Regulators to vote next month on model law examining insurerintentions

The National Association of Insurance Commissioners has steppedinto the controversy over the use of finite reinsurance productswith proposed new disclosure requirements.

According to a statement released by the NAIC last week, thelatest proposed disclosures would require an insurer to report tostate insurance regulators any agreement that has the effect ofaltering policyholders' surplus by more than 3 percent, orrepresenting more than 3 percent of premium or losses.

“The new disclosure is also designed to identify any reinsurancecontract that has been accounted for differently under statutoryaccounting principles compared to general financial statementpurposes,” said an NAIC representative.

Additional reporting requirements regarding contract terms andmanagement's intention in entering the contract have been includedin the proposal, which is slated for final approval at the NAIC'ssummer meeting next month after a 30-day comment period.

The disclosure requirements met with preliminary approval fromthe NAIC Property and Casualty Reinsurance Study Group, which metin Chicago on May 10.

“The proposed enhanced disclosure requirements, in addition toan attestation by company management of entities that engage inthese transactions, should clarify the overall impact of finitereinsurance on the industry,” said Joe Fritsch, director ofinsurance accounting policy for the New York InsuranceDepartment.

Finite reinsurance contracts allow an insurer to transfer someof the risk on a contract to another carrier, but regulators areconcerned that some reinsurance contracts do not transfer enoughrisk, and therefore do not qualify as an insurance contract.

American International Group is being investigated for at leastone such contract with General Re Corp. So far, three current orformer executives have been named as targets of a U.S. Securitiesand Exchange Commission probe into the matter.

While the NAIC grapples with solutions to alleged abuses offinite re to artificially bolster a carrier's balance sheet, thegroup's former president urged states to go slow in their owninquires while the national organization forges a commonapproach.

Ernst Csiszar–who took over last year as president of theProperty Casualty Insurers Association of America after resigningas South Carolina insurance commissioner and NAIC president–saidfinite re products are legitimate tools and subject to appropriateguidance under both statutory and Generally Accepted AccountingPrinciples.

“I sincerely hope the NAIC's bureaucratic red tape does notresult in the organization missing the mark and lending furtherfuel to the calls for additional federal regulatory intervention,”Mr. Csiszar said.

Meanwhile, Chubb Corp. last week said it received a subpoenafrom the U.S. Attorney for the Southern District of New Yorkregarding the use of finite re products.

“Chubb believes this investigation involves a number of industryparticipants and that Chubb has not been singled out in being askedto provide such information,” the company stated in its SEC filing.“Chubb intends to cooperate fully with this investigation.”

“I sincerely hope the NAIC's bureaucratic red tape does notresult in the organization missing the mark and lending furtherfuel to the calls for additional federal regulatoryintervention.”

Ernst Csiszar, PCI President