Application of proceeds of contracts of reinsurance
562A Application of proceeds of contracts of reinsurance
This section applies where:
a company is insured, under a contract of reinsurance entered into before the relevant date, against liability to pay amounts in respect of a relevant contract of insurance or relevant contracts of insurance; and
an amount in respect of that liability has been or is received by the company or the liquidator under the contract of reinsurance.
Subject to subsection (4), if the amount received, after deducting expenses of or incidental to getting in that amount, equals or exceeds the total of all the amounts that are payable by the company under relevant contracts of insurance, the liquidator must, out of the amount received and in priority to all payments in respect of the debts mentioned in section 556, pay the amounts that are so payable under those contracts of insurance.
Subject to subsection (4), if subsection (2) does not apply, the liquidator must, out of the amount received and in priority to all payments in respect of the debts mentioned in section 556, pay to each person to whom an amount is payable by the company under a relevant contract of insurance an amount calculated in accordance with the formula:
Start formula start fraction Particular amount owed over Total amount owed end fraction times Reinsurance payment end formula
where:
particular amount owed means the amount payable to the person under the relevant contract of insurance.
reinsurance payment means the amount received under the contract of reinsurance, less any expenses of or incidental to getting in that amount.
total amount owed means the total of all the amounts payable by the company under relevant contracts of insurance.
The Court may, on application by a person to whom an amount is payable under a relevant contract of insurance, make an order to the effect that subsections (2) and (3) do not apply to the amount received under the contract of reinsurance and that that amount must, instead, be applied by the liquidator in the manner specified in the order, being a manner that the Court considers just and equitable in the circumstances.
The matters that the Court may take into account in considering whether to make an order under subsection (4) include, but are not limited to:
whether it is possible to identify particular relevant contracts of insurance as being the contracts in respect of which the contract of reinsurance was entered into; and
whether it is possible to identify persons who can be said to have paid extra in order to have particular relevant contracts of insurance protected by reinsurance; and
whether particular relevant contracts of insurance include statements to the effect that the contracts are to be protected by reinsurance; and
whether a person to whom an amount is payable under a relevant contract of insurance would be severely prejudiced if subsections (2) and (3) applied to the amount received under the contract of reinsurance.
If receipt of a payment under this section only partially discharges a liability of the company to a person, nothing in this section affects the rights of the person in respect of the balance of the liability.
This section has effect despite any agreement to the contrary.
In this section:
relevant contract of insurance means a contract of insurance entered into by the company, as insurer, before the relevant date.
The statute text is free to read above. View subscription options to unlock the case-law research tools for each provision.