Reinsurance Financial Concerns. Frank J. Maffa, CFE, CIE Vice President American Re-Insurance Company. Agenda. Reinsurance Regulatory Concerns Reinsurance Program Reinsurance Contracts Credit for Reinsurance Reinsurance Accounting Reinsurance Reporting Reinsurance Collateral
Frank J. Maffa, CFE, CIE
Reinsurance is International
Many participants all over the world.
Who are the participants? How financially strong are they? Is the risk, and the funds, retroceded and re-retroceded? How do we know who has the ultimate responsibility/obligation?
Do the insurance laws of foreign countries/jurisdictions equally protect the claimants, the policyholder, and the regulator?
Contracts are not of standard form.
Are all safeguards included in the contract?
Will reinsurer be able to deny coverage through technicality?
Who will reside over disputes and which laws will govern?
Is the regulator protected in the event of liquidation?
Collection of reinsurance / Credit risk
Reinsurance is a long term commitment.
Is the reinsurer financially strong?
Affiliated reinsurance transactions
Risk remains within the group
Ceding company is still responsible to pay obligation.
Funds are transferred to affiliate possibly in a different country or jurisdiction.
How are funds invested? Safeguards on assets.
Spreading of Risk / Capacity
Working Covers - Quota Share
Loss Control - Limitation of Risk
Excess of Loss Covers
Protection of Net Retention
Stop Loss Covers
Nine Month Rule - NAIC’s Accounting Practices
If a contract is not finalized, reduced to written form and signed within nine months, the arrangement is presumed to be retroactive and must be accounted for as retroactive contract.
Retroactive means that the loss experience under the contract is known. The purpose of the contract is possibly for adverse loss development or other reasons such as finance.
NAIC accounting rules do not allow insurance reserves to be decreased by Retroactive reinsurance contracts.
Reinsurance AccountingNAIC’s Accounting Practices and Procedures ManualCodification - SSAP 62 (Continued)
Company Background -
History of company/reinsurer
Ability of management.
Cushion for rainy days.
Base for growth.
Quality of assets.
Premiums - underwriting risk
Loss Reserves - strength to absorb adverse events.
Reinsurance Recoverable - credit risk
Investments - asset risk
Finance / Debt - ability to repay