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IAI Actuarial Core Principles · Business Management · Trusts and agency

Rahul, an actuary, is engaged by an insurer as its agent to negotiate a reinsurance treaty. During negotiations, the reinsurer secretly offers him a personal commission if the treaty is signed. What is the legal consequence if Rahul accepts it without telling the insurer?

Accepting the undisclosed commission breaches his fiduciary duty as agent. The agent must not make secret profits, so the insurer can recover the payment and may end the agency, whether or not the treaty price was affected or the insurer lost money.

  1. AIt is a breach of his duty as agent, and the insurer may claim the secret profit from himCorrect
  2. BIt is permissible because the treaty price was not affected
  3. CIt is permissible if the commission is below ten per cent of the premium
  4. DIt is valid only if the reinsurer is a larger firm than the insurer
  5. It affects only the reinsurer, as the insurer suffered no loss

Explanation

An agent must not make a secret profit or take a bribe from the other side. The principal can recover the amount and may also terminate the agency, even if no loss is shown. Size of the commission or absence of price effect is irrelevant.

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