The National Association of Insurance Commissioners voted late last week to enhance disclosure requirements for insurance companies 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. 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 3 percent, or representing more than 3 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,” 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. Fritsch said that New York and Florida have already eliminated similar disclosure requirements. “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.”