What You Need to Know
- A Northwestern Mutual risk manager acknowledges that some of the offshore reinsurance deals are helpful.
- He argues that the deals make the finances of an insurer harder to analyze and suggests the need to establish uniform solvency standards.
- He says changing U.S. reserving rules beats insurers seeking easier rules offshore.
Northwestern Mutual thinks it’s strange to see U.S. life and annuity issuers making waves of offshore reinsurance deals that “free up capital.”
Andrew Vedder, vice president for enterprise risk management at Northwestern Mutual, told state insurance regulators about the company’s concerns earlier this month, in a comment letter.
“Life insurance should have strong, appropriately conservative reserve and capital requirements for the long‐term promises made to policyholders,” Vedder wrote in the letter. “Industry and regulatory credibility could be questioned if a transaction involving a block of business could meaningfully reduce the total reserve and capital requirements while the risks associated with that business remain substantively the same.”
Northwestern Mutual wants to see the regulators keep use of offshore reinsurance from affecting insurers’ solvency, Vedder said.
What It Means
State insurance regulators may face pressure to ease reserving rules or to add curbs on use of offshore reinsurance to keep life and annuity issuers from using deals with offshore reinsurers to get around U.S. standards.
The Macroprudential Working Group
Vedder sent the Northwestern Mutual letter to the Macroprudential Working Group at the National Association of Insurance Commissioners — a Kansas City, Missouri-based group for state insurance regulators.
The working group is supposed to help regulators reduce the risk that business trends, one company’s strategy or other factors will bring down the whole financial system.
The working group recently posted a note on what it’s thinking about the rise of private equity firm ownership of insurers.
Regulators suggested that they believe that weaknesses in overall regulations are more important than the nature of an insurer’s ownership structure.