At a recent National Association of Insurance Commissioners (NAIC) summer meeting in Chicago, state insurance regulators encountered potential challenges regarding new reinsurance asset testing guidelines. These proposed guidelines, aimed at addressing concerns over offshore reinsurance reserves, could potentially conflict with existing agreements and regulations.
Regulators’ New Initiative
The Life Actuarial Task Force, which has been discussing reinsurance asset testing for several months, took a significant step forward by exposing a new guideline for a 60-day comment period. This guideline is designed to enhance asset adequacy testing for large-scale offshore reinsurance deals, particularly those involving jurisdictions like Bermuda and the Cayman Islands where reserve levels have recently declined.
Fred Anderson of the Minnesota Department of Commerce, a key player in this initiative, acknowledged that this is just the beginning of a broader regulatory discussion. "It’s not going to be the last discussion on this,” Anderson remarked. The goal is to finalize an actuarial guideline by the end of 2025, addressing concerns over declining reserve levels and ensuring that offshore reinsurance transactions maintain adequate reserves to cover policyholder obligations.
Concerns Over Offshore Reinsurance Reserves
The primary concern driving these new guidelines is the substantial amount of insurance company funds being reinsured offshore. Regulators have observed significant declines in reserve levels with some offshore reinsurers, raising questions about the adequacy of these reserves to meet policyholder obligations.
“There are other regulators who have identified situations where the reserve level is going down substantially, and we don't have a clear indication of why, and that's what we're doing here,” Anderson explained. The new guidelines aim to address these gaps by strengthening asset adequacy testing and ensuring that reserves for life insurance and annuities in offshore reinsurance transactions are robust.
Federal Insurance Office Inquiry
A critical aspect of the proposed guidelines is how they might interact with existing international agreements. The Federal Insurance Office (FIO) is currently evaluating whether the new state regulations could conflict with covered agreements—international agreements that address insurance or reinsurance prudential measures.
Dan Schelp, Chief Counsel of Regulatory Affairs for the NAIC, noted that covered agreements have the potential to preempt state insurance regulations if they are deemed to result in less favorable treatment of non-U.S. insurers compared to U.S. insurers. “Our current understanding of this [proposed reinsurance guideline] is agnostic in nature, treating both U.S. and non-U.S. reinsurers equally,” Schelp said. “However, we are aware that this is an issue, and we don't have a final proposal for us yet, so we're not in any position to give a legal opinion.”
Asset Adequacy Analysis and Aggregation Issues
The proposed guidelines include standard asset adequacy analysis requirements, which necessitate that reserves be held at levels sufficient to withstand moderately adverse conditions. This is typically defined as approximately one standard deviation beyond expected results.
The proposal highlights a key concern: when a reinsurance transaction results in a reduction of the ceding insurer’s reserves, the reserves established by the reinsurer may fall short of what is needed to meet policyholder obligations under adverse conditions, potentially jeopardizing financial stability.
A contentious issue that emerged during the discussions was the concept of “aggregation” of reserves. Aggregation refers to combining reserves from different blocks of business, where one block may be underfunded while another is adequately funded. Anderson noted that while regulators are generally comfortable with aggregation within a single ceding company, there is hesitance about allowing aggregation between different counterparties. “Sometimes that block gets reinsured and that company doesn’t have that offsetting business anymore,” he explained.
Industry Perspectives
The industry response to the proposed guidelines has been mixed. Brian Bayerle, Chief Life Actuary at the American Council of Life Insurers, expressed support for the concept of asset a ggregation. He argued that the core issue should be whether there is sufficient funding to support the assets, regardless of how they are aggregated. “It seems to us that, in theory, maybe you may not be able to have fungibility between portfolios, but at the end of the day, either you have enough money to support the assets, or you don't,” Bayerle said.“From our perspective, I think we're a little concerned about why there wouldn’t be an allowance for aggregation.”
Looking Ahead
As state regulators and industry stakeholders continue to debate the proposed reinsurance asset testing guidelines, it is clear that the issue is complex and fraught with potential conflicts. The interaction between new state regulations and existing international agreements will be a critical factor in shaping the final guidelines.
With a target of finalizing an actuarial guideline by the end of 2025, the discussions are expected to evolve as regulators seek to balance the need for robust asset testing with the constraints imposed by international agreements. The outcome will have significant implications for how reinsurance transactions are conducted and monitored, ensuring that they provide adequate protection for policyholders while navigating the intricacies of global regulatory frameworks.
