FOR IMMEDIATE RELEASE
NEW YORK INSURANCE DEPARTMENT STRENGTHENS FINITE REINSURANCE REPORTING RULES
Acting Superintendent of Insurance Howard Mills today announced that the New York State Insurance Department will require insurers Chief Executive Officers to attest under oath that all reinsurance contracts they enter into contain documentation as to the transactions economic intent and a risk transfer analysis, in addition to a statement indicating that neither written nor oral agreements are in effect that would potentially alter a reinsurance contracts terms. This will assist in verifying that the correct accounting treatment is being utilized by insurers entering into finite reinsurance contracts.
"New York States insurance regulatory system can only work properly when our licensees interact with us in a truthful and forthright manner," said Acting Superintendent Mills.
Finite reinsurance is a legitimate financing arrangement and often utilized as a way to protect insurers from interest rate risk and timing risk. The concern insurers have about interest rate risk involves potential losses they could realize because of interest rate fluctuations whereas timing risk addresses situations where insurers want to hedge against variations in the timing of their future loss payments. If finite reinsurance is accounted for as a traditional reinsurance product, however, the capital and income of the companies involved can be manipulated.
"Policyholders, investors, and regulators need assurances that insurers finite reinsurance contracts are completely transparent," Acting Superintendent Mills stated. "The Circular Letter weve issued today is a tough, necessary step that will help to restore confidence to the regulatory process. The Insurance Department is confident that the Letters requirements will also prevent insurers from using finite reinsurance contracts as a way of hiding their companys true financial condition."
The text of the Insurance Departments Finite Reinsurance Circular Letter is retrievable on-line at http://www.ins.state.ny.us, under the home page link listing, Frequently Accessed Information.