Insurance supervisors issue guidance on risk transfer

The International Association of Insurance Supervisors (IAIS) has issued a guidance paper on risk transfer. The guidance – officially adopted today at the association’s general meeting in Vienna - details potentially problematic areas on which national and regional supervisors looking at finite reinsurance should focus.

Finite reinsurance, also known as financial reinsurance, is a contract between an insurer and a reinsurer where limited risks are transferred to the reinsurer. These transactions may be de facto financing arrangements and the failure of some firms to account for them as loans has put this form of reinsurance under the regulatory spotlight during the last 18 months.

The IAIS said that from a supervisory perspective, the primary issues in finite reinsurance are whether there is adequate risk transfer and there is appropriate accounting and disclosure. “In some instances, misuse of finite reinsurance has resulted in misrepresentation of the insurer’s financial position,” it said.

Julie Bowler – Massachusetts’ insurance commissioner and chairwoman of the AIAS reinsurance and risk transfer subcommittee - called the guidance paper a “useful tool” to inform supervisors about the issues in finite reinsurance including risk transfer and accounting