The Code defines contract certainty as the “full and final agreement of all terms and conditions between the (re)insurer and the (re)insured at the time of binding.” Certainty must be evidenced by a binder, cover note or similar which reflects all agreed terms and conditions.
The Code requires that the following principles are adhered to:
Prior to binding:
1. brokers will ensure that (re)insurers have a submission that includes all necessary information;
2. brokers will notify all terms to the (re)insured and obtain agreement;
3. the broker and the (re)insured are jointly responsible for ensuring all terms and conditions are agreed by the (re)insurer and (re)insured; and
4. final committed capacity must be agreed with (re)insurers.
At binding:
1. subjectivities must be clearly identified and be agreed by all parties in advance. If a quote/term is bound subject to additional information, the deadline for receipt of that information will be clearly specified and agreed. Implications for not meeting subjectivities will also be clearly specified and agreed by all parties; and
2. formal evidence of cover will be issued which fully adheres to the formal quotation on which a binding order was issued.
Post binding any amendments will be agreed by all parties before becoming effective and will be documented as endorsements.
ABIR and BIRBA expect their members to monitor and evaluate their compliance with the principles in relation to the recent July 1 renewals and throughout the calendar year. Analysis of the test period results will take place prior to 1 January 2009 to create a benchmark that can be used in 2009 and beyond.
In 2004, the Financial Services Authority in the UK challenged the market to provide an industry solution to the considerable contract certainty issues it faced. The result was a comprehensive market led project that has been ongoing ever since. The Code is currently far less detailed than its UK counterpart; this may reflect the fact that the Bermuda market is newer, historically smaller and generally perceived to face fewer contract certainty issues or it may simply be the start of a process aimed at identifying the extent of the issues the Bermuda market faces. The Bermuda contract certainty initiative will reduce the operational and financial risk within the Bermuda market and will assist in maintaining the competitiveness of the Bermuda market.
