AXA Versicherung AG v Arab Insurance Group
| Jurisdiction | England & Wales |
| Judge | Lord Justice Christopher Clarke,Lord Justice Lewison,Lady Justice Arden |
| Judgment Date | 28 February 2017 |
| Neutral Citation | [2017] EWCA Civ 96 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2015/2548 & A3/2015/2791 |
| Date | 28 February 2017 |
[2017] EWCA Civ 96
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT, QBD, COMMERCIAL COURT
Mr Justice Males
2013FOLIO493
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Arden
Lord Justice Lewison
and
Lord Justice Christopher Clarke
Case No: A3/2015/2548 & A3/2015/2791
Charles Kimmins QC and Michael Holmes (instructed by Wynterhill LLP) for the Appellant
Simon Bryan QC and Guy BlackwoodQC (instructed by Holman Fenwick Willan LLP) for the Respondent
Hearing dates: 31 st January and 1 st February 2017
Judgment Approved
The question in this case is whether Males J was entitled to conclude that a reinsurer to whom an unfair presentation of the risk was made had failed to establish that he would have declined the risk if a fair presentation had been made to him by the reinsured.
The history
The reinsured was Arab Insurance Group (B.S.C.) ("Arig"). Arig was a well-regarded insurance and reinsurance company domiciled in Bahrain. Between 1989 and 1993 Arig insured a substantial number of energy construction risks. These comprised rig building, pipeline construction, platform construction and construction liability risks. In 1989 some 40 such risks were written.
Until 1 January 1991 the head of Arig's underwriting department was Bjorn Simenstand. He fled Bahrain when Iraq invaded Kuwait. After a gap of six months, on 9 June 1991 Lars Hylander ("Mr Hylander") replaced him. Masoud Bader ("Mr Bader") was one of the other underwriters.
On 4 September 1996 Albingia Versicherungs – AG ("Albingia") subscribed to a 50% line on a first loss treaty with Arig. Albingia was, at the time, a medium sized German insurance company based in Hamburg. Its successor in title is AXA Versicherung AG ("Axa"), the now appellant, which purchased Albingia in 1998. In 1997 Albingia subscribed to a second treaty. The underwriter who determined that Albingia should enter into those treaties was Thomas Holzapfel ("Mr Holzapfel").
The treaties
The first treaty was a facultative/obligatory first loss treaty covering marine energy construction risks attaching between I January 1996 and 30 June 1997. It applied to the first $ 500,000 of losses for any one accident or occurrence. Under the treaty Arig could choose what risks to cede. Albingia would be bound to accept them and would bear 50% of the losses on the risks ceded up to $ 500,000 (the 100% figure) per accident or occurrence. Since there was no deductible under the treaty the losses reinsured were "from the ground up", although there may have been deductibles under the inwards insurances written by ARIG which would reduce what would otherwise have been the losses thereon.
The second treaty was the 1997 renewal of the 1996 treaty. It covered risks attaching during the period from 1 July 1997 to 30 June 1998.
First loss treaties are not easy to place, for two reasons. First, and particularly if they have no deductible, the reinsurer may find himself wholly liable for a large number of relatively small losses ("attritional losses"). Secondly, the reinsured has, to the extent of the limit of the cover, "no skin in the game". Thus, in this case, in respect of losses up to $ 500,000 Arig bore no loss at all. This is to be contrasted with a quota share treaty where, although the reinsurer in a sense "hands his pen" to the insurer's underwriter, there is a sharing of profit and loss which provides an incentive to the reinsured to do everything possible to secure the former and avoid the latter.
Arig's underwriting results in respect of marine energy construction risks (ignoring reinsurance recoveries) for the 1989 to 1992 period were extremely poor. The figures as at the end of 1995 were as follows:
I call this the "voluntary particulars table".
| u/w year | Risks written | Net premium to Arig (US $) | Losses incurred (US $) | No. of losses | Loss ratio |
| 1989 | 40 | 1,932,171 | 8,185,066 | 169 | 424% |
| 1990 | 39 | 2,889,026 | 6,503,736 | 168 | 225% |
| 1991 | 31 | 3,102,597 | 3,385,176 | 116 | 109% |
| 1992 | 23 | 2,072,450 | 1,353,153 | 42 | 65% |
| 1993 | 19 | 1,935,360 | 235,531 | 5 | 12% |
| 1994 | 1 | 116,244 | 0 | 0 | 0% |
| 1995 | 3 | 109,422 | 0 | 0 | 0% |
These figures deteriorated further in 1996. To some extent the losses set out in the table would have been mitigated by the first loss reinsurance cover which Arig had between 1 October 1989 and 30 September 1992 in respect of construction risks.
