The National Association of Insurance Commissioners (NAIC) Life Insurance and Annuities Committee has approved guidelines for reinsurance asset testing, advancing a disclosure-focused approach rather than mandating prescriptive reserve requirements.
The issue of reinsurance reserve adequacy has been under discussion at the NAIC since at least mid-2024, when the Life Actuarial Task Force began developing proposals to strengthen regulatory oversight of reinsurance contracts.
At the NAIC’s 2024 summer meeting, the task force explored the potential for expanded cash-flow testing as a means to improve visibility into asset-backed arrangements, particularly those involving offshore reinsurers.
Fred Andersen of the Minnesota Department of Commerce, a member of the Life Actuarial Task Force, said the group worked with the industry over the past year to reach a middle ground.
"In the past year, we engaged with industry to try to figure out kind of a balancing point, ensuring we get the information we as regulators need for the largest, most impactful transactions, while also recognizing that we don't want all this work done where there's less bang for the buck," Andersen said.
The guidelines are scheduled to go before the NAIC Executive Committee and Plenary for final adoption during the organization’s annual meeting, which will be held in Minneapolis from Aug. 10 to Aug. 13. A vote is expected on the final day of the meeting.
If adopted, the guidelines would affect approximately 100 reinsurance treaties, according to the NAIC.
In a March exposure draft, the task force acknowledged that since 2020, life insurers have ceded hundreds of millions of dollars in reserves through offshore structures. Regulators raised concerns that these transactions could be used to release capital from onshore entities without sufficient risk alignment or reporting clarity.
"Our concern was that when there is this type of reinsurance activity, including offshore activity, we lose that transparency that we have for the domestic business," Andersen said. "These are still US policyholders that we are trying to protect, even if the business is reinsured or shipped offshore."
Industry groups, including the American Council of Life Insurers (ACLI), voiced support for the NAIC’s decision to adopt a disclosure-only model. The ACLI advised that any new rules be applied prospectively to transactions executed from 2020 onward.
The group also emphasized the importance of preserving the role of appointed actuaries in assessing reserve adequacy, rather than imposing rigid formulas or thresholds.
The scrutiny surrounding offshore reinsurance activity is also linked to the growing presence of jurisdictions like Bermuda in the global reinsurance sector. Bermuda now accounts for approximately one-third of the world’s reinsurance capital, making it a focal point for US regulators concerned about jurisdictional differences in reserve standards and risk reporting.
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