June 25, 2024

Regulators move forward with offshore reinsurance ‘concepts’

The Life Actuarial Task Force voted Thursday to expose a pair of reinsurance documents designed to move regulators closer to an actuarial guideline to tighten oversight of offshore arrangements.

The documents deal with different aspects of asset adequacy testing. Comments will be received until July 20. Regulators spent the better part of the hour-long call discussing eight “considerations for a consensus” presented by Fred Anderson of the Minnesota Department of Commerce:

1. Need for reserve adequacy review beyond or as part of collectability review
2. Materiality threshold for no additional disclosure, attribution analysis, or cash-flow
testing
3. More rigorous and/or more frequent analysis to the extent there are significant risks
4. Analysis considerations
5. Aggregation considerations
6. Attribution analysis details
7. Use of information already available
8. Timing of development and implementation of requirements

“Our focus is on gaining insight into reserve adequacy when business is ceded,” Anderson explained. “This is a particular focus in cases involving U.S. policy holders, where reinsurance may result in a lowering of transparency in terms of the amount of reserves held and the types and risks associated with the assets supporting reserves.”

The reinsurance market exploded with billion-dollar deals over the past several years, many of them with offshore reinsurers located in Bermuda or the Cayman Islands. In one recent example, 26North Reinsurance Holdings completed a deal worth $4.9 billion with Life Insurance Co. of the Southwest, a part of National Life Group.

Offshore regulators offer lighter regulation, critics say, and less transparency.

The initial proposal to tighten the reins on reinsurers was made 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.

‘Moderately adverse conditions’

Standard asset adequacy analysis requires reserves to be held at a level that meets “moderately adverse conditions, or approximately one standard deviation beyond expected results,” the Wolf/Clark proposal noted.

“When a reinsurance transaction lowers the ceding insurer’s reserves, the new reserves established by the reinsurer could be materially less than what would be needed to meet policyholder obligations under moderately adverse conditions in addition to providing an appropriate level of capital,” the proposal continued.

Regulators hope to have an actuarial guideline by the end of 2025, Anderson said, but will take time coming up with the details, as well as enforcing them.

“There will likely be flexibility the first year, I think with AG, 53 we mentioned, that in some areas, do a best effort first year, and then kind of evolve from there,” Anderson said. “So it’s possible where some of this stuff may be a little experimental.”

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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