NAIC committee unanimously passes reinsurance asset-testing guideline
A new asset-testing guideline for reinsurance deals will result in no direct action, even if regulators uncover negative numbers.
The Life Insurance and Annuities Committee adopted the asset adequacy testing guideline on Monday. But not before hearing from critics who say the guideline goes too far, and also, not far enough.
The Life Actuarial Task Force, comprised of National Association of Insurance Commissioners members, worked for about 18 months to create the guideline. LATF finished work and adopted the guideline last month. The Executive Committee will vote next on the guideline.
Regulators want to require initial data reporting by April 1, 2026. The guideline is completely disclosure based, a concession to industry, said Fred Andersen of the Minnesota Department of Commerce.
“There’s no plan for negative results to mean NAIC-coordinated action would take place,” Andersen said Monday. “I see any findings as being the start of a conversation with the company.”
After the first year of review, if most of a company’s asset-testing information is acceptable, “we may just end there,” Andersen explained. “If there’s an outlier case or two, I think those would be handed off to the domestic regulator.
“But if it’s determined that there’s an issue beyond a few outliers to address, we will reconvene public discussions and determine next steps in this discussion involving interested parties.”
The guideline should impact around 100 reinsurance deals industry-wide, Andersen said, instead of the 1,000 or so originally contemplated.
The Reinsurance Association of America objected to the guideline, both in writing and on the call.
“The RAA remains seriously concerned that the current draft of [the guideline] contains provisions that potentially conflict with the United States’ international obligations under the U.S.–EU and U.S.–UK Covered Agreements,” the RAA wrote.
A covered agreement is an international agreement that relates to insurance or reinsurance prudential measures.
‘An educational exercise’
Peter Gould contrasted the industry comments with a consumer view. Gould is a retiree from Indiana who owns annuities and joined many of the NAIC calls over the past year. Gould again lobbied for “guardrails,” or at least the intent to establish guardrails upon analysis of the initial 2025 data reports.
“As it stands, the guideline you’re considering is disclosure-only, or as an industry lobbyist put it, an educational exercise,” he quipped.
The initial proposal to tighten the reins on reinsurers was made in February 2024 by David Wolf, acting assistant commissioner for the New Jersey Department of Banking and Insurance, and Kevin Clark, chief accounting and reinsurance specialist with the Iowa Insurance Division.
U.S. life insurers have nearly doubled their ceded reserves since 2019, increasing from $710 billion to $1.3 trillion in 2023, Fitch Ratings noted in a recent report. During the same period, reserves ceded to offshore jurisdictions nearly quadrupled, exceeding $450 billion.
State regulators always have the option to require more reserves from an insurance company, Wolf noted during meetings.
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