Philippine American Life Insurance (PHILAM) v. Auditor General; No. L-19255. January 18, 1968

There should not be any misapprehension as to the distinction between a reinsurance treaty, on the one hand, and a reinsurance policy or a reinsurance cession, on the other.

  • A reinsurance policy is thus a contract of indemnity one insurer makes with another to protect the first insurer from a risk it has already assumed.
  • A reinsurance treaty is merely an agreement between two insurance companies whereby one agrees to cede and the other to accept reinsurance business pursuant to provisions specified in the treaty. The practice of issuing policies by insurance companies includes, among other things, the issuance of reinsurance policies on standard risks and also on substandard risks under special arrangements.

Reinsurance treaties and reinsurance policies are not synonymous. Treaties are contracts for insurance; reinsurance policies or cessions x x x are contracts of insurance.”

Philamlife’s obligation to remit reinsurance premiums becomes fixed and definite upon the execution of the reinsurance cession. Because, for every life insurance policy ceded to Airco, Philamlife agrees to pay premium. It is only after a reinsurance cession is made that payment of reinsurance premium may be exacted, as it is only after Philamlife seeks to remit that reinsurance premium that the obligation to pay the margin fee arises.

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