At a recent National Association of Insurance Commissioners (NAIC) summer meeting in Chicago, state insurance regulators encountered potential challenges regarding new reinsurance asset testing guidelines. These proposed guidelines, aimed at addressing concerns over offshore reinsurance reserves, could potentially conflict with existing agreements and regulations.
Regulators’ New Initiative
The Life Actuarial Task Force, which has been discussing reinsurance asset testing for several months, took a significant step forward by exposing a new guideline for a 60-day comment period. This guideline is designed to enhance asset adequacy testing for large-scale offshore reinsurance deals, particularly those involving jurisdictions like Bermuda and the Cayman Islands where reserve levels have recently declined.
Fred Anderson of the Minnesota Department of Commerce, a key player in this initiative, acknowledged that this is just the beginning of a broader regulatory discussion. "It’s not going to be the last discussion on this,” Anderson remarked. The goal is to finalize an actuarial guideline by the end of 2025, addressing concerns over declining reserve levels and ensuring that offshore reinsurance transactions maintain adequate reserves to cover policyholder obligations.
Concerns Over Offshore Reinsurance Reserves
The primary concern driving these new guidelines is the substantial amount of insurance company funds being reinsured offshore. Regulators have observed significant declines in reserve levels with some offshore reinsurers, raising questions about the adequacy of these reserves to meet policyholder obligations.
“There are other regulators who have identified situations where the reserve level is going down substantially, and we don't have a clear indication of why, and that's what we're doing here,” Anderson explained. The new guidelines aim to address these gaps by strengthening asset adequacy testing and ensuring that reserves for life insurance and annuities in offshore reinsurance transactions are robust.
Federal Insurance Office Inquiry
A critical aspect of the proposed guidelines is how they might interact with existing international agreements. The Federal Insurance Office (FIO) is currently evaluating whether the new state regulations could conflict with covered agreements—international agreements that address insurance or reinsurance prudential measures.
Dan Schelp, Chief Counsel of Regulatory Affairs for the NAIC, noted that covered agreements have the potential to preempt state insurance regulations if they are deemed to result in less favorable treatment of non-U.S. insurers compared to U.S. insurers. “Our current understanding of this [proposed reinsurance guideline] is agnostic in nature, treating both U.S. and non-U.S. reinsurers equally,” Schelp said. “However, we are aware that this is an issue, and we don't have a final proposal for us yet, so we're not in any position to give a legal opinion.”
Asset Adequacy Analysis and Aggregation Issues
The proposed guidelines include standard asset adequacy analysis requirements, which necessitate that reserves be held at levels sufficient to withstand moderately adverse conditions. This is typically defined as approximately one standard deviation beyond expected results.
The proposal highlights a key concern: when a reinsurance transaction results in a reduction of the ceding insurer’s reserves, the reserves established by the reinsurer may fall short of what is needed to meet policyholder obligations under adverse conditions, potentially jeopardizing financial stability.
A contentious issue that emerged during the discussions was the concept of “aggregation” of reserves. Aggregation refers to combining reserves from different blocks of busines s, where one block may be underfunded while another is adequately funded. Anderson noted that while regulators are generally comfortable with aggregation within a single ceding company, there is hesitance about allowing aggregation between different counterparties. “Sometimes that block gets reinsured and that company doesn’t have that offsetting business anymore,” he explained.
Industry Perspectives
The industry response to the proposed guidelines has been mixed. Brian Bayerle, Chief Life Actuary at the American Council of Life Insurers, expressed support for the concept of asset aggregation. He argued that the core issue should be whether there is sufficient funding to support the assets, regardless of how they are aggregate d. “It seems to us that, in theory, maybe you may not be able to have fungibility between portfolios, but at the end of the day, either you have enough money to support the assets, or you don't,” Bayerle said. “From our perspective, I think we're a little concerned about why there wouldn’t be an allowance for aggregation.”
Looking Ahead
As stateregulators and industry stakeholders continue to debate the proposed reinsurance asset testing guidelines, it is clear that the issue is complex and fraught with potential conflicts. The interaction between new state regulations and existing international agreements will be a critical factor in shaping the final guidelines.
With a target of finalizing an actuarial guideline by the end of 2025, the discussions are expected to evolve as regulators seek to balance the need for robust asset testing with the constraints imposed by international agreements. The outcome will have significant implications for how reinsurance transactions are conducted and monitored, ensuring that they provide adequate protection for policyholders while navigating the intricacies of global regulatory frameworks.
