On May 26, The Financial Accounting Standards Board sent out an Invitation to Comment (ITC) on a proposal regarding Bifurcating Insurance and Reinsurance Contracts--the implications of which could be far reaching, in my view.
Especially under the most severe scenario contemplated by the FASB, there are potentially significant ramifications not only for insurers and reinsurers, but also for buyers of insurance and reinsurance.
Bifurcation refers to the intention to separate the financing component of insurance and reinsurance contracts from the insurance risk portion of the contracts. This is not a new idea, and is even included in SFAS 113, the accounting standard on reporting ceded reinsurance.
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