RE-INSURANCE RELATED LAWS

PRIVATE INTERNATIONAL LAW

 INTRODUCTION

• Reinsurance is insurance for insurance companies. It’s a way of transferring or “ceding” some
of the financial risk insurance companies assume in insuring cars, homes and businesses to
another insurance company, the reinsurer. Reinsurance is a highly complex global business.
U.S. professional reinsurers (companies that are formed specifically to provide reinsurance)
accounted for about 7 percent of total U.S. property/casualty insurance industry premiums
written in 2010, according to the Reinsurance Association of America.
• The reinsurance business is evolving. Traditionally, reinsurance transactions were between
two insurance entities: the primary insurer that sold the original insurance policies and the
reinsurer. Most still are. Primary insurers and reinsurers can share both the premiums and
losses, or reinsurers may assume the primary company’s losses above a certain dollar limit in
return for a fee. However, risks of various kinds, particularly of natural disasters, are now
being sold by insurers and reinsurers to institutional investors in the form of catastrophe bonds
and other alternative risk-spreading mechanisms.
• Reinsurance is insurance for insurance companies. Just as a homeowners or auto insurance
policy reduces the amount of cash a person must have on hand to pay for a new car after an
accident or to rebuild a home after a hurricane, a reinsurance contract can protect an insurance
company against large catastrophic losses. Reinsurance also enables an insurer to underwrite
more or larger insurance policies
 INTERNATIONAL BUSINESS DEVELOPMENTS
• India, long a closed and government-monopolized market, is a signatory to GATS and is
expected to open its market to foreigners through the licensing of branch offices and limited,
direct foreign ownership. Reports suggest India may pass legislation, the Insurance Regulatory
and Development Authority Bill of 1998, by the end of this year, which would allow the
licensing of private insurers and foreign equity participation, to a maximum of twenty-six
percent, in joint venture insurance companies. However, as India has been involved in a
general parliamentary election, the bill may be delayed. In anticipation of the bill, India has
nonetheless begun the registration of names for new private insurance companies.
• In March 1999, the General Agreement on Trade in Services (GATS), went into effect.
Although negotiated in 1994, the treaty only went into force in 1999, according to the
schedule previously determined in the Fifth Protocol. GATS is a multilateral, international
agreement whose signatories have agreed to create enforceable rights to trade in services
based on the principles of "national treatment" (nondiscrimination among locals and
foreigners), and "most-favored-nation status" (equal treatment of all the other members of the
agreement). The agreement is designed to enhance free trade of services such as insurance and
reinsurance among the signatories by providing an agreed framework for reducing prejudicial
regulations, and a system for adjudicating trade disputes through the World Trade
Organization (WTO).
 REINSURANCE ARBITRATION

• Traditional reinsurance arbitration clauses relieve the arbitrators from following the
strict rules of law and specifically require the arbitrators to consider the reinsurance
contract as an honorable engagement rather than a strict legal obligation. This way,
instead of a judge that knows nothing about the industry and who will construe the
reinsurance agreement like any commercial contract, reinsurance disputes are
determined based on industry business practices by industry experts.

• Reinsurance arbitrations are also private, confidential proceedings that are not
open to public or competitor scrutiny. This is another reason why many insurers
and reinsurers would rather arbitrate than litigate. While information about
arbitrations often does find its way into the industry press, especially if a party
goes to court to seek to confirm or vacate an arbitration award, for the most
part, the details of the award and the dispute are kept confidential.
 CASES MENTIONED

• FIRST STATE IND. CO. V. NATIONAL CAS. CO. - 781 F.3d 7 (1st Cir. 2015)

• JEFFERSON INSURANCE CO. V. FORTRESS RE, INC., - 616 F. SUPP. 874

(S.D.N.Y. 1984)

• EXCESS INSURANCE CO. LTD. V. FACTORY MUT. INS. CO - 3 N.Y.3d

577, 822 N.E.2d 768, 789 N.Y.S.2d 461 (2004)