NY Regulator Defends Finite Re Rule

By Steve Tuckey

NU Online News Service, April 19, 4:29 p.m.EDT?New York Acting Insurance Superintendent Howard Millssaid he has been meeting with insurance industry representativesover the past couple of weeks to smooth implementation of newreinsurance contract rules.[@@]

Since posting the new rules, Mr. Mills has found himself thetarget of industry criticism for overly broad regulation that wouldmake compliance difficult.

Speaking last week at the annual insurance regulation seminar ofCityBar Center for Continuing Legal Education, Mr. Mills defendedhis issuance of a circular letter requiring chief executiveofficers to attest to the validity of every reinsurance contract inforce.

The action came in the wake of concerns that finite reinsurancecontracts rather than legitimate risk transfers have been used bycompanies as an accounting device to paint a false financialpicture.

Such contracts have been under investigation by the New YorkAttorney General's Office and the Securities and ExchangeCommission.

Joseph Sieverling, vice president of the Washington D.C.-basedReinsurance Association of America, said that "because the circularletter was so broadly drafted compliance will be difficult."

Mr. Sieverling said the industry had proposed a disclosure modelthat was more "prospective in nature."

He noted that many reinsurance contracts entered into decadesago may still be in effect if losses are still being reported.

Mr. Mills told National Underwriter that he has beenmeeting with representatives of the primary and secondary insuranceindustry over the past couple of weeks about compliance issues.

"I wouldn't say there are going to be modifications. Basicallythey have questions, and if we can clarify them we certainly will,"he said.

Companies will have to undergo a similar process to meetSarbanes-Oxley requirements in the near future, he added.

In his Circular Letter 8, issued March 29, Mr. Mills requireschief executive officers to attest that there are no sideagreements that would affect the loss to parties under thereinsurance contract and that an underwriting file documenting therisk transfer analysis evidencing the proper accounting treatmentbe available for review.

In addition to his New York role, Mr. Mills also heads up aNational Association of Insurance Commission task force lookinginto whether accounting rules should be changed to accommodateconcerns about improper accounting for reinsurancearrangements.

Mr. Mills' announcement of the new rule came just a day beforethe nation's largest insurer?New York-based American InternationalGroup?admitted it had mischaracterized various dealings withreinsurers and improperly documented a $500 million reinsuranceagreement it provided for General Re.