The National Association of Insurance Commissioners' Life Actuarial Task Force continues to develop new guidelines aimed at evaluating offshore reinsurance arrangements, as life insurers increasingly transfer reserves to jurisdictions such as Bermuda and the Cayman Islands.
According to a recent exposure draft, regulators expressed concern that domestic insurers could use reinsurance agreements to significantly lower required asset levels and free up capital, potentially impacting policyholders negatively.
Fred Andersen (pictured above), chief life actuary for the Minnesota Department of Commerce and a member of the NAIC task force, noted that reinsurance activities have surged, involving "hundreds of millions of dollars just since 2020."
Andersen pointed out these transactions have reduced clarity regarding the types and amounts of reserves insurers hold and the specific assets backing these reserves.
The task force initiated discussions in February about a proposal designed to scrutinize the asset reserves life insurers maintain as part of reinsurance transactions.
In recent years, offshore and funded reinsurance have become integral components of the global insurance landscape. However, these practices have attracted criticism and heightened regulatory scrutiny due to concerns over transparency, counterparty risk, and financial stability.
Earlier this month, the US Financial Stability Oversight Council (FSOC) raised concerns about the financial stability of life insurers, citing increasingly complex investment strategies and a growing reliance on offshore reinsurers.
Japan’s top financial regulator is also reportedly conducting a survey of life insurers to assess potential risks related to the increased use of reinsurance arrangements.
In July last year, the UK's Prudential Regulation Authority (PRA) issued Supervisory Statement SS5/24, outlining expectations for insurers engaged in funded reinsurance. The PRA emphasized the need for robust risk management and required firms to submit remediation plans by the end of the year.
In response to NAIC, the American Council of Life Insurers (ACLI) voiced its support for the revised guidelines but suggested modifications, according to a letter sent to the Life Task Force leadership.
The ACLI recommended granting appointed actuaries greater flexibility in assessing reinsurance-related risks, while preserving the authority of domestic regulators to require further evaluations. The group also proposed limiting the scope of the regulations exclusively to transactions occurring from 2020 onward.
According to the ACLI, these adjustments would enable actuaries to align financial data more closely with the regulatory frameworks of the assuming insurers' jurisdictions. This alignment, the group suggested, would enhance US regulators' ability to understand and oversee these agreements.
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