Reinsurance to Close

Every contract of reinsurance to close underwritten by members of a syndicate shall, unless Lloyd’s otherwise agrees (whether generally or in relation to a particular case) include express terms to the following effect –

1.   the reinsuring members unconditionally agree to indemnify the reinsured members, without limit as to time or amount, in respect of the net amount of all known or unknown losses, claims, refunds, reinsurance premiums, outgoings, expenses and other liabilities (including extracontractual obligations for punitive or penal damages and obligations to provide regulatory redress as a result of policyholder complaints) arising in relation to the underwriting business of the syndicate for the reinsured year of account (and earlier years of account of the same or any other syndicate reinsured to close into that year of account) (the “underwriting business”) after taking account of all amounts recoverable by the reinsured members under syndicate reinsurances in respect of those liabilities and actually recovered on or after the inception date of the contract;

2.   notwithstanding that the indemnity under the contract is against liabilities net of syndicate reinsurance recoveries or that the ultimate net liability of the reinsuring members may not yet have been ascertained, the reinsuring members shall discharge or procure the discharge of the liabilities of the reinsured members;

3.   either:

a.   the rights to receive all premiums, recoveries and other monies recoverable at any time in connection with the insurance business of the reinsured members are assigned to the reinsuring members by the contract or are to be assigned on their subsequent request; or

b.   the reinsuring members are authorised by the reinsured members to collect on behalf of the reinsured members the proceeds of all such rights and retain them for their own benefit so far as they are not applied in discharge of the liabilities of the reinsured members;

4.   the reinsuring members are required and fully, irrevocably and exclusively authorised on behalf of the reinsured members to conduct the underwriting business, and authorised to sub-delegate that authority to the reinsuring members’ managing agent and to any person underwriting any RITC of the reinsuring members and to permit the further sub-delegation of the whole or part of that authority in either case; and

5.   the contract shall not be cancelled or avoided for any reason, including mistake, non-disclosure or misrepresentation (whether innocent or not).

^{Performance Management – Supplemental Requirements and Guidance, pages 23-24}

No contract of RITC may be underwritten by more than one syndicate except:

1.   in the case of a contract where the reinsuring syndicates are parallel syndicates; or

2.   where Lloyd’s is satisfied that it is not practicable for the contract to be underwritten by a single syndicate only and that the contract should be permitted to be underwritten by more than one syndicate and grants its consent.

Consent granted under paragraph 2 may be subject to such conditions as Lloyd’s thinks fit.

Managing agents should also note that in view of the PRA Rulebook definition of ‘approved reinsurance to close’, contracts of RITC to be underwritten by more than one syndicate may additionally require the application to the PRA for a modification of SII Firms – Lloyds Approved Reinsurance to Close – Rule 3.1

Performance Management – Supplemental Requirements and Guidance, page 24

Partial RITC involves leaving a year of account open but paying forward a premium to the following year of account by way of reinsurance in respect of that part of the account which the managing agent considers to be readily quantifiable. Partial RITC is not permitted.

_{Performance Management – Supplemental Requirements and Guidance, page 24}

Where the RITC is to be provided by a syndicate other than a later year of account of the same syndicate (“third party RITC”), potential RITC providers have to inspect accounts and records of the closing syndicate and to ask questions of its managing agent to enable themselves to assess and quote an appropriate premium for the RITC. RITC providers therefore need to be able to rely on what is said to them by managing agents in reply to questions, particularly so where the normal duty of disclosure and the remedy of avoidance for non-disclosure do not apply. Moreover, RITC providers need to be able to rely on replies to such questions without having to load the RITC premium, at the expense of the members of the closing syndicate, to cover the risk of any negligent misrepresentation or misstatement by the closing syndicate’s managing agent.

The managing agent of the closing syndicate is not permitted to exclude its duty to its members not to make negligent misrepresentations which might result in the avoidance of reinsurances placed on their behalf. No more so should it be permitted to exclude any reliance by a RITC provider on the managing agent’s replies to questions or to exclude any duty of care to the potential RITC provider in replying to questions or any remedy in damages for breach of that duty.

Accordingly, RITC contract wordings shall not include clauses which:

1.   exclude any reliance by the reinsurer on anything said by the managing agent of the closing syndicate in relation to the contract; or

2.   exclude any liability on the part of the managing agent of the closing syndicate for any negligent misrepresentation or misstatement made by the managing agent in relation to the contract.

Nothing in this part is intended to alter the requirement set out above that all RITC contracts should include an express term to the effect that the contract shall not be cancelled or avoided for any reason, including mistake, non-disclosure or misrepresentation (whether innocent or not).

_{Performance Management – Supplemental Requirements and Guidance, pages 24-25}