Bifurcation of insurance and reinsurance contracts separatingthose elements entailing risk transfer is not needed now, said oneratings agency this week.

In a letter to the Financial Accounting Standards Board, FitchRatings Service said that overall it is satisfied with the currentprinciples-based accounting and does not feel bifurcation iswarranted for insurance contracts containing finite riskelements.

The bifurcation effort came about as a result of well-publicizeduse by some primary and secondary reinsurers of finite policiesthat did not actually transfer risk but were used primarily tomanipulate financial reporting figures.

The National Association of Insurance Commissioners originallyproposed separating those elements of a reinsurance contract thatcontain risk transfer from those that do not in order to betterdetermine if they qualify for the favorable tax treatment of aninsurance contract.

But the NAIC has since dropped that proposal and instead hasrequired additional disclosure in regard to the risk transferelements of finite reinsurance contracts.

Fitch said it found those requirements useful and would supportexpansion of them in the interest of greater transparency.