U.S. RE Chairman Calls for Federal Regulation of Reinsurance
For Immediate Release October 3, 2005 New York, NY - State regulation of reinsurance stands in the way of current moves toward international, regulatory standards for reinsurance and the need for domestic uniformity, according to Tal P. Piccione, Chairman/CEO of U.S. RE Companies, Inc., parent of U.S. RE Corporation, one of the largest reinsurance brokerage firms with global operations.
"I have come to the conclusion that Federal regulation of reinsurance will be required for the U.S. market to function effectively over the long term," Piccione told senior insurance executives attending the American Conference Institute meeting here on how to deal with current issues surrounding Finite Reinsurance.
"In fact, given the global nature of reinsurance and the need to be on a level playing field with overseas reinsurers who are being increasingly regulated by a common authority, reinsurers are handicapped in the United States by having to deal with 50 state regulatory bodies," he explained. Piccione cited, "the increasing economic unification of Europe through the European Union and the international move toward global reinsurance regulation," as compelling reasons for the U.S. to offer a unified regulatory environment.
As for Finite Risk reinsurance, Piccione acknowledged that a review of risk transfer standards is justified in the light of some recent abuses. However, he argued against creating regulatory restrictions that would make the finite reinsurance mechanism virtually unusable in the marketplace. "It is also imperative that Finite Risk be allowed to play a contributory role, as it did in the early nineties, in mitigating the potential for loss of conventional reinsurance capacity or a spike in the cost of conventional reinsurance resulting from Hurricane Katrina and other losses during the 2005 wind season. While Finite Risk had gradually lost some of its patina with the re-emergence of new capital to support more traditional reinsurance, it remains a powerful tool in the quiver of protections for insurers and even reinsurers," he asserted. Piccione pointed out that the reinsurance industry, unlike banks, supports the primary, property/casualty insurance industry without collateral and only an estimated 27 percent of the capital.
U.S. RE was a key player in the creation of risk transfer standards and accrual accounting rules for Finite Risk reinsurance. U.S. RE represented the reinsurance industry in 1993 before the Financial Accounting Standards Board and the Securities Exchange Commission as they considered how to deal with financial reinsurance mechanisms. "From the beginning, we helped to promulgate the use of Finite Risk reinsurance as a device in which there is true risk transfer," he pointed out. U.S. RE was the first to develop Dynamic Financial Analysis (DFA) in 1994 to quantify risk transfer and adherence to accrual accounting criteria in the design and sale of finite products.
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