The reinsurer should not incorporate the underlying wording into the reinsurance agreement. Frequently, in the London Market, the reinsurance slip may incorporate the underlying wording by using phrases similar to “subject to the same terms and conditions as original” or “being a reinsurance of and warranted same gross rates, terms and conditions as original”.

This would enable the reassured to argue that an underlying jurisdiction clause should be incorporated or perhaps a narrowly drafted war exclusion clause.

The reinsurer should include its own widely drafted war exclusion 
clause in the reinsurance wording.

The reinsurer should include a claims control clause.

If commercially possible, the reinsurer should avoid including a follow 
the settlements clause.

Typically, the “follow the settlements clause” and the words of incorporation of the underlying policy may be included in the same phrase typical of the “full reinsuring clause” found in the “Lloyd’s J Form”. As demonstrated by the reinsuring Company of Africa v. SCOR (UK) Reinsurance Co. [1985] 1 Lloyd’s Rep. 312, the inclusion of a claims control clause and a clause by which the reinsurer undertakes to follow the settlements of the reassured are incompatible. In that particular case, the “follow the settlements clause” was read down in favour of the claims control clause. However, their Lordships in the case of Forsikringsaktieselskapet Vesta v. Butcher [1989] 1 Lloyd’s Rep 331 suggested that a “follow the settlements clause” and a claims control clause are so clearly contradictory that both clauses could be ignored. If that is the effect, then the reassured would be required to prove its liability and quantum, but it would remove the reinsurer’s control over settlement.

The Court of Appeal in ICA v. SCOR stated that providing the reassured has acted honestly and taken all reasonable steps in making any settlement, the reinsurers were obliged to indemnify it. The wise reinsurer would not include a follow the settlements clause in a contract covering an area of potential political upheaval. This may be impossible for commercial reasons, although all is not lost. By including clauses in the reinsurance wording different to those in the insurance policy, the character of the reinsurance is changed so that it is no longer back to back insurance (although it does then provide the courts with the problem of dealing with competing clauses).