsurance.

Reinsurance

3. Contract of reinsurance amounting to novation of original contract — the original insured may also maintain an action directly against the reinsurer in those cases in which the circumstances attending the making of the contract of reinsurance amount to a novation of the original contract and hence, operate to discharge that contract and the original insurer from all obligations thereunder. The original insurer however, will be released only when the insured agrees with the insurer and reinsured to the novation.

• Such an agreement is ordinarily carried into effect by a surrender of the original policy and issuance of a new one including the same terms and conditions by the so-called "reinsurer." However, such a transaction is not one of the technical reinsurance, for here, the so-called "reinsurer" is but substituted for the original insurer and hence, becomes the immediate insurer of the subject of the original policy.

Article 100. The original insured has no interest in a contract of reinsurance.