CFTC Issues No Action Letter On Application Of Swap Rules To Longevity Reinsurance Transaction


There has been considerable concern in the insurance and reinsurance industries that certain hedging and reinsurance activities that companies have engaged in for a number of years, particularly with respect to life insurance and annuity products, might be viewed as swaps under regulations implementing the swap regulation provisions of the Dodd-Frank Act, complicating those transactions and increasing their costs.  A division of the Commodity Futures Trading Commission recently issued a no-action letter indicating that it would not recommend that the Commission take enforcement action based upon the view that certain longevity risk reinsurance transactions are “swaps.”  This is the first time that the Commission has addressed whether a specific insurance transaction is covered by the swap rules.  The transaction at issue encompassed longevity and inflation risks from a pool of plan beneficiaries under a non-U.S. defined benefit pension plan.  The risks were the subject of longevity swap hedging transactions and reinsurance through a Bermuda domiciled cell insurance company.  The Dodd-Frank Act contains an insurance safe harbor provision, which was intended to provide a basis for finding that certain enumerated traditional insurance products and activities, including annuities and reinsurance, are not regulated swaps.  The no-action letter analyzes the described transaction and finds that it involves an insurance policy and a “traditional reinsurance contract,” which should not be characterized as a swap.  This no-action letter provides insight into how the CFTC views the insurance safe harbor provision of the Dodd-Frank Act.  CFTC Letter No. 14-67 (April 8, 2014).


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