Boston–The National Association of Insurance Commissioners has given preliminary approval to new requirements for annual statement disclosure and attestation aimed at ferreting out finite reinsurance abuse.
The changes will add new interrogatories to ensure finite reinsurance agreements transfer enough risk to merit the favorable accounting treatment companies accrue from them.
After the approval Saturday by the Property Casualty Reinsurance Study Group at the opening session of the NAIC summer meeting here, the measure goes to other committees before final approval by the full NAIC in time for the distribution of the 2005 annual statement.
Recent allegations concerning American International Group's use of reinsurance in an accounting transaction that the company now admits improperly bolstered its reserve picture have shone a spotlight on the possible misuse of reinsurance products.
A number of states are looking at disclosure requirements similar to the NAIC proposal, which has concerned the insurance industry.
"We hope the regulators take a consistent approach and avoid creating a crazy quilt of confusing and conflicting investigative practices and compliance rules," said Steve Broadie of the Property Casualty Insurers Association of America (PCI).
In addition, the revised annual statement will require attestation from both the chief executive and chief financial officers as to the risk transfer validity of their company's reinsurance agreements, and to the fact there are no side agreements that would negate them.
Phil Carson, senior counsel to the American Insurance Association, called the attestation requirement "overly broad and vague." He also asserted it should be incorporated into the existing overall attestation requirement in the annual statement.
"Creating a separate attestation requirement would have the effect of weakening the current attestation, which some regulators have stated is already stronger than the certification required in [the] Sarbanes-Oxley [Act]," he said.
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