A Life Reinsurance Perspective FOLLOW THE FORTUNES Ian Enright & Dana Wiele 30, September 2014

 Introduction  Purpose of FTF terms  Related terms and concepts: “as original” and “back to back”  Variations in Terms: follow the settlements, loss settlements Follow the Fortunes A Life Reinsurance Perspective 2

 Follow the Fortunes. The Reinsurer shall, in all cases, follow the fortunes of the Cedant making payment as the Cedant makes payment in regard to the policies reinsured under this Agreement. It is the true intent of this Agreement being that the Reinsurer shall experience the economic benefits and detriment of the policies as the Cedant experiences them and the Cedant shall be free to exercise discretion in administering all aspects of the policies reinsured. Follow the Fortunes Typical Clause 3

 Follow the Fortunes. The Cedant shall administer the policies reinsured hereunder. Reinsurer shall reimburse the Cedant for claims paid in accordance with the terms of the policies to the extent paid by the Cedant.  Follow the Fortunes. The Reinsurer’s liability shall attach simultaneously with that of the Cedant and shall be subject in all respects to the same risks, terms, conditions, interpretations, waivers, modifications, alternations and cancellations as the respective insurances (or reinsurances) of the Cedant, the true intent of this Agreement being that the Reinsurer shall, subject to the conditions and limits of this Agreement, follow the fortunes and settlements of the Cedant. Follow the Fortunes Clause Alternative Variations 4

 At the moderate end of the FTF spectrum, the phrase is interpreted to mean that the reinsurer will pay as the direct insurance company pays as long as the direct insurance company is acting reasonably within the terms of the reinsured policy in making its payments and decisions  At the extreme end of the FTF spectrum, the phrase is interpreted to mean that the direct insurance company has complete discretion to decide what should be paid Follow the Fortunes Wide Interpretations of the Clause 5

 Scope of FTF:  Vitiating Flaws in Negotiations  Coverage  Quantum Follow the Fortunes A Life Reinsurance Perspective 6

Follow the Fortunes  Concentration of Risk  Life: little, except possible for group insurance.  Non-life: can be significant– 9/11, Katrina.  Duration of Risk  Life: long term, cannot be cancelled.  Non-life: short or long, can be cancelled.  Cedant Insolvency  Life: continues to operate (mandated insolvency clause).  Non-life: can be cancelled.  Premiums  Life: fixed for life (except for term).  Non-life: can be changed at renewal.  Claims  Life: known amount, predictable experience.  Non-life: unknown amount, volatile timing.  Reserves  Life: conservative, set by valuation law.  Non-life: subject to wide variation. Benefit Types and Claims 7

 Comparison – USA and Anglo/Australian law on FTF:  Honesty  Good Faith and Onus  Business-like  Retrocession Follow the Fortunes A Life Reinsurance Perspective 8

 Liability in favor of third persons  For ex gratia claims,  For claims paid as the result of Remedial Actions. For the purposes of this Article, “Remedial Actions” are those remedies initiated or agreed to or imposed upon the Cedant as a means of addressing past market conduct, or a type of action not consented to by the Reinsurer in one or more jurisdictions in which the Cedant writes business.  For fines, penalties and damages which are the result from actions not approved or ratified in writing by the Reinsurer under Article 10 Claims.  For Business Case Policies (those policies knowingly issued outside of the underwriting guidelines and terms as provided for in the treaty For claims paid by the Cedant not in adherence to the terms and conditions of the policies reinsured, as such terms and conditions are reasonably interpreted by the Cedant. Follow the Fortunes What Liability Should Follow the Fortunes Not Bring to Reinsurer 9

 Commercial Approaches in Life Reinsurance  Claims Guidelines  Claims Consultation Limits  Claims Approval Limits  Dispute and Litigation Protocols  Variation of Limits  Dealing with Errors and Omissions  Audit Follow the Fortunes A Life Reinsurance Perspective 10

 Conclusion Follow the Fortunes A Life Reinsurance Perspective 11

Ian Enright +61 (2) Dana C. Wiele +1 (636) Thank you for your attention. 12