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October 28, 2007 at 04:00 PM
Life reinsurers who offer financial reinsurance distanced themselves from their property-casualty counterparts during a session at the annual meeting of the Society of Actuaries here recently.
Additionally, during the discussion, attendees questioned why rating agencies, such as Moody’s Investors Service, New York, which was represented on the panel, do not give financial reinsurance the recognition these financial reinsurers claim the product should receive.
As part of his presentation on the panel, ‘A New World of Financial Reinsurance,’ Jeff Poulin, a senior vice president-life and annuity with London Life Reinsurance Co., Blue Bell, Pa., was one of several panelists who stated that rating agencies seemed to prefer securitizations and dislike financial reinsurance.
He noted that the “Spitzer effect” had an impact on the life financial reinsurance market, but that the market was starting to pick up again. As Attorney General, Eliot Spitzer, now New York’s Governor, investigated finite and financial reinsurance transactions to determine whether they were used to smooth earnings rather than as risk transfer mechanisms.
Poulin noted that “a lot of bad things had been done on the p-c side but the life side is a lot cleaner.” One reason, he noted, was that there are more reserve credit rules and risk transfer rules in place for life.
In 2007, the “deal flow has been really busy since the first of the year,” said Jeff Burt, vice president-marketing with Hannover Life Reassurance Co. of America, Orlando, Fla. In part, he continued, it is the result of the life insurance industry doing well, along with balance sheet growth and greater stability. The financial sector is picking up and companies are seeking to position themselves through their balance sheets, he added.
On the issue of Spitzer’s investigation of financial reinsurance, Burt said p-c financial reinsurance was not put together well. “The property-casualty market tended not to do as good a job as life reinsurers,” he said. He also attributed the difference to stronger requirements.
Both Poulin and Burt said that increased disclosure to regulators and rating agencies should really improve the situation.
The discussion also covered the convergence of capital markets with financial reinsurance. It was noted that there are more securitizations than might be thought because some are private transactions. Thus, the discussion indicated, for every 2 announced securitizations there might be 2 to 4 that are not announced.
