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A GUIDE TO REINSURANCE LAW CHAPTER 2 FORMATION OF REINSURANCE AGREEMENTS

1st Edition, 2007

Chapter 2

FORMATION OF REINSURANCE AGREEMENTS


TEST YOUR UNDERSTANDING
1. Which of the following elements determine whether areinsurance company is carrying on business in the UnitedKingdom?
(a) the place where the agreement is negotiated and made,
(b) the place where the underwriting decision is taken,
(c) the law governing the agreement,
(d) the place where losses are paid.
2. Which of the following statements are true in relation to the authorisation requirement?
(a) a reinsurer must be authorised to carry on insurance business in the UK,
(b) a reinsurer must be authorised to carry on reinsurance business in the UK,
(c) UK authorisation confers the right to establish branches elsewhere in the EEA,
(d) UK authorisation confers the right of direct sales elsewhere in the EEA.
3. Which of the following statements are correct?
(a) an unauthorised insurer is always liable to its policy holders,
(b) an unauthorised insurer is always able to enforce its contracts with policy holders,
(c) an unauthorised insurer who has to pay its policy holders is able to recover from its reinsurers only with a court order,
(d) an unauthorised insurer who has to pay its policy holders is able to recover from its reinsurers in all circumstances.
4. Which of the following statements are correct?
(a) a slip is an invitation to treat,
(b) a subscription to a reinsurance slip is a contract of reinsurance,
(c) the law requires a policy document to be issued,
(d) a cover note issued by a broker is a binding contract of reinsurance.
5. Which of the following statements are correct?
(a) a slip is not binding until it is fully subscribed,
(b) a subscribing underwriter can never alter the terms of his subscription to a slip,
(c) the broker can withdraw an undersubscribed slip,
(d) the broker can vary the subscribed percentages to an oversubscribed slip.
6. Which of the following statements are correct?
(a) a contract of reinsurance cannot be made in advance of a contract of insurance,
(b) a contract of reinsurance made in advance of a contract of insurance is a unilateral contract,
(c) a broker who attempts to place reinsurance in advance of insurance is the agent of the reinsured,
(d) a broker can face personal liability to reinsurers when placing reinsurance in advance of insurance.
7. Which of the following statements are correct?

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(a) a slip is a temporary contract,


(b) policy wording is subject to the wording in the slip,
(c) the following market can always avoid a subscription where false statements have been made to the leading underwriter,
(d) the following market can always avoid a subscription for material nondisclosure to the leading underwriter.
8. Which of the following statements are correct?
(a) a line slip constitutes an agency agreement between underwriters,
(b) a leading underwriter clause constitutes an agency agreement between underwriters,
(c) a leading underwriter under a leading underwriter clause owes a duty of care to the following market,
(d) a leading underwriter clause is irrevocable.
9. In the Sphere Drake case, which of the following heads ofliability were faced by the underwriting agent?
(a) breach of contract,
(b) breach of duty of care,

Robert Merkin

A GUIDE TO REINSURANCE LAW CHAPTER 2 FORMATION OF REINSURANCE AGREEMENTS

1st Edition, 2007

(c) breach of fiduciary duty,


(d) conspiracy to injure.
10. Which of the following risks does the external reinsurance of the members of a reinsurance pool cover?
(a) underwriting losses incurred by the pools members,
(b) extended liability in the event of the insolvency of a pool member,
(c) breach of duty on the part of the underwriting agent,
(d) losses suffered by a fronting company when other pool members refuse to pay.
11. Which of the following statements concerning the insurable interest of a reinsurer are true?

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(a) the reinsureds insurable interest is always in its liability,


(b) the reinsureds insurable interest is always in the subject-matter insured under the direct policy,
(c) the rules relating to insurable interest under the direct policy apply to reinsurance,
(d) the reinsurer is liable to indemnify the reinsured if the reinsured has paid a direct policy holder who has no insurable
interest.

Robert Merkin

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