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IAI Actuarial Core Principles · Business Management · Trusts and agency

Kavita, an actuary, is a consultant to Sahara Life Ltd. She is engaged as its agent to negotiate a reinsurance treaty. During negotiations, she secretly accepts a commission from the reinsurer for steering the business to it, without telling Sahara Life. Which statement best describes the legal position?

Kavita must hand over the secret commission to Sahara Life, which may also rescind the treaty and dismiss her. An agent is a fiduciary and cannot take undisclosed benefits from the other side, whether or not the principal suffered loss.

  1. AKavita may keep the commission because the treaty was concluded on fair terms
  2. BKavita must account to Sahara Life for the secret commission, and Sahara Life may be entitled to rescind the treaty and dismiss herCorrect
  3. COnly the reinsurer is liable, because it paid the commission
  4. DKavita is liable only if Sahara Life suffered an actual financial loss
  5. The commission is lawful provided it is below 5% of the premium

Explanation

An agent owes fiduciary duties and must not make a secret profit or have a conflict of interest. The principal can recover the secret profit, may repudiate the agent's acts and dismiss her. Loss need not be shown, so option D is wrong.

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