At a recent National Association of Insurance Commissioners (NAIC) summer meeting in Chicago, state insurance regulators encountered potential challenges regarding new reinsurance asset testing guidelines. These proposed guidelines, aimed at addressing concerns over offshore reinsurance reserves, could potentially conflict with existing agreements and regulations.
Regulators’ New Initiative
The Life Actuarial Task Force, which has been discussing reinsurance asset testing for several months, took a significant step forward by exposing a new guideline for a 60-day comment period. This guideline is designed to enhance asset adequacy testing for la rge-scale offshore reinsurance deals, particularly those involving jurisdictions like Bermuda and the Cayman Islands where reserve levels have recently declined.
Fred Anderson of the Minnesota Department of Commerce, a key player in this initiative, acknowledged that this is just the beginning of a broader regulatory discussion. "It’s not going to be the last discussion on this,”Anderson remarked. The goal is to finalize an actuarial guideline by the end of 2025, addressing concerns over declining reserve levels and ensuring that offshore reinsurance transactions maintain adequate reserves to cover policyholder obligations.
Concerns Over Offshore Reinsurance Reserves
The primary concern driving these new guidelines is the substantial amount of insurance company funds being reinsured offshore. Regulators have observed significant declines in reserve levels with some offshore reinsurers, raising questions about the adequacy of these reserves to meet policyholder obligations.
“There are other regulators who have identified situations where the reserve level is going down substantially, and we don't have a clear indication of why, and that's what we're doing here,” Anderson explained. The new guidelines aim to address these gaps by strengthening asset adequacy testing and ensuring that reserves for life insurance and annuities in offshore reinsurance transactions are robust.
Federal Insurance Office Inquiry
A critical aspect of the proposed guidelines is how they might interact with existing international agreements. The Federal Insurance Office (FIO) is currently evaluating whether the new state regulations could conflict with covered agreements—international agreements that address insurance or reinsurance prudential measures.
Dan Schelp, Chief Counsel of Regulatory Affairs for the NAIC, noted that covered agreements have the potential to preempt state insurance regulations if they are deemed to result in less favorable treatment of non-U.S. insurers compared to U.S. insurers. “Our current understanding of this [proposed reinsurance guideline] is agnostic in nature, treating both U.S. and non-U.S. reinsurers equally,” Schelp said. “However, we are aware that this is an issue, and we don't have a final proposal for us yet, so we're not in any position to give a legal opinion.”
Asset Adequacy Analysis and Aggregation Issues
The proposed guidelines include standard asset adequacy analysis requirements, which necessitate that reserves be held at levels sufficient to withstand moderately adverse conditions. This is typical ly defined as approximately one standard deviation beyond expected results.
The proposal highlights a key concern: when a reinsurance transaction results in a reduction of the ceding insurer’s reserves, the reserves established by the reinsurer may fall short of what is needed to meet policyholder obligations under adverse conditions, potentially jeopardizing financial stability.
A contentious issue that emerged during the discussions was the concept of “aggregation” of reserves. Aggregation refers to combining reserves from different blocks of business, where one block may be underfunded while another is adequately funded. Anderson noted that while regulators are generally comfortable with aggregation within a single ceding company, there is hesitance about allowing aggregation between different counterparties. “Sometimes that block gets reinsured and that company doesn’t have that offsetting business anymore,” he explained.
Industry Perspectives
The industry response to the proposed guidelines has been mixed. Brian Bayerle, Chief Life Actuary at the American Council of Life Insurers, expressed support for the concept of asset aggregation. He argued that the core issue should be whether there is sufficient funding to support the assets, regardless of how they are aggregated. “It seems to us that, in theory, maybe you may not be able to have fungibility between portfolios, but at the end of the day, either you have enough money to support the assets, or you don't,” Bayerle said. “From our perspective, I think we're a little concerned about why there wouldn’t be an allowance for aggregation.”
Looking Ahead
As state regulators and industry stakeholders continue to debate the proposed reinsurance asset testing guidelines, it is clear that the issue is complex and fraught with potential conflicts. The interaction between new state regulations and existing international agreements will be a critical factor in shaping the final guidelines.
With a target of finalizing an actuarial guideline by the end of 2025, the discussions are expected to evolve as regulators seek to balance the need for robust asset testing with the constraints imposed by international agreements. The outcome will have significant implications for h ow reinsurance transactions are conducted and monitored, ensuring that they provide adequate protection for policyholders while navigating the intricacies of global regulatory frameworks.
