Company-Feature

Reinsurance

• Assumption Reinsurance
• Captive Reinsurance
• Financial Reinsurance
• Reinsurance Collateral
• Reinsurance – Taxes
  • 1988 – SOA – Reinsurance Tax Issues, Society of Actuaries – 10p
• Surplus Relief Reinsurance
• Skinner  – GOV – Blunt Instrument

• CHAIR : What is the status of Maryland regulation of reinsurers?
• Mr. Muhl, Maryland Insurance Commissioner: There is none.
• Chair : And is there in other states?
• Mr. Muhl : None …  (p257)

—  Excerpts from Tape of Hearing of Maryland Governor’s Task For on Medical Malpractice  — October 22, 1985

1986 0121 and 0122 – GOV (House) – The Liability Insurance Crisis – [PDF-553p-GoogIePIay

• The destiny of my ease for my perspective has been determined not only by someone I’ve never spoken to, but more often than not, by a company of which I’m totally unaware. I don’t know what company is being used or who it goes to. My company does not inform me of who the reinsurance cartier is, and in most cases is even reluctant to show the information or the name of the carrier.
• My question is, What’s the mystery? Why is this part of the underwriting process cloaked in such secrecy by
  the field underwriter?

—  David Rittenberg, Field Underwriter at Mutual of New York

1995 – SOA – Reinsurers and Producers: What Can We Learn from Each Other?, Society of Actuaries –12p

• NAIC – Special Purpose Reinsurance Vehicle Model Act – 789-1 – 34p
  • Section 1. Purpose – This Act provides for the creation of Special Purpose Reinsurance Vehicles (“SPRVs”) exclusively to facilitate the securitization of one or more ceding insurers’ risk as a means of accessing alternative sources of capital and achieving the benefits of securitization.
  • Section 5. Limited Purpose of SPRV – The chair asked whether the model should allow SPRVs to be used for other than catastrophic risks noting that this was a suggestion in the scholarly paper received by the working group.
    • A regulator stated that he believed the working group should take baby steps and that it should therefore focus on catastrophic risk only to begin with. He did not feel comfortable voting for a model that allowed unlimited types of SPRVs. He also noted that tail risk and the issue of multiple cedents were also major problems that needed to be solved.
    • A commissioner stated that it would be a mistake to focus solely on catastrophic risks. He noted that the earliest securitization deal was a life insurance securitization as has been the case with some of the more recent securitizations.
    • 2001 Proc. 1st Quarter 399.

• At least one interpretation within the California Department is that many mod co type treaties do not appropriately transfer liability to the reinsurer. Would you agree with either of the following analyses?
  • Company and Reinsurer enter a co/modco treaty covering a universal life block of business.
  • As experience unfolds the reinsurer receives a risk and profit charge on each settlement due.
    • This is the only cash that ever transfers hands.
    • Company recaptures the business when the coinsurance reserve set up by Reinsurer decreases to zero.
  • ⇒ Does this mean no liability was transferred to the reinsurer?

1992-1A, NAIC Proceedings

• On the surface is the handbook operator.
  • He makes a profit from the persons who place bets with him because he has an edge on every bet. He pays track odds but usually not in excess of 20 to 1.
• The odds at the track are calculated after deducting the 15 percent to 18 percent of the total betting pool which goes to pay taxes and other expenses. The bookmaker pockets that amount.
  • However, he is not a man of unlimited resources.
  • He must balance his books so that he will lose no more on the winner than has been bet on the other horses in a race, after his percentage has been deducted.
  • He cannot control the choices of his customers and very often he will find that one horse is the favorite choice of his clientele.
• His “action,” as he calls it, may not reflect the “action” of the track.
  • Therefore, he must reinsure himself on the race in much the same fashion that casualty insurance companies reinsure a risk that is too great for it to assume alone.
  • To do this the bookmaker uses the “layoff” man, who for a commission, accepts the excess wager. (p3)

—  Statement of Hon. Robert F. Kennedy, Attorney General of the United States

1961 JUNE 6, 19, 20, 21, AND 26 – GOV (Senate) – The Attorney General’s Program to Curb Organized Crime and Racketeering – Robert Kennedy, James O. Eastland  (D-MS) – [PDF-349p-GooglePlay]

• While a company may be able to minimize and finalize its payments through a commutation with a policyholder, though, it often faces difficulty collecting from its reinsurers, she noted.  (Cheryl Sheridan, director of marketing for specialist runoff manager Global Resource Managers Ltd., a London-based unit of CNA.)
• “Once a company is in runoff, it finds it very hard to collect its reinsurance claims, as reinsurers focus their cash flow on live clients,” said Mr. McGuigan, pointing out that this creates a cash flow crunch and a claims payment slowdown throughout the chain to the original policyholders.

2005-4, NAIC Proc.

