US NAIC approves finite reinsurance disclosure requirements

The full body of the National Association of Insurance Commissioners (NAIC) recently approved enhanced disclosure requirements for US insurers that utilize finite reinsurance reinsurance with limited risk transfer features.
The recent misuse of finite reinsurance by a few major insurers has place its use in the media spotlight and as such insurance regulators have been working through the NAIC to re-evaluate the existing financial reporting requirements.
The result of this year’s worth of evaluation has culminated to a new statute for disclosures. For the 2005 annual statement, a proposal has been adopting requiring that a p&c insurer must report to state insurance regulators the contract terms and management objectives of any finite reinsurance agreements that have the effect of altering policyholders’ surplus by more than 3%, or representing more than 3% of ceded premium or losses.
The adopted proposal also requires the insurer’s CEO and CFO must 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,” Joe Fritsch, director of insurance accounting policy for the New York Insurance Department and chair of the NAIC group that instigated the new disclosure, says. “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.”