The following are two different versions of the follow the fortunes clause used in the market:

Version 1

“The liability of the Reinsurers shall attach simultaneously with that of the Reinsured, and shall be subject in all respects to the same risks, terms, conditions, waivers, and to the same modifications, alterations and cancellations as the respective original insurance (or reinsurance) of the Reinsured, the true intent of this Agreement being that the Reinsurer shall, in every case to which this Agreement applies, follow the underwriting fortunes of the Reinsured.
Nothing shall in any manner create any obligations or establish any rights against the Reinsurer in favour of any third parties or any persons not parties to this Agreement.”

Version 2

“All cessions under this Agreement shall be subject to the same terms and conditions as those binding upon the Reinsured under the original acceptances.

The Reinsurers shall, subject to the terms and conditions of this Agreement, follow the underwriting fortunes of the Reinsured.”

QUESTION TO PONDER

A reinsured makes a Non-Standard claim or a Exgratia claim.

Will the reinsurers follow the fortunes of the reinsured (if reinsured had not taken prior permission of the reinsurers) under

a) Version 1
b) Version 2
c) Will not follow the fortunes in either of the versions
d) Will follow the fortunes in both the versions.
e) Version 1: Non-Standard claims reinsurers will follow the fortunes but not for Ex-gratia claims
f) Version 2: Non-Standard Claims reinsurers will follow the fortunes but not for Ex-gratia claims.

Blog by Atmaram Cheruvu