1980s

• 1985 – SOA – Regulation of Reinsurance, rsa85v11n4a14 – Society of Actuaries – 22p
• 1987 – SOA – Reinsurance from the Regulator’s Point of View, rsa87v13n4b17 – Society of Actuaries – 38p

1990s

• 1990 11 – GAO – Insurance Regulation: The Insurance Regulatory Information System Needs Improvement – 64p

• 1991 – SOA – Reinsurance in the News, rsa91v17n26 – Society of Actuaries – 20p

• 1992 – SOA – Federal Versus State Regulation of Reinsurance, rsa92v18n4A9 – Society of Actuaries – 12p
• 1993 – SOA – Reinsurance and Rating Agencies. Society of Actuaries – 22p

2000s

• 2003 – SOA – Famous Reinsurance Disasters, rsa03v29n316of – Society of Actuaries – 26p
• 2007 1030 – GOV (House) – Additional Perspectives on the Need for Insurance Regulatory Reform – [PDF-180p
  • Kanjorski, Hunter, Nutter
• 2009 – LR – Reinsurance: The Silent Regulator, by Aviva Abramovsky, Connecticut Insurance Law Journal – p345-406 – 63p
• 2010 – SOA – The Reinsurer Made Me Do It, By Ross Morton, rsn-2010-iss67-morton, Society of Actuaries – 5p

2010s

• 2015 – JIR / NAIC – The Economics and Regulation of Captive Reinsurance in Life Insurance, Scott E. Harrington – 45p
• 2017 0502 – GOV (Senate) – Examining the U.S.-EU Covered Agreement – [PDF-89p

• (p6) – I do note that on reinsurance issues, there does need to be a national debate on what we do with reinsurance issues.
• We have been discussing this along with NAIC, and there are very technical, detailed things that have to happen on a worldwide basis, not just what we do.

—  Craig Eiland, Texas House of Representatives, on behalf of the National Conference of Insurance Legislators (NCOIL)

2007 1030 – GOV (House) – Additional Perspectives on the Need for Insurance Regulatory Reform, Paul Kanjorski (D-PA)  —  [BonkNote]

• Reinsurance
• Reinsurance contracts do not relieve the Company from its obligations to policyholders.
• Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible.

2014-CFPB-0002 Document 55-10 Filed 10/31/2014

https://files.consumerfinance.gov/f/documents/201411_cfpb_expert-report-crawshaw-exh-1-12-Redacted_055_08-19.pdf

• As reinsurance is used more frequently in major joint ventures and capital raising deals, it comes under increased public scrutiny from regulators, rating agencies and the press.
  • The Federal Government also has been investigating the role of reinsurance in connection with the financial health of insurers.
• This session will help reinsurance actuaries prepare to give testimony and interviews, and to become proactive in explaining the needs and proper uses for reinsurance.

1991 – SOA – Reinsurance in the News, Society of Actuaries – 20p

• Michael Mcraith: Director, Illinois Department of Insurance, on behalf of The National Association of Insurance Commissioners (NAIC) 
• May I add to that?
  • The ultimate consumer protection, Congressman, is when your constituent pays a premium and doesn’t have a claim for several years, that the company is not only around to answer the telephone, but is able financially to pay the claim.
  • Reinsurance is an essential part of solvency, and solvency is the core mission, core purpose, of consumer protection in each State.
  • And for that reason, it is appropriately a subject for State based regulation.  (p41)

2009 0616 – GOV (House) – Insurance and Systemic Risk, CSPAN (Insurance and Systemic Risk) – [PDF-181p

• Reinsurance is also essential in pricing: by accelerating earnings or minimizing the surplus strain caused by the reserve.
• Improvements can be recognized in pricing because now the actuary does not have to guarantee all the assumptions; the risk can be shifted to the buyers.

—  Lawrence Silkes

1983 – SOA – Individual Life Insurance, Society of Actuaries – 22p

• “The reinsurance business has the defect of being too attractive-looking to new entrants for its own good and will therefore always tend to be the opposite of, say, the old business of gathering and rendering dead horses that always tended to contain few and prosperous participants.”  (p5)

– Charles T. Munger, Chairman, Wesco Financial Corp. (extract from the 1986 Annual Report)

Year?? – actuaries.org.uk – Working Party – Insurance Company Failure – 65p

• IAIS – ICP 19.-.7 – Conduct of Business
• Detailed conduct of business rules may not be appropriate for reinsurance transactions, where benefits under a policy are not affected by the reinsurance arrangements (see ICP 13 Reinsurance and Other Forms of Risk Transfer).
• Nonetheless, this does not relieve insurers and reinsurers of their duty to provide each other with complete and accurate information.

• (p379) – Terry Tiede – Assistant Commissioner of Insurance, State of Kansas
• In any event, it is my understanding that, historically, in most transactions where assumption reinsurance was utilized, the effect of the transaction was beneficial to all parties involved, including the policyholders.
  • The Kansas Insurance Department is very much aware of and very disappointed with the length of time the ValuBuilder policyholders have had to endure not having access to or not knowing if they would ever see the values they had accumulated in their policies, and we are extremely interested in finding a solution so other policyholders can avoid similar situations.

