NAMIC Protests AICPA Draft Statement

November 29, 2002

A recent draft statement by the accounting profession on risk-transfer features of certain forms of quota-share reinsurance was the target of a protest by the Accounting Committee of the National Association of Mutual Insurance Companies (NAMIC).

“Accounting for Quota-Share Reinsurance Contracts with Features that Limit Insurance Risk,” issued by the American Institute of Certified Public Accountants (AICPA) appears to be the accounting profession’s signal it intends to tighten the use of quota-share reinsurance with caps or corridors, according to NAMIC. Caps or corridors are features of the reinsurance contract that modify transfer of risk.

The AICPA, which represents the accounting profession, particularly the four remaining large CPA firms, had some time ago begun signaling intent to interpret accounting authority in such a way as to limit acceptability, for purposes of credit for reinsurance, of quota-share reinsurance contracts with caps or corridors.

“These kinds of reinsurance contracts are valuable to primary carriers, particularly mutual companies,” William Boyd, NAMIC’s financial regulation manager, said, “and it is not in our interest to see their use diminished. Mutual companies, in particular, need the capital made available by such reinsurance arrangements.”

NAMIC’s letter to the AICPA, which may have a role in accounting guidance that governs use of quota-share reinsurance with caps or corridors, said “We are concerned about the lack of industry participation in the preparation of a position paper that is receiving apparent strong consideration as relevant accounting literature.”

NAMIC’s letter addressed to the chair of the AICPA’s Insurance Company Liaison Task Force, can be found at:
http://www.namic.org/pdf/AICPAletter111502.pdf

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