Also referred to generically as an "inspection" or
"audit" clause, is one of the most significant contract rights that a
reinsurer has under a reinsurance agreement. The purpose of this clause is to
grant the reinsurer the right to inspect the cedent's books and records
applicable to the reinsured business. This is one of the few methods reinsurers
have to evaluate the business being ceded to them under their reinsurance
agreement and to ascertain whether the cedent is following the terms and
conditions of the agreement, in particular the accuracy of policy and claim
cessions and premium calculations. A typical access to records clause provides
as follows.
The Reinsurer or its designated representatives
shall have free access to the books and records of the Company on matters
relating to this reinsurance at all reasonable times for the purpose of
obtaining information concerning this Contract or the subject matter
hereof.
More recent access to records clauses are more limited and specific as to
the scope, timing, and method of inspection afforded a reinsurer.
Access to records clauses are found in most reinsurance agreements. The
right of inspection is so ingrained in the reinsurance industry custom and
practice that there is support for the proposition that the reinsurer has this
right even in the absence of an express clause.