There has been a move in the reinsurance business towards what has been called “contract certainty.” As an attorney, I’m all for contract certainty, whatever that is. The reinsurance world has long been more casual and fluid with respect to contracts than on the insurance side. Evidence of a reinsurance agreement may have been as informal as the legendary cocktail napkin agreements, although there was usually a document that is called a “slip.” The slip usually had all of the important elements of the contract spelled out followed by a listing of clauses that were considered to be standard. Since relationships were frequently long lasting and between parties that knew each other well, if there were problems they would be worked out between the parties and terms would be adjusted. There were times that the term of the agreement would have ended before it was reduced to a complete signed document with all of details spelled out.

The reinsurance world moved on and relationships became more distant. Parties began insisting on something more than just a handshake or a slip, particularly after the events of September 11th. Although the disputes involved an insurance agreement, the point of not having agreement to all of the terms is equally applicable to the reinsurance contract.

Auditors and regulators were rightfully concerned that, without all of the terms spelled out, how could they be sure that the reinsurance recoverables or payables that companies would show on their balance sheets were correct. I submit that there is one clause that appears in almost every reinsurance contract which actually contributes to contract uncertainty, the arbitration clause.