The International Association of Insurance Supervisors (“IAIS”) recently released proposed revisions to the existing version of its Insurance Core Principle 13 regarding “Reinsurance and Other Forms of Risk Transfer.” The proposal involves a fairly significant re-working of the structure of certain ICP 13 sections, as well as important substantive updates. At the outset, the proposal would revise the description of what ICP covers, from supervisors “set[ting] standards” for the use of reinsurance and other forms of risk transfer in order to ensure that insurers adequately control and transparently report their risk transfer programs, to supervisors “requir[ing] the insurer to manage effectively” its use of reinsurance and other forms of risk transfer. Other noteworthy changes include (but are not limited to):
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inserting a list of factors to inform a supervisor’s assessment of a ceding insurer’s reinsurance program;
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recommending the group-wide supervisor of an insurance group require the reinsurance strategy of the insurance group to address a designated set of issues;
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specifying supervisors require ceding insurers to establish effective internal controls over the implementation of their reinsurance program;
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including credit risk posed by a reinsurer (and ways for ceding insurer to mitigate reinsurer credit risk), as well as operational risk related to contract documentation, as characteristics of the reinsurance program that should be included in a ceding insurer’s capital assessment;
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requiring ceding insurers to demonstrate the economic impact of risk transfers originating from reinsurance contracts (as opposed to requiring transparency to allow the supervisor to understand the economic impact);
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eliminating statement that binding documentation requirements are questions of jurisdictional contract law;
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requiring ceding insurers to consider the impact of their reinsurance programs in liquidity management (as opposed to the supervisor assessing whether cedants control their liquidity position to take account of risk transfers); and
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inserting a section regarding considerations for supervisors of insurers ceding risks to SPEs.
The IAIS held a public background call on June 5, 2017 to introduce the public consultation package and to receive initial feedback. Interested parties may submit feedback on the proposed revisions to the IAIS online through July 31, 2017.
