This fourth edition of Life, Health and Annuity Reinsurance is now available through ACTEX Learning. This edition had a long gestation period, largely because it features the most revisions since the first edition twenty-five years ago. Several factors contributed to the volume of changes.
The Financial Crisis of 2008 is the most critical factor as it affected the financial services industry in the US and abroad. In the US, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act created the Federal Insurance Office to collect and analyze data on the insurance industry and identify risky insurers for Federal Reserve supervision. The NAIC responded with new regulations and updates to older regulations and only three regulations discussed in this text pre-date 2008: Assumption Reinsurance Model Act (1999), Disclosure of Material Transactions Model Act (2001), and Insurance Receivership Model Act (2007). All of the Actuarial Standards of Practice notes discussed herein were issued by the Actuarial Standards Board between 2010 and 2012.
The Financial Crisis of 2008 was not as severe in Canada because of the different regulatory system, still all OFSI Guides, Guidelines, and Guidance relating to reinsurance used in this text were issued in the years since 2008.
The second factor was a long needed decision to expand content relating to Canada. Two new chapters were added: Canadian Regulation of Reinsurance and Canadian Reinsurance Accounting and Tax Considerations. The Reinsurance Treaty chapter was expanded to compare and contrast treaty provisions between Canada and the US. Other chapters include expanded comments to highlight practices specific to Canada. In researching and writing these additions, the authors' respect and admiration for the Canadian system grew and we encourage our US readers to study these chapters.
The third factor was the decision to expand the history sections. In conversations with other actuaries, the authors realized that the backstory surrounding the development of regulation, taxes, and the reinsurance industry itself is worthy of preservation in one text. Students may hate us for the decision, but we felt it was important for people new to the field to understand how and why we got to this place. We expanded coverage of important court cases and revenue rulings as these shaped how we work today. We included brief stories of Baldwin-United, Equity Funding, and First Executive Life because these are examples of the clash of ethics and money that result in financial hardship for policyholders and reinsurers and should not be forgotten.
The international chapter, Reinsurance in Other than the US and Canada, was also greatly expanded. In a global economy, it is important the understand regulation and markets in other countries and how companies in the US and Canada can work with them.
Other areas that were significantly expanded include captives, inforce reinsurance transactions, dispute resolution, and risk transfer.
A final factor that affected the content was the availability of relevant and reliable information on the Internet. The Reinsurance Section of the Society of Actuaries deserves special commendation for its contribution to the literature. The "alphabet soup" organizations: ACLI, AAA, AIDA, ASB, CIA, EU, FSAB, IAIS, IASB, IRS, NAIC, NOLHIGA, OECD, and the SOA have comprehensive and easy to search websites. The insurance supervisory entities of all the countries discussed in the text had English language versions of their websites, including China and Japan. Large accounting and law firms were also a valued source of information. The bibliography has been expanded to reflect the contributions of these sources and encourage the reader to continue to research.
It is important to note that, despite the twenty-five years since the first edition, the fundamental principles of life, health, and annuity reinsurance have not changed. Risk transfer is still the cornerstone of a reinsurance transaction. The three basic forms of reinsurance: yearly renewable term, coinsurance, and modified coinsurance are still the building blocks, and can be used in many ways to meet client needs. The information needs of the ceding and assuming companies, while unchanged, are now satisfied using electronic techniques no one could have dreamed possible in 1990.
This edition is intended to continue to serve as a reference for both experts and novices involved in assuming or ceding reinsurance. Of course, it is impossible for one book to contain all of the knowledge necessary to analyze or document every possible reinsurance transaction. The purpose of this book is to provide the historical foundation and the current regulatory and technological framework. The reinsurance professional can apply the foundation and framework in creative ways to design reinsurance programs to fit the 21st century.
Because regulations change, and vary by state in the US, the authors expect the professional always to refer to the most recent version of the applicable regulations. As this information is readily available online, there is no excuse.
The reader is assumed to have a working knowledge of individual life, health, and annuity products and practices in the US and Canada. It is also assumed that the reader has a basic understanding of taxation as well as statutory and GAAP accounting. Although the authors are both Fellows of the Society of Actuaries, and actuarial background is not necessary for understanding the concepts with the possible exception of some of the pricing and retention limit determination discussions.
