In December 2004 the
IAIS decided to develop a supervisory guidance paper in response to supervisory concerns about the use and abuse of finite risk reinsurance. Recent events reported publicly have highlighted the need for supervisory awareness and guidance on these specialised types of reinsurance contracts.
Finite risk reinsurance, or financial reinsurance, is a contract between an insurer and a reinsurer where limited or no risks are ceded to the reinsurer. Where there is in fact little or no transfer of risk, supervisors need seriously to question whether the insurer should be permitted to account for the contract as reinsurance. In some cases, these contracts may be financing vehicles, in which case they should be accounted for as loans and not reinsurance.
While certain types of these contracts may be useful, other types can be abused to smooth insurers’ profits and mislead users about the insurer’s financial position. The supervisory guidance paper being developed by the IAIS will outline the key areas that supervisors should focus on.
Press release
© IAIS - International Association of Insurance Supervisors
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