At a recent National Association of Insurance Commissioners (NAIC) summer meeting in Chicago, state insurance regulators encountered potential challenges regarding new reinsurance asset testing guidelines. These proposed guidelines, aimed at addressing concerns over offshore reinsurance reserves, could potentially conflict with existing agreements and regulations.
Regulators’ New Initiative
The Life Actuarial Task Force, which has been discussing reinsurance asset testing for several months, took a significant step forward by exposing a new guideline for a 60-day comment period. This guideline is designed to enhance asset adequacy testing for large-scale offshore reinsurance deals, particularly those involving jurisdictions like Bermuda and the Cayman Islands where reserve levels have recently declined.
Fred Anderson of the Minnesota Department of Commerce, a key player in this initiative, acknowledged that this is just the beginning of a broader regulatory discussion. "It’s not going to be the last discussion on this,” Anderson remarked. The goal is to finalize an actuarial guideline by the end of 2025, addressing concerns over declining reserve levels and ensuring that offshore reinsurance transactions maintain adequate reserves to cover policyholder obligations.
Concerns Over Offshore Reinsurance Reserves
The primary concern driving these new guidelines is the substantial amount of insurance company funds being reinsured offshore. Regulators have observed significant declines in reserve levels with some offshore reinsurers, raising questions about the adequacy of these reserves to meet policyholder obligations.
“There are other regulators who have identified situations where the reserve level is going down substantially, and we don't have a clear indication of why, and that's what we're doing here,” Anderson explained. The new guidelines aim to address these gaps by strengtheni ng asset adequacy testing and ensuring that reserves for life insurance and annuities in offshore reinsurance transactions are robust.
Federal Insurance Office Inquiry
A critical aspect of the proposed guidelines is how they might interact with existing international agreements. The Federal Insurance Office (FIO) is currently evaluating whether the new state regulations could conflict with covered agreements—international agreements that address insurance or reinsurance prudential measures.
Dan Schelp, Chief Counsel of Regulatory Affairs for the NAIC, noted that covered agreements have the potential to preempt state insurance regulations if they are deemed to result in less favorable treatment of non-U.S. insurers compared to U.S. insurers. “Our current understanding of this [proposed reinsurance guideline] is agnostic in nature, treating both U.S. and non-U.S. reinsurers equally,” Schelp said. “However, we are aware that this is an issue, and we don't have a final proposal for us yet, so we're not in any position to give a legal opinion.”
Asset Adequacy Analysis and Aggregation Issues
The proposed guidelines include standard asset adequacy analysis requirements, which necessitate that reserves be held at levels sufficient to withstand moderately adverse conditions. This is typically defined as approximately one standard deviation beyond expected results.
The proposal highlights a key concern: when a reinsurance transaction results in a reduction of the ceding insurer’s reserves, the reserves established by the reinsurer may fall short of what is needed to meet policyholder obligations under adverse conditions, potentially jeopardizing financial stability.
A contentious issue that emerged during the discussions was the concept of “aggregation” of reserves. Aggregation refers to combining reserves from different blocks of business, where one block may be underfunded while another is adequately funded. Anderson noted that while regulators are generally comfortable with aggregation within a single ceding company, there is hesitance about allowing aggregation between different counterparties. “Sometimes that block gets reinsured and that company doesn’t have that offsetting business anymore,” he explained.
Industry Perspectives
The industry response to the proposed guidelines has been mixed. Brian Bayerle, Chief Life Actuary at the American Council of Life Insurers, expressed support for the concept of asset aggregation. He argued that the core issue should be whether there is sufficient funding to support th e assets, regardless of how they are aggregated. “It seems to us that, in theory, maybe you may not be able to have fungibility between portfolios, but at the end of the day, either you have enough money to support the assets, or you don't,” Bayerle said. “From our perspective, I think we're a little concerned about why there wouldn’t be an allowance for aggregation.”
Looking Ahead
As state regulators and industry stakeholders continue to debate the proposed reinsurance asset testing guidelines, it is clear that the issue is complex and fraught with potential conflicts. The interaction between new state regulations and existing international agreements will be a critical factor in shaping the final guidelines.
With a target of finalizing an actuarial guideline by the end of 2025, the discussions are expected to evolve as regulators seek to balance the need for robust asset testing with the constraints imposed by international agreements. The outcome will have significant implications for how reinsurance transactions are conducted and monitored, ensuring that they provide adequate protection for policyholderswhile navigating the intricacies of global regulatory frameworks.
