Analysts Weigh In On Finite Reinsurance
By Jim Connolly
With all the scrutiny that finite reinsurance is coming under in the property-casualty business, analysts are saying that there is less likelihood for its being misused by life insurers.
Finite reinsurance is a use of reinsurance to protect insurers from interest rate and timing risks. When used improperly, capital and income from companies can be manipulated.
On March 30, American International Group, New York, said in a statement that it has concluded that a finite reinsurance transaction with General Re was “improper and, in light of the lack of evidence of risk transfer, these transactions should not have been recorded as insurance.” An adjustment will reduce reserves for losses and loss expenses by $250 million and increase other liabilities by $245 million.
Speaking of finite reinsurance, in general, Steven Schwartz, an analyst with Raymond James in Chicago, notes that “there is nothing wrong with it as long as there is a real risk transfer. It is being made to sound like its evil and it isnt.”