United Kingdom: Reinsurance Of Life Insurers: Underwriting Considerations

Last Updated: 2 April 2013

Article by Michelle Crorie, Clyde & Co and Adrian Graham at the LMA

This guidance has been prepared jointly by the LMA and Clyde & Co LLP. It explores issues to be considered when underwriting reinsurance of life providers, with reference to the financial regulation regarding the role of general insurers.

Please note:

  • This guidance provides a brief summary of the position and is not intended to be exhaustive. If further advice is required, underwriters should contact the LMA or seek their own independent legal advice
  • This advice applies to all K risk codes without exception but does not address any other business, in particular it excludes P and N risk codes or contracts considered to be miscellaneous financial risks, Class 16 General Insurance, such as stop loss contracts, in relation to which Underwriters should seek their own legal advice

Regulatory principles: Direct and reinsurance

General insurers may only insure risks which fall within the general insurance categories of the Regulated Activities Order 2001. In relation to K risk codes this is Classes 1 and 2, being Personal Accident and Sickness1.

Reinsurance is assessed according to the subject matter of the underlying risk and cannot be considered a class in its own right for regulatory purposes.

General insurers cannot provide life insurance. The prohibition on writing life is absolute, there are no exceptions for "short term life" or for "incidental life". As a guide, life insurance has some or all of the following key indicators:

  • Responds solely on the contingency of continuation or termination of life
  • Pays a fixed benefit, not an indemnity
  • Requires no proof of financial loss
  • Is written on a long term basis or subject to special rules on cancellation

Class 1 specifically permits general insurers to underwrite accidental death. This can be covered on a benefit basis.

Neither Class 1 nor 2 permits general insurers to underwrite death by sickness.

Permissible Risks

General insurers may underwrite reinsurance of life insurers provided that that the reinsurance does not cover death other than accidental death.

General insurers may also reinsure business that insures a variety of disability risks2, medical expenses and other risks which they are entitled to underwrite on a direct basis.

Accidental death can be carved out from a book of life insurance business but to do so, specific, clear definitions are required.

Prohibited Risks

General insurers may not reinsure business where the reinsurance includes death by sickness. This absolute prohibition extends to all types of sickness. For the avoidance of doubt, pandemic, epidemic and the like are accumulations of death by sickness.

Exceptions

Whether there has been death by accident depends under English law upon the proximate cause.

Thus accidental death could extend to include death from sickness caused by an accident (e.g. gangrene following a broken bone; or cholera following a natural disaster).

The LMA recognises that some business introduced to Lloyd's from other jurisdictions contains underlying policies with definitions of accident that extend to include:

(a) "unforeseen, external cause" events such as insect bites, anaphylactic reactions or similar that are particular to tropical parts of the world; and/or

(b) pandemic and epidemic outbreaks; and/or

(c) occurrences not usually considered to be accidental under English law (e.g stroke)

It is likely that (a) would be considered an acceptable variation of accidental death.

Syndicates may need to consider obtaining specific legal advice where local regulators accept that accident extends to (b) and/or (c) in the underlying insurance to ensure that the proposal also meets UK regulatory requirements for general insurers.

Recommendations

All reinsurance contracts should contain an accident definition. This should be entirely separate from any event definition or hours clause

Reinsurers of life providers should give consideration to protect against aggregation, in particular by reference to an event definition with an hours provision.

An event definition is aimed at restricting aggregation and should be kept separate from a definition of "accident" which is aimed at triggering coverage.

If reinsurance of a life insurer is proposed, we recommend the following best practice, sample clauses for which are set out in Appendix 1:

(a) Ensure the "Interest" section in the slip specifically records the extent of cover

(b) Restrict coverage to death claims that are only as a result of an accident rather than trying to exclude death by sickness or any specific type of sickness

(c) Achieve (b) by definitions of Death and Accident and consider a definition of "Death by Accident"

(d) Consider an Accidental Occurrence definition, with an hours provision

(e) Consider an exclusion for any losses arising from Death other than Death by Accident

Appendix 1

Sample clauses should be read alongside the recommendations in the attached guidance and are offered as suggestions only. Sections in square brackets are intended to be subject to amendment according to the specific risk underwritten.

Interest/Business Covered/Class

"This contract shall indemnify the Reinsured for losses in respect of all policies underwritten by the Company [classified as...] save for benefits paid for Death other than Death by Accident."

Definition of Death

"Death means all loss of life."

Definition of Death by Accident

"Death by Accident means Death caused by an Accident and which occurs within [12] months of the Accident."

Definition of Accident

"Accident means a sudden, unexpected, unusual, specific, [external and violent] event which occurs at an identifiable time and place during the period of insurance;

or

the definition contained within the original policies of the Reinsured where such a definition exists."

Definition of Accidental Occurrence

"The term "Accidental Occurrence shall mean all individual losses arising out of and directly occasioned by one event occurring at an identifiable time and place [which affects xx or more insureds].

The duration of the Accidental Occurrence so defined shall be limited to [24] consecutive hours and within a [10] mile radius for any Accidental Occurrence hereunder and no individual loss which occurs outside such period and/or radius shall be included in that Accidental Occurrence.

The Reinsured may choose the date and time when such period of consecutive hours commences and also the specific [10] mile radius determining the Accidental Occurrence.

If any event is of greater duration than the above period, the Reinsured may divide that event into two or more Accidental Occurrences provided that no two periods overlap and provided no period commences earlier than the date and time of the first recorded individual loss to the Reinsured arising out of the event."

Exclusion of Death

[To be inserted into an exclusions section]

"This reinsurance will not pay any claim caused by or arising from Death other than Death by Accident."

Footnotes

1 Pl Members of Lloyd's may underwrite both life and non-life business provided all life business is underwritten through life syndicates and non-life business by non-life syndicates. NB there is a requirement for separate PTFs.

2 Underwriters should be aware that they cannot underwrite disability for a term exceeding 5 years

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
Accounting and Audit
Anti-trust/Competition Law
Consumer Protection
Corporate/Commercial Law
Criminal Law
Employment and HR
Energy and Natural Resources
Environment
Family and Matrimonial
Finance and Banking
Food, Drugs, Healthcare, Life Sciences
Government, Public Sector
Immigration
Insolvency/Bankruptcy, Re-structuring
Insurance
Intellectual Property
International Law
Law Practice Management
Litigation, Mediation & Arbitration
Media, Telecoms, IT, Entertainment
Privacy
Real Estate and Construction
Strategy
Tax
Transport
Wealth Management
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.