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IAIS To Write Reinsurance, Securitization Rules - UPDATED

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The International Association of Insurance Supervisors is getting ready to draft new reinsurance and insurance securitization standards.

The IAIS, Basel, Switzerland, will be “publishing specific standards and guidance to the regulatory and supervisory community on reinsurance and other forms of risk transfer, including insurance securitisation,” IAIS officials write toward the end of a mid-year world reinsurance report.

The IAIS officials who wrote the report are members of the IAIS Reinsurance Transparency Subgroup and the IAIS risk transfer subcommittee.

The authors of the report discuss Ballantyne Re P.L.C., a company that a unit of Scottish Re Group Ltd., Hamilton, Bermuda, formed to help insurers meet Regulation Triple X term life reserving requirements. A decline in the market value of mortgage-backed securities hurt the market value of Ballantyne Re’s securities, officials write. Similar forces hurt another Scottish Re special purpose vehicle, Orkney Re II, officials write.

The cases “raise questions with respect to the investment policy of these vehicles, and more generally, to their relation to the overall proposed return to investors,” officials write. “It is to be noted that in both of these cases the challenges related to investment risk rather than underwriting risk.”

The financial crisis “has put several risk transfer arrangements under stress, generating a very instructive body of evidence,” officials write. “Perhaps a key finding emerging from the cases analysed is the inherent complexity of these kinds of transactions and the often unforeseen risks that complexity entails. Cross-sectoral risk transfer arrangements bring together a broad spectrum of players, interlinked by an intricate web of contractual arrangements, the soundness of which can be difficult to ascertain from the outset.”

This year, the parties to new securitization arrangements seem to be taking a more conservative approach to investments and putting more emphasis on disclosure, officials write.

A copy of the full report is available here.


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