Arbitration Clause

Arbitration process will be used to resolve disputes between the parties

to the treaty
Typically conduct by a panel of disinterested 3 rd parties who are
familiar with insurance and reinsurance practices
Arbitration required
The parties must use an arbitration panel if they are unable to settle a dispute
The stipulation As a condition precedent to any right of action hereunder
means that before either party can take legal action, the party must be
arbitrated.

Time Limits
Specify that arbitrators must be appointed within a specified time limit usually
30 days
The parties have a prescribed time within which to present their cases to the
arbitration panel
The panel has authority to approve time extensions to allow all materials and
witnesses statement to be presented

Arbitration Clause
Arbitrators qualification
Must active or retired executives of insurers or reinsurers
executive mean a senior officer, a vice president or
someone with high rank
A person has not actively participated in reinsurance treaty
negotiations and practices until reaching a senior level
An executive has a broad enough background in insurance
practices to consider both sides of a dispute

Must be disinterested in the arbitration proceedings

They usually indicate any involvement they had or have
with either of the parties to the arbitration, particularly if
they served as appointed arbitrators in a previous
arbitration

Arbitration Clause
Rules of Procedure and Evidence
The arbitrators are relieved of all judicial formality and shall
not be bound by the strict rules of procedure and evidence
the panel should make its decision based on insurance and
reinsurance custom and usage
Arbitrators are not jurists but specialist in the subject giving
rise to the dispute
Arbitrator should use their best judgment to determine the
agreements original intent and rule accordingly

The decision
The decision of any two arbitrators is binding on both parties
and that any court having jurisdiction can enter the judgment
Arbitration panel does not have power to enforce its decision

Offset Clause
Allow insurer and reinsurer to offset balances
due to each other
Offsets can apply to premium and losses
between the same parties within a single
treaty (narrow offset) or across multiple
treaties (broad offset)
Broad offset would allow the primary insurer
and reinsurer to consider all balances due to
one another from all their reinsurance treaties
together in determining the net amount owed

Errors and Omissions Clause

Neither party is relieved from its
obligations under the treaty because of an
inadvertent error or omissions
Mistakes such as failing to cede loss
exposures that should have been ceded or
ceding loss exposures that do not fall
within the reinsurance treatys scope, are
not a basis to void the treaty as long as
these mistakes are corrected when
discovered.

Common Reinsurance Treaty Clauses

Required Under State Regulation
Several clauses is required in
reinsurance contracts by state regulators
so that primary insurers can qualify for
financial statement credit for reinsurance
Service of suit clause
Insolvency clause
Intermediary clause
Unauthorized reinsurance clause
Funding clause

Service of Suit
Allows the primary insurers to seek a legal remedy from
a court in a convenient jurisdiction when the reinsurance
treaty involves an international reinsurer that is not
licensed or otherwise authorized to sell reinsurance in US
Allows the reinsurer to commence a suit in any court of
its choosing in the US that has jurisdiction
Designates an agent for service of purpose, usually is a
law firm that represents alien reinsurers (who is
domiciled in a country other than the US) OR could be an
individual or the insurance commissioner in the primary
insurers state of domicile
Requires the reinsurer to abide by the final court
decision, allowing, however, for an appeal

Insolvency Clause
Indicates that the primary insurers
bankruptcy does not affect does not affect
the reinsurers liability for losses under the
reinsurance agreement
Items are specifically addressed in the clause
Without diminution
Notice requirements
Right to investigate and denied
Reimbursable expenses
Reinsurance proceeds payable