The chapters are organized into six parts:
1. Introduction to Life, Health, and Annuity Reinsurance
2. Methods and Applications of Reinsurance
3. Treaties and Risk Considerations
4. Regulatory, Accounting, and Tax Considerations
5. Additional Products and Topics
6. Administration and Management Considerations
Bibliography Part I: Books, Journals, Reliable websites
Adney, John, JD. “Federal Tax update: Selected Developments & Issues Affecting Life Insurers.” Presentation: Society of Actuaries Life and Annuity Symposium, May 6-7, 2012.
A. M. Best. Best’s Insolvency Study: Property/Casualty Insurance 1969-1990. Oldwick: June 1991.
Antes, Richard, Ernst & Young. “Federal Income Taxation of Life Insurance Companies.” New York: Bender, 1988.
Barth, Michael M, PhD. “Risk Based Solvency Regulation in the U.S.” Paper presented at World Bank Contractual Savings Conference, Washington, D.C., November 3-7, 2003.
Basel Committee on Banking Supervision. Longevity risk transfer markets: market structure, growth drivers and impediments and potential risk. Bank for International Settlements. Basel: December 2013.
Becker, Joanna, FSA, MAAA. “Discussion of Reinsurance Provisions in a Life Reinsurance Agreement.” Treaty Committee-Reinsurance Section, Society of Actuaries, August 1, 1994.
Bluhm, W.F. Group Insurance, Sixth Edition. Winsted: ACTEX Publications, Inc., 2012.
Bluhm, W.F. & Leida, Hans. Individual Health Insurance. Winsted: ACTEX Publications, Inc., 2015.
Bormann, Fred F. J., Swales, Jason A., Welch, Jillian M. Canadian Insurance Taxation, Third Edition. Markham, Ontario, Canada: LexisNexis, 2009.
Bowers, N.R., et al. Actuarial Mathematics. Schaumburg: Society of Actuaries, 1997.
Bruggeman, David. “Life Reinsurance data from the 2013 Munich Re Survey.” Reinsurance News. Issue 79, August 2014.
Bunner, Bruce. “Will Setoffs be Set Aside?” Best’s Review, December 1989.
Business Insurance. “World's 10 Largest Captive Domicile.” https://businessinsurance.com. March 2013.
Carruthers, Stuart. “Country Q&C Canada.” Cross-border Insurance and Reinsurance 2011 Handbook. Practical Law Company. 2011.
Cole, Cassandra & McCullough, Kathleen A. “Captive Domiciles: Tends and Recent Changes.” Journal of Insurance Regulation, Summer 2008, Vol 26.4, 61-90.
Cunningham, R.J., Herzog, T.N., London, R.L. Models for Quantifying Risk. Winsted: ACTEX Publications, Inc., 2005.
Dederer, James, JD. “U.S. Federal Income Taxes.” RSA Vol 8, No. 4, 1982, 1625-1643.
Ernst & Young. “Accounting for Reinsurance.” http://www.ey.com, November 2012
Festa, Elizabeth D. “NAIC captives/SPVs discussion spotlight state solvency oversight.” http//lifehealthpro.com, November 29, 2012.
Filmore, James & Rana, Binni. “Reinsurance Market.” Presentation: Introduction to Reinsurance Boot Camp, Society of Actuaries, Toronto, Canada, May 8, 2013.
Fitzgerald, John F. “Regulatory Lessons Learned from Baldwin-United Corporation.” Journal of Insurance Regulation, March, 1988, 285-309.
Freidstat, B. & Pichete, C. “Tax reserves and Related items” Presentation: Society of Actuaries Tax Reserve Seminar, Orlando, FL, March 2011.
Gallanis, Peter G. “NOLHGA, the Life and Health Insurance Guaranty System, and the Financial Crisis of 2008-2009.” American Bar Association, Tort Trial & Insurance Practice Session, “Insure Receivership and Run-off: The Next Level: June 5, 2009.
Gillis, John G. “Securities Law and Regulation: Equity Funding.” Financial Analysts Journal, July-August 1973, 8-13.
Gillis, John G. “Securities Law and Regulation: Equity Funding—A Continuing Saga.” Financial Analysts Journal, May-June 1981, 17-23.