At a recent National Association of Insurance Commissioners (NAIC) summer meeting in Chicago, state insurance regulators encountered potential challenges regarding new reinsurance asset testing guidelines. These proposed guidelines, aimed at addressing concerns over offshore reinsurance reserves, could potentially conflict with existing agreements and regulations.
Regulators’ New Initiative
The Life Actuarial Task Force, which has been discussing reinsurance asset testing for several months, took a significant step forward by exposing a new guideline for a 60-day comment period. This guideline is designed to enhance asset adequacy testing for large-scale offshore reinsurance deals, particularly those involving jurisdictions like Bermuda and the Cayman Islands where reserve levels have recentl y declined.
Fred Anderson of the Minnesota Department of Commerce, a key player in this initiative, acknowledged that this is just the beginning of a broader regulatory discussion. "It’s not going to be the last discussion on this,” Anderson remarked. The goal is to finalize an actuarial guideline by the end of 2025, addressing concerns over declining reserve levels and ensuring that offshore reinsurance transactions maintain adequate reserves to cover po licyholder obligations.
Concerns Over Offshore Reinsurance Reserves
The primary concern driving these new guidelines is the substantial amount of insurance company funds being reinsured offshore. Regulators have observed significant d eclines in reserve levels with some offshore reinsurers, raising questions about the adequacy of these reserves to meet policyholder obligations.
“There are other regulators who have identified situations where the reserve level is going down substantially, and we don't h ave a clear indication of why, and that's what we're doing here,” Anderson explained. The new guidelines aim to address these gaps by strengthening asset adequacy testing and ensuring that reserves for life insurance and annuities in offshore reinsurance transactions are robust.
Federal Insurance Office Inquiry
A critical aspect of the proposed guidelines is how they might interact with existing international agreements. The Federal Insurance Office (FIO) is curren tly evaluating whether the new state regulations could conflict with covered agreements—international agreements that address insurance or reinsurance prudential measures.
Dan Schelp, Chief Counsel of Regulatory Affairs for the NAIC, noted that covered agreements have the potential to preempt state insurance regulations if they are deemed to result in less favorable treatment of non-U.S. insurers compared to U.S. insurers. “Our current understanding of this [proposed reinsurance guideline] is agnostic in nature, treating both U. S. and non-U.S. reinsurers equally,” Schelp said. “However, we are aware that this is an issue, and we don't have a final proposal for us yet, so we're not in any position to give a legal opinion.”
Asset Adequacy Analysis and Aggregation Issues
The proposed guidelines include standard asset adequacy analysis requirements, which necessitate that reserves be held at levels sufficient to withstand moderately adverse conditions. This is typically defined as approximately one standard deviation beyond expected res ults.
The proposal highlights a key concern: when a reinsurance transaction results in a reduction of the ceding insurer’s reserves, the reserves established by the reinsurer may fall short of what is needed to meet policyholder obligations under adverse conditions, potentially jeopardizing financial stability.
A contentious issue that emerged during the discussions was the concept of “aggregation” of reserves. Aggregation refers to combining reserves from different blocks of business, where one block may be underfunded while another is adequately funded. Anderson noted that while regulators are generally comfortable with aggregation within a single ceding company, there is hesitance about allowing aggregation between different counterparties. “Sometimes that block gets reinsured and that company doesn’t have that offsetting business anymore,” he explained.
Industry Perspectives
The industry response to the proposed guidelines has been mixed. Brian Bayerle, Chief Life Actuary at the American Council of Life Insurers , expressed support for the concept of asset aggregation. He argued that the core issue should be whether there is sufficient funding to support the assets, regardless of how they are aggregated. “It seems to us that, in theory, maybe you may not be able to have fungibility between portfolios, but at the end of the day, either you have enough money to support the assets, or you don't,” Bayerle said. “From our perspective,I think we're a little concerned about why there wouldn’t be an allowance for aggregation.”
Looking Ahea d
As state regulators and industry stakeholders continue to debate the proposed reinsurance asset testing guidelines, it is clear that the issue is complex and fraught with potential conflicts. The interaction between new state regulations and existing international agreements will be a cri tical factor in shaping the final guidelines.
With a target of finalizing an actuarial guideline by the end of 2025, the discuss ions are expected to evolve as regulators seek to balance the need for robust asset testing with the constraints imposed by international agreements. The outcome will have significant implications for how reinsurance transactions are conducted and monitored, ensuring that they provide adequate protection for policyholders while navigating the intricacies of global regulatory frameworks.