NAIC Approves Finite Reinsurance Disclosure Requirements
October 17, 2005
Kansas City, Mo. - The National Association of Insurance Commissioners (NAIC) has formally approved enhanced disclosure requirements for insurers that utilize reinsurance with limited risk transfer features, also known as finite reinsurance.
The use of finite reinsurance has received considerable attention over the past several months, because of its misuse by some high-profile insurers, reports Kansas City-based NAIC. State insurance regulators, working in a coordinated fashion through the NAIC, have been evaluating existing relevant statutory financial reporting since last year.
The disclosures adopted for the 2005 annual statement require a property and casualty insurer to report to state insurance regulators the contract terms and management objectives of any finite reinsurance agreement that has the effect of altering policyholders' surplus by more than three percent, or representing more than three percent of ceded premium or losses. The adopted proposal also requires the insurer's CEO and CFO to sign an attestation that there are no side agreements and that risk transfer has occurred.
"We believe the adoption of this proposal paves the way for greater uniformity in the disclosure requirements of insurers that utilize finite reinsurance. In fact, as a result of the NAIC's action, New York and Florida have already eliminated similar disclosure requirements that they intended to impose on companies," said Joe Fritsch, Director of Insurance Accounting Policy for the New York Insurance Department and chair of the NAIC group that instigated the new disclosure. "The adoption of this proposal will provide financial regulators greater transparency needed to assess the impact of finite reinsurance on the industry and on individual insurers."