The case concerns construction of the Lugano convention for the purposes of a reinsurance contract. London reinsurers sought to avoid a reinsurance contract placed with them on behalf of a reassured domiciled for the purposes of the Lugano Convention in Sweden. Under Section 3, therefore, a reinsurer does not have to sue a reassured in its domicile. Lord Woolf said that this was because, unlike an ordinary insured, the reassured cannot conventionally be regarded as a weaker party than the reinsurer.
All insurance is about managing risk.
Direct insurance protects the insured against extraordinary risks outside the ordinary course of events, whether in his private life or in his business dealings. Reinsurance is concerned with the management of risks which it is in the ordinary business of both parties to underwrite. It is essentially a professional hedging operation by which, by the only means known to the law, the insurer assigns all or part of his insurance liabilities to the reinsurer. The obligation existed during as well as before the contract.