An executive of a life reinsurer has told an industry conference that his sector of the business is without the taint that investigations have attached to property-casualty reinsurers.
"A lot of bad things have been done on the p-c side, but the life side is a lot cleaner," said Jeff Poulin, a senior vice president, life and annuity, with London Life Reinsurance Co., Blue Bell, Pa., speaking on a panel at the annual meeting of the Society of Actuaries in Washington.
Mr. Poulin said for the financial reinsurance the life side provides there are more reserve credit rules and risk transfer rules in place.
Some reinsurance deals have received negative publicity after federal and New York State probes of finite and financial reinsurance deals that turned up evidence the transactions were bogus arrangements that did not involve true transfer of risk and were used by companies to improve their financial picture.
During the discussion, attendees questioned why rating agencies such as Moody's Investors Service, New York, which was represented on the panel, do not give financial reinsurance the recognition these financial reinsurers maintain the product should receive.
During the panel titled "A New World of Financial Reinsurance," Mr. Poulin was one of several speakers who stated that rating agencies seemed to prefer securitizations and dislike financial reinsurance.
He noted that probes by then New York Attorney General Eliot Spitzer, now New York governor, had an impact on the life financial reinsurance market, but that the life financial reinsurance market was starting to pick up again.
Jeff Burt, vice president, marketing, with Hannover Life Reassurance Co. of America, Orlando, Fla., said in 2007 the "deal flow has been really busy since the first of the year."
In part, he continued, it is the result of the life insurance industry doing well and balance sheet growth as well as greater stability. The financial sector is picking up and companies are seeking to position themselves through their balance sheets, he added.
On the issue of Mr. Spitzer's investigation of financial reinsurance, Mr. Burt said that property-casualty financial reinsurance was not put together well and the "property-casualty market tended not to do as good a job as life reinsurers." He also attributed the difference to stronger requirements.
Both Mr. Poulin and Mr. Burt said that increased disclosure to regulators and rating agencies should improve the situation.
The discussion covered the convergence of capital markets with financial reinsurance. It was noted that there are more securitizations than might be thought because some are private transactions, and that for every two announced securitizations there might be two to four that are not announced.
Laura Bazer, a vice president and senior credit officer with Moody's, noted that life reinsurance is "an absolute necessity and key to the functioning of the direct industry." She said that "this is still a handshake business, although it is changing gradually."
In order for reinsurance credit to be given when ratings are considered, there has to be an actual transfer and it cannot be "debt masquerading as reinsurance," Ms. Bazer added.
Financial reinsurance has its uses, but it is important to look at how it is used, she said. The rating agencies do not prefer securitizations over financial reinsurance, Ms. Bazer said.
Mr. Burt said later in the discussion that financial reinsurers do not have the ability to go back and access a direct writer's surplus, noting that if the business does not perform, then there is no recourse for the reinsurer.
Mel Young, executive vice president and vice chairman of the Norwalk, Conn., office of RGA Reinsurance Co., told the panel that life reinsurers are still thought of as property-casualty companies that are doing the same things that got those companies into trouble.
Mr. Poulin said life reinsurers need to make a better case before rating agencies and others that life financial reinsurance is a legitimate business.
Hannover Life Re's Mr. Burt said contracts that contain experience refunds based on how the reinsured block of business performs, for example, are types of financial reinsurance contracts that should be given more credence.
Mr. Poulin also noted that he is "taken aback" by the notion that the reinsurance business is "a handshake" business given the "very detailed" contracts he has seen.
RGA's Mr. Young responded that "handshake deals are not a pejorative because handshakes have worked very well for decades."
He offered praise for New York regulators when he said that one of the major reasons life reinsurers have not experienced the problems of property-casualty reinsurers is that New York made life reinsurers adhere to tough requirements.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.