1992 0428 and 0505 – GOV (Senate) – Insurance Guaranty Funds and the Involuntary Transfer of Insurance Policies, Insurance Policy Transfers (CSPAN), Senator Metzenbaum – [Both Dates PDF-629p-GooglePlay,  0428-No Video / 0505-VIDEO-CSPAN- Insurance Policy Transfers]

• To bolster their statutory surplus and reported financial condition, the four insurers reduced policy reserves on their balance sheets through reinsurance transactions and received from their parent holding companies millions of dollars in surplus infusions and loans.
  • Although reinsurance is a legitimate practice in the life insurance industry to reduce the strain on surplus of selling new policies, the Executive Life insurers and First Capital relied on questionable reinsurance transactions to artificially inflate their surplus.
  • Without reinsurance and borrowed surplus, the Executive Life insurers would have been insolvent as early as 1983.

1992 0218 – GAO – Insurance Regulation: The Failures of Four Large Life Insurers, Statement of Richard L. Fogel, Assistant Comptroller General, General Government Programs – 21p

• And so we certainly stay here hoping to work with you on the reforms that you all determine are necessary so that we hope that we can support them and work to help reform this.
• I do note that on reinsurance issues, there does need to be a national debate on what we do with reinsurance issues.
• We have been discussing this along with NAIC, and there are very technical, detailed things that have to happen on a worldwide basis, not just what we do.  (p6)

—  Statement of The Honorable Craig Eiland, Texas House of Representatives, Testifying on Behalf the National Conference of Insurance Legislators (NCOIL)

2007 1030 – GOV (House) – Additional Perspectives on the Need for Insurance Regulatory Reform – [PDF-180p,

• (p41) – Senator Tim Johnson (SD-D) – Mr. Nutter, you talk about many problems the U.S. reinsurance industry and fund reinsurers face with 50 different U.S. insurance regulators and sets of State laws.
  • You mentioned that this patchwork of regulation has caused tensions with foreign officials, and these result in U.S. reinsurers being disadvantaged overseas.
  • Can you elaborate?
  • Is there anything that this Congress can do to make sure that the U.S. reinsurers are not discriminated against because of our regulatory system? 

2008 0729 – GOV (Senate) – The State of the Insurance Industry: Examining the Current Regulatory and Oversight Structure – [PDF-472p

• Does Reinsurance + Side Letters = CDS?
• One of the most widespread means of risk shifting is reinsurance, the act of paying an insurer to offset the risk on the books of a second insurer.
• This may sound pretty routine and plain vanilla, but what most people don’t know is that often times when insurers would write reinsurance contracts with one another, they would enter into “side letters” whereby the parties would agree that the reinsurance contract was essentially a canard, a form of window dressing to make a company, bank or another insurer look better on paper, but where the seller of protection had no intention of ever paying out on the contract.

2009 0402 – ritholtz.com – AIG: Before CDS, There Was Reinsurance  Part 1 – [link]

2009 0402 – ritholtz.com – AIG: Before CDS, There Was Reinsurance – Part 2 – [link]

• Karl L. Rubinstein (Special Deputy Insurance Commissioner, State of California): 
• (p11) – One of the first concepts I think that the members need to deal with is the question of what is reinsurance.
• (p15) – One of the things that is important to insurance companies is how much capital and surplus do they have.
  • That is what is important to the regulators.
  • If the capital and surplus are less than the liabilities, then obviously the company is insolvent.
• One of the features of reinsurance is that it provides surplus relief.
  • That is to say – let’s go back to my example earlier.
  • Let’s say I am the insurance company.
    • I issue a policy for $100.
  • Then again, simplistically speaking, I better have at least $100 in capital and surplus.
  • If I don’t have $100 in capital and surplus, I am insolvent.
  • So I am an insurance company.
    • I go out. I sell a policy and I assume $100 in risk.
    • If I have $100 in capital and surplus, I am out of business.
    • Because I have sold all I can sell, because I have got $100 in risk, I have got $100 in capital and surplus. That is it.
  • So if I want to do more business, I have to either get more capital and surplus or I have to find something that is just as good.
  • Now, obviously cash will do.
    • So if someone infuses cash, then that creates the needed capital and surplus.
    • But reinsurance will also do.
  • So if I had $100 in risk and I entered into a reinsurance agreement and laid off $50, then I have got $50 in available surplus.
  • Again, now you know an insurance examiner would probably come up here and slap me for being too simple, but this is how I see it, and what I am saying to you is basically the way it works, although technically it is more complicated.
  • So what you get when you obtain reinsurance is reinsurance credits.

1991 0227, 0507, 0509, 0523 – GOV (Senate) – Insurance Company Solvency – [PDF-369p-GooglePlay,