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30 INSPECTION PROVISIONS

Reinsurance Practice and the Law

Chapter 30 INSPECTION PROVISIONS WHY INSPECT? 30.1 Inspections are a usual method for reinsurers to find out information about the underwriting of business ceded to a treaty and the claims handling and reserving practices of the reinsured. Traditionally, one of the hallmarks of treaty reinsurance has been that reinsurers are not given information about the underwriting of the account, which is protected after they have agreed to participate; nor are they provided with any detailed information about the claims which are presented to them for agreement and settlement. For instance, proportional business claims are normally settled by means of treaty accounts which may contain no information at all about the underlying claims. The claims information for losses arising under excess of loss contracts is usually sparse, as it is often restricted to either the name of a well-known market catastrophe such as “Hurricane Katrina” or “World Trade Center”, or a general description such as “aggregate products liability losses”. In view of the way reinsurance is conducted, one of the most important protections which reinsurers have is to inspect the books and records of reinsureds.

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