GUAA Risk Review

Spring 1999

Reinsurance Committee Sessions

By Matt Tourangeau,
Duncanson and Holt Services

The Reinsurance Committee conducted two workshops during the November meeting. Two NAIC regulations provided the framework for a discussion of requirements for reinsurers to be licensed as TPA's, and the obligations of reinsurance brokers, underwriting managers, and insurers in reinsurance relationships. The NAIC's Third Party Administrator Statute indicates that if a reinsurer provides services beyond purely financial risk transfer to an insurer, that the reinsurer might come under scrutiny through the Statute.

There is a long list of exceptions, most notably organizations that are licensed insurers. If the Statute applies, however, it goes on to describe expectations including written agreements, administrative and financial obligations, and disclosure requirements. The Reinsurance Intermediary Model Act distinguishes between reinsurance brokers and reinsurance managers; brokers place reinsurance without the authority to bind on behalf of the ceding insurer, while managers do have the authority to bind on behalf of the reinsurer. Again, there are exceptions noted. As a result of the reinsurance managers' authority to bind, the NAIC model act is more stringent concerning reinsurance managers. Their contract must be approved by the reinsurer board of directors. Reinsurance brokers, according to the model law, can work with only written authorization from the insurer. However, both reinsurance brokers and managers must be licensed producers. It was noted during this session, and is reiterated here, that the material presented is not intended as legal advice, and that individual companies should refer to counsel prior to acting on, or making any policy concerning these matters.

The second session during the November meeting focused on "the reinsurance process." This session would not have been possible without the participation of Elizabeth Zimmerman, FLMI, Cologne Life Re. With her help, the Reinsurance Committee began with an overview of the execution of reinsurance transactions. As the session progressed, the discussion grew into an exchange regarding the expectations of the reinsurers' customers, how value is measured in the reinsurance relationship, and the role that pure price plays in securing and maintaining reinsurance relationships.

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