Reinsurance contracts can be complex documents, especially when clarity is not the principal objective of the drafter. Even so, a diligent auditor may spot the continuing obligation of an insurer under a multi-year arrangement and insist upon its being accrued for in the company’s accounts. If this would defeat the object of the arrangement (which could certainly be true in some cases) a way round the problem was to have no mention of the renewal obligation in the treaty itself, but to make this commitment the subject of a separate document, referring to the treaty but not actually mentioned in it. Such documents, often called ‘side letters’, might never be disclosed to an auditor.

Much recent comment has focussed on the correct way of accounting for these arrangements (with the inevitable calls for ‘transparency’, a word that is open to at least as many interpretations as ‘nice’) often referring to them as ‘loans’. The concise OED defines a loan as ‘something lent, esp. a sum of money to be returned normally with interest’. A loan can take the form of tangible property, of course, however we are not talking about that here. But if liabilities are taken off a balance sheet for a premium, what exactly is being lent? The use of a balance sheet that is not going to be given back? In the case of the simple time and distance treaty, referred to at the start of this article, where the future investment income risk has been irrevocably shifted, it is not easy to see why any special accounting treatment should be thought necessary.