NAIC Task Force Adopts Disclosure-Focused Reinsurance Asset Testing Guideline

The Life Actuarial Task Force (LATF), consisting of members from the National Association of Insurance Commissioners (NAIC), has adopted a new reinsurance asset testing guideline. This guideline, which has been in development for approximately 18 months, is mainly focused on disclosure aspects rather than imposing stricter reserve requirements. Regulators expect the first set of reinsurance asset testing data to be reported by April 1, 2026. The guideline still requires approvals from higher NAIC committees before states can adopt it.

The initiative to tighten controls on reinsurers originated in early 2024, with concerns regarding the growing amount of ceded reserves in the U.S. life insurance sector. Fitch Ratings reports highlight that since 2019, ceded reserves have increased from $710 billion to $1.3 trillion in 2023, with significant growth in reserves assigned to offshore jurisdictions. The LATF’s guideline aims to enhance transparency and data gathering around reinsurance assets.

Despite the disclosure focus, some industry observers, including Peter Gould, a variable annuity owner, pointed out that the project shifted from initially proposing reserve enhancements to a disclosure-only mandate, which some view as a weakening of regulatory safeguards. LATF members, including David Wolf from the New Jersey Department of Banking and Insurance, responded by emphasizing that states retain the authority to require insurers to hold additional reserves if deemed necessary.

This development represents a measured regulatory response to concerns regarding the accumulation of ceded reserves by life insurers. By instituting a data collection and disclosure framework, regulators intend to monitor the asset adequacy of reinsurers more closely, potentially using this data to inform future supervisory actions. The phased implementation approach reflects the complexity of the issue and balancing regulatory oversight with industry operational realities.

The guideline’s adoption and subsequent state-level implementation positions regulators to better understand and assess the risks associated with reinsurance assets in the U.S. life insurance market. Ongoing monitoring and analysis of this data will be critical for ensuring reserve adequacy and mitigating potential financial stability risks tied to reinsurance practices.