The broking history
By 1995 Arig, which had written very few risks in 1994 and 1995, was keen to re-enter this market, and to reduce its exposure by obtaining reinsurance. In February 1995 Arig instructed Swire Fraser as brokers.
The history thereafter is described in the following paragraphs of the judge's judgment where he said that Arig's attempts to obtain reinsurance:
"36 …appear to have begun in about February 1995 when Mr Masoud Bader, an underwriter in Mr Hylander's department, indicated the broad scope of the cover which Arig was seeking in a fax to Mr Tony Rowe, a director of the reinsurance broker Swire Fraser. Arig was seeking a 12-month cover on a risks attaching basis for "primary/ground-up" offshore construction risks, with a limit of US $5 million. This limit was expressed to be the limit for 100% of the risk, though it was contemplated that Arig's line would generally be for a lesser proportion and could be limited to a maximum of US $2 million. This could no doubt have been subject to negotiation if matters had proceeded further. Mr Bader indicated that the estimated annual premium income to Arig would be about US $500,000 to US $750,000.
There is no evidence of what, if anything, Swire Fraser did in response to this request until late October 1995 when it was discussed by Mr Bader and Mr Rowe at a meeting in London of which no record survives. Mr Bader gave evidence, but had no recollection of this meeting. However, on 31 October 1995 Mr Rowe wrote to Mr Bader identifying the information which Swire Fraser would require in order to market such reinsurance cover. The list included "triangulated figures on the overall account", which is another way of referring to loss statistics on Arig's existing book of inwards energy construction risks."
Mr Bader of Arig obtained the underwriting statistics and sent them to Mr Rowe with an email of 16 November 1995. The judge set out the cumulative figures in the following table:
I call these "the Swire Fraser statistics".
| U/w Year | Net premium | Paid claims | Reported losses | Total losses |
| 1989 | 1,784,086 | 6,185,793 | 1,732,845 | 7,918,638 |
| 1990 | 2,883,273 | 4,972,918 | 1,509,524 | 6,482,442 |
| 1991 | 3,102,597 | 2,159,882 | 1,272,926 | 3,432,808 |
| 1992 | 2,071,049 | 823,181 | 813,963 | 1,637,144 |
| 1993 | 1,936,220 | 102,557 | 139,653 | 242,210 |
The table in [12] gives the cumulative figures as at towards the end of 1995. More detailed statistics were contained on one page of the attachment to the 16 November email headed "Underwriting Statistics". That page gives the figures year by year of Net Premiums, Paid claims, Outstanding claims (which appear in the above table as "Reported losses) and "Reported losses" (which appear in the above table as "Total losses"). Another table attached to the email headed "Actual Statistics" gave cumulative figures for Premiums and Reported losses (i.e. the equivalent to Total losses in the table above) and calculated a loss ratio both for all losses and for the first $ 5,000,000. In respect of the latter there were loss ratios of 122.65% and 190.45% for 1989 and 1990. These ratios appear to assume, contrary to what must be the position, that the reinsurer in respect of the first $ 5,000,000 receives all the premium. This table has figures for 1989 which differ somewhat from those in the table above.
There are differences between the voluntary particulars table — see [8] above — and the Swire Fraser statistics at [12] above. The figures are slightly different, no doubt because the first table is taken up to the end of December 1995 rather than November 1995 or earlier. More significantly the former table specifies the number of risks written, the number of losses and the loss ratio, which are material considerations, and the position for 1994 and 1995 which the Swire Fraser statistics do not.
Mr Bader's "As ifs"
Mr Bader also provided some statistics designed to show the basic 1989 – 1993 figures in a more favourable light. First, he omitted losses where Arig's share of the loss was less than $ 50,000; then he adapted those figures by using current deductibles ($ 500,000 for pipeline laying and $ 250,000 for offshore construction); and then a fixed $ 1 million deductible. Second, he used current premium rates, which were taken as double the rates originally used. Third, he used those rates and current deductibles. Lastly, he used current rates and a fixed $ 1 million deductible. I call these "Mr Bader's as ifs". As the judge pointed out [41] there was nothing wrong with using these ways of presenting figures alongside the actual losses so long as it was made clear what each set of figures represented.
It has become apparent that the use of the phrase "as if figures" is ambiguous and apt to confuse since it may be unclear what adjustment to what figures the phrase is said to represent.
The Swire Fraser broke was not successful. On 28 November 1995 Mr Rowe reported that he had spoken to a few potential underwriters and that the underwriter showing the most interest had asked for more particulars of the rate rises for construction risks over recent years and more information about the deductibles which Arig had...
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