As one delves into the more technical aspects of a reinsurance contract, the term "bordereau" often comes up. The uninitiated may immediately recoil from a word like bordereau, but those who have been around the block know that a bordereau is just a list or report. But is it just a list?
The venerable Robert W. Strain, whose final reinsurance and contract wording training course was conducted in July this year, defines bordereau as follows:
Furnished periodically by the reinsured, a detailed report of reinsurance premiums or reinsurance losses. A premium bordereau contains a detailed list of policies (or bonds) reinsured under a reinsurance treaty during the reporting period, reflecting such information as the name and address of the primary insured, the amount and location of the risk, the effective and termination dates of the primary insurance, the amount reinsured and the reinsurance premium applicable thereto. A loss bordereau contains a detailed list of claims and claims expenses outstanding and paid by the reinsured during the reporting period, reflecting the amount of reinsurance indemnity applicable thereto. Bordereau reporting is primarily applicable to pro rata reinsurance arrangements and to a large extent has been supplanted by summary reporting.
Strain, Robert W., ed. Reinsurance Contract Wording. Athens, TX: Strain Pub, 1992.
The IRMI.com Glossary definition of bordereau is: "A report providing premium or loss data with respect to identified specific risks. This report is periodically furnished to a reinsurer by the ceding insurers or reinsurers." A single report or list is a bordereau. When describing more than one bordereau, add an "x" after the "u" to make the term plural: "bordereaux."
The word "bordereau" derives from the middle French word "bordrel" and from the old French word "bort," which means edge or margin. Merriam-Webster's shows the first known use around 1858, but A Treatise on the Law of Principal and Agent, Chiefly with Reference to Mercantile Transactions (Paley, William. 3rd ed. New York: Banks, Gould, 1847) mentions bordereau in the context of a statement or memorandum listing the details of negotiable instruments. Earlier uses can also be found if you search the Internet or hang out in dusty corners of business libraries.
Interestingly, the errors and omissions clause found in many reinsurance contracts was developed in the time when all information received by the reinsurer was presented on comprehensive bordereaux. The errors and omissions clause was created to ensure that coverage was provided even though an item was inadvertently left on a bordereau. Salm, Robert F. "Reinsurance Contract Wording." In Reinsurance. Athens, TX: Strain Pub, 1980. See our Expert Commentary, When Errors Occur in a Reinsurance Relationship (December 2002).
Bordereau is just one of many terms of art used in the reinsurance industry. Terms of art are often used to set a particular industry or profession apart from others by using jargon that has a "special" meaning only understood by those working in that industry or profession. As Professor Kingman Brewster Jr. said, "[i]ncomprehensible jargon is the hallmark of a profession." As with most terms of art, "bordereau" was used instead of report or list by reinsurance professionals and became common usage in the industry in the 1800s.
Types of Bordereaux
The term bordereau is used to describe most lists or reports of premium or losses required under the reinsurance contract from the reinsured to the reinsurer. In the facultative context, where an individual risk is reinsured, a bordereau is not necessary. The premium report is the reinsurance premium paid for the facultative certificate for that individual risk. On the loss side, typically there is individual loss reporting. But if a facultative certificate generates multiple losses emanating from an individual risk, monthly or quarterly reports listing all claims and all payments on claims attributable to that single risk may be deemed a bordereau.
In the treaty context, a premium bordereau is merely a detailed report of the premiums ceded from each of the underlying policies subject to the proportional reinsurance treaty. Typically, the premium bordereau will set out policy-level detail, including the gross premium, the brokerage if any, and the ceded premium, along with basic details for each policy ceded to the treaty. The premium bordereau is also the initial method by which the reinsurer finds out the exact details of the business being written by the reinsured and assumed by the reinsurer.
Typically, the reinsurance contract will specify the reporting requirements for the periodic premium bordereau. Many reinsurers are now standardizing the format for these bordereaux and accepting them electronically either in a proprietary format based on the reinsurance accounting system being used or in a common format like Excel. Certain statistical organizations and industry compilers of information in certain markets have standardized electronic bordereau reporting.
The premium bordereau typically goes directly to the reinsurer's accounting function so that the ceded premium can be booked. Nevertheless, it is important for the reinsurer to examine the premium bordereau for anomalies in either the premium volume or the risk information being supplied. The premium bordereau also serves as an important tool for the reinsurer when selecting certain risks for audit should the reinsurer engage in periodic audits of the business being ceded to the treaty.
A proportional treaty typically will have reporting requirements for losses, and these often manifest as a loss or claims bordereau. The reinsurance contract will set out the information requirements for the loss bordereau. Generally, the loss bordereau will contain risk details such as the insured's name, claimant's name, policy number, claim number, effective date, date of loss, loss reserve, expense reserve, and any paid losses or expenses. The loss bordereau, like the premium bordereau, generally is provided in electronic format and often in a standardized design. On a quota share treaty, the loss bordereau is often the only way the reinsurer will obtain information about the losses being ceded to the treaty unless there are special reporting requirements for certain risks. Like the premium bordereau, the loss bordereau will be the tool against which the reinsurer will make selections when doing a claims audit.
Reinsurance Contract Requirements
Not every reinsurance contract requires premium bordereau reporting. Very often, reporting clauses require summary accounting information rather than the individual risk detail typically found in bordereau reporting. For example, a reporting clause may provide simply as follows:
The Company shall render a monthly account within __ days after the end of the period. This account shall summarize premiums, return premiums, allowances for commissions, losses paid, loss adjustment expenses paid, and salvage recovered. The account shall also reflect the balance due by either party.
These monthly or quarterly reports are merely account statements summarizing the business under the treaty and do not provide policy-level detail. Where the reinsurance contract does not prescribe detailed bordereau reporting, the reinsurer must audit periodically to test the business being ceded and to ensure compliance with the terms of the reinsurance contract.
Where bordereau reporting is required, the reinsurance contract will express the detailed information required. For example:
The Company shall furnish the Reinsurer with the following:
1. Bordereau within 30 days after the last day of each month, payable within 60 days after the last day of each month. The bordereau is to include the following items:
A. Name of Insured B. Policy Number C. Effective/Expiration Dates D. Type of Transaction (New, Renewal, Endorsement, or Cancellation) E. Policy Limit F. Premium G. Ceding Commission H. Net Premium
Although terms of art and industry jargon are off-putting to many, industries like the reinsurance industry are littered with these expressions and words. Yet, words like bordereau, once the meaning is known, are no longer mysterious and are easily understood and put to common use.
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