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Anecdotes About Reinsurance

1. A large producer of life reinsurance in Canada had a very knowledgeable president who was very cognizant of how reinsurance pricing and mortality curve could benefit his company. As such he was one of the most astute reinsurance purchasers ever seen and he in turn passed this skill to his pricing and underwriting teams.

One year when they were introducing a new product they tendered the quote to all active reinsurers in Canada as well as one based in the UK but a dominant player globally (the insurer had a subsidiary in the UK). In that era, not so long ago, reinsurers were actually coinsuring generously with first allowances beyond 200% of original premium and no chargeback in the event of lapse.

After weeks of bids going back and forth, as the wily President and his team played one reinsurer against another, the final sprint to the winners circle was between two reinsurers — a major Canadian subsidiary of a European global reinsurer and the aforementioned UK subsidiary of a global reinsurer. As pricing escalate to the 285% allowance level the victor emerged as the Canadian subsidiary of a global reinsurer. Congratulations flowed in the victor.

The vanquished UK subsidiary of a global reinsurer was so perplexed at the loss and finding it hard to fathom anyone having a sharper pen they asked whom they lost too. A fair question as reinsurers appreciate knowing who is the competition.

The answer came back that the winner was the “sister” subsidiary! Both finalists in the bidding war, which pushed the price 70% passed all other competitors, were in fact one and the same company.

2. Communication between departments in a company can often leave a lot to be desired. In one company’s eagerness to close a reinsurance deal with a winning reinsurer whose rates and allowances were extremely great the communication between the person canceling the old treaty and the person accepting terms on the new treaty was nonexistent.

The person agreeing to treaty terms of the new reinsurer asked for and got the treaty to commence on all policies issued with policy dates of for example July 1st, 1999. The person wrapping up closure of the old treaty terminated the existing treaty for all applications received after June 1st, 1999.

Yes you guessed right. A claim arrived on a case received after June 1st and issued prior to July 1st. The simple car accident fatality became a claim that both reinsurers said was not clearly theirs. When all three parties were in a room it was only then that the ceding company President heard how his staff did not work in unison on something as vital as protection of their retention and no gapping holes in the reinsurance. As always the result was a compromise struck after much embarrassment where all three parties contributed to the significant claim payment.

3. How does your reinsurer feel about fraudulent producers? What is the reinsurers’ stance on claims where the quality of producer selection and monitoring are directly correlated to early and uncontestable claims?

A $500,000 claim occurred and upon investigation the incidence of fraudulent misrepresentation leap off the documentation from the time of underwriting. Gross nondisclosure had occurred and had the full medical history been known no insurer or reinsurer in their right mind would have accepted to application let alone issue a policy. To make a long story short the file ended up in court where the insurer was ordered to pay since the evidence that was missing from the application regarding the deceased’s health history was indeed told in front to the deceased’s son and wife to the producer/agent. The fact the agent knew the story both as friend of the deceased and agent lead the judge to order the payment.

As the case was reinsured 60% the reinsurer was asked to just throw their $300,000 into the pot for disbursement. The reinsurer said it would only pay if the insurer would launch a claim against the agent for his fraudulent misrepresentation and omission of facts he knew about deceased. Insurer did not want to irritate its reputation amongst agents by suing one. The reinsurer refused to pay its share of the claim.

Should the “follow the fortunes of the insurer” be taken to the extreme by turning a blind eye to fraudulent agents? What is the true definition of final approval of claims mean to both the reinsurer and insurer? Claims sections of treaties are often left to interpretation at time of claims, which is erroneous, as it should be clearly understood from the onset of the claim-paying obligation.

This case ended up in arbitration where the arbitrator (a reinsurance guru) sided with the reinsurer and won the agreement of the ceding company President that the honourable solution was to sue the agent for damages as the reinsurer suggested; especially since the reinsurer did not hinge its payment to a favourable court ruling merely the act of pursuing restitution through the courts.

4. Translation is not a core competency of a reinsurer. A ceding company had drafted a new suicide clause and was in the final stages of translating it into another language. A translator of meager financial status was used to save some money assuming that final sign off would come from the reinsurer. The reinsurer got the final draft and with little attention to detail gave it its blessing.

Yes an early suicide occurred. When it looked so obvious that they could fight and win in courts on the basis of the suicide exclusion the insurer sent the file to its legal counsel (outside) for preparation of the usual denial letter and strong wording about “not paying in the event of suicide”…

The lawyer, happy for lucrative work from an insurer, was quick to point out that in his judgement it was foolish to contest the claim.

All had missed the key word “not” before pay in the suicide exclusion clause. The clause then read in its key sentence “will pay in the event of suicide with the first two years “.

There are times even a reinsurer makes a mistake and thus insurers should never leave to a reinsurer critical decisions that they have not fully reviewed.