July 30, 2024

Regulators push for draft reinsurance guideline by summer meeting

A state insurance panel plans to preview a draft actuarial guideline aimed at tightening oversight of offshore reinsurance assets at its August summer meeting in Chicago.

The Life Actuarial Task Force met Thursday to hear from those who submitted comments during a second public comment period. Regulators want to strengthen asset adequacy testing to better protect the assets backing policyholder contracts.

“I started to put together what I’ll call a skeleton of what an actuarial guideline could look like. There’ll be parts missing and it’s by no means going to be close to being a final product,” said Fred Anderson of the Minnesota Department of Commerce. “Considering we’ve spent over five months working on concepts and reacting to PowerPoint presentations, I think it’s a pretty good time to get an initial straw man, skeleton draft out there.”

The National Association of Insurance Commissioners meets August 12-15. Anderson made it clear that he expects discussions and tweaking of the draft guidline to continue well into 2025.

LATF is concerned because offshore reinsurance deals are getting bigger and bigger. Billion-doller reinsurance deals are regularly made with offshore companies domiciled in places like Bermuda or the Cayman Islands. Those places offer lighter regulation, critics say, and less transparency.

“We’re going down a path where there’s systemic risk in Bermuda with these reinsurance treaties, unless there’s an enormous amount of forensic analysis to find out what the assets are,” said Mark S. Tenney of Mathematical Finance Co.

‘An all-time high’

Tricia Matson, a partner at Risk & Regulatory Consulting, exhoed Tenney in sounding the alarm.

“During 2023, S&P Global reports an all-time high of $2.3 trillion of life and annuity cessions,” she noted. “We continue to see movement of business offshore occurring in 2024. We believe that a solution is needed quickly, even if it’s interim, to prevent a situation in which the assets that support the U.S. policyholders continue to erode.”

Anderson introduced a new thought early in the meeting Thursday: “I anticipate at the Chicago meeting … one of the big issues to be decided will be are there treaties that are so large and so impactful that, regardless of any safeguards, regardless of appointed actuary judgment, we’re going to want robust testing?”

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.

Dana Wiele, senior vice president with RGA Reinsurance Co., spoke in opposition of any asset adequacy testing changing. Those changes might violate covered agreements, he added. A covered agreement is, as defined by the U.S. Treasury, “an international agreement that relates to the recognition of prudential measures with respect to the business of insurance or reinsurance that achieves a level of protection for insurance or reinsurance consumers that is substantially equivalent to the level of protection achieved under state insurance or reinsurance regulation.”

“The proposal, even if found to be appropriate under the covered agreement, we believe, is over broad and not focused on the problem intended to be addressed,” Wiele said. “It’ll discourage or impair reinsurance, which, after all, benefits policyholders by making more insurance available at a given price than otherwise possible.”

Many other letter writers summarized their positions Monday during a Reinsurance Task Force meeting.

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