Grossman, Eli. Life Reinsurance. Atlanta: Life Office Management Association, 1981.
Hall, Debra J. “Arbitration: New Development to Bring More Confidence to an Often Maligned System.” http://www.hallarbitrations.com/, 2009.
Hall, Debra J. “Rights and responsibilities of reinsurers in receivership,” The International Journal of Insurance Law, 1 (1996): 12-27.
Hall, Debra J. “Wall Street Reform and Consumer Protection Act: Its impact on Reinsurers.” Journal of Reinsurance, Fall 2010, Vol. 17 No. 4.
Herget, T. Editor. US GAAP for Life Insurers. Schaumburg: Society of Actuaries, 2006.
Holland, David A., FSA, MAAA. “A Brief History of Reinsurance.” Reinsurance News, Issue 65 February 2009.
Hubbard, Melinda, Hartlett, Tom, Chapman, Paul. “Best practices in reinsurance administration.” Society of Actuaries Webcast August 20, 2014.
Johnson, J Walker & MacIvor, Alexis. “Taxation of Life Insurance Companies,” http://www.steptoe.com, January 2012,
Kaster, Mike. “Types of Reinsurance.” Presentation, Introduction to Reinsurance Boot Camp, Society of Actuaries, Toronto, Canada, May 8, 2013.
Kaufhold, Kia. “How to price longevity swaps.” Reinsurance News, Issue 77, October 2013.
Kempe, D.P. “Insolvency of Offshore Insurance Companies – Bermuda.” Presentation: Proceedings of ABA National Institute on Insurer Insolvency, June 7‑8, 1986.
Kovacs, Paul. “Lessons learned from insolvency in the Canadian P&C Industry.” Presentation: Canadian Institute of Actuaries Meeting, Toronto June 21, 2012.
KPMG Peat Marwick, LLP. Federal Taxation of Insurance Companies. New York: Research Institute of America, 1994.
Jones, Gavin. “Longevity Risk and Reinsurance.” Reinsurance News, Issue 76, July 2013.
Membery, Martin. “Reinsuring longevity risk.” Reactions, July-August 2013, 48-49.
Norton Rose. “Insurance Regulation in Japan: Ten Things to Know.” http://www.nortonrose.com, October 24, 2012.
O’Grady, F.T. Individual Health Insurance. Schaumburg: Society of Actuaries, 1988.
Palmay, Frank. “Major Regulatory Changes Affecting Insurance Branches.” http://www.internationllawoffice.com, September 1, 2009.
Patterson, W.S. “The New Life and Health Insurance Guaranty Association Model Act – Changes and Implications.” Proceedings of ABA National Institute on Insurer Insolvency, June 7‑8, 1986.
Pentikäinen, T. “On the Net Retention and Solvency of Insurance Companies.” Skand. Aktur. J., XXV (1952), 71.
Posnak, Robert L. GAAP: Stock Life Insurance Companies. Dallas: Ernst & Young, 1974.
Practical Law Company. “Insurance and Reinsurance in Bermuda: Overview.” http://us.practicallaw.com, January 1, 2011.
Practical Law Company. “Insurance and Reinsurance in the British Virgin Island: Overview.” http://us.practicallaw.com, January 1, 2012.
Practical Law Company. “Insurance and Reinsurance in Canada: Overview.” http://us.practicallaw.com, April 1, 2013.
Practical Law Company. “Insurance and Reinsurance in China: Overview.” http://us.practicallaw.com, January 1, 2012.
Practical Law Company. “Insurance and Reinsurance in France: Overview.” http://us.practicallaw.com, January 1, 2012.
Practical Law Company. “Insurance and Reinsurance in Germany; Overview.” http://us.practicallaw.com, March 1, 2013
Practical Law Company. “Insurance and Reinsurance in Japan: Overview.” http://us.practicallaw.com, February 1, 2013.
Practical Law Company. “Insurance and Reinsurance in Switzerland: Overview.” http://us.practicallaw.com, January 1, 2012.
Practical Law Company. “Insurance and Reinsurance in the UK: Overview.” http://us.practicallaw.com, January 1, 2012.
Randall, Susan. “Insurance Regulation in the United States: Regulatory Federalism and the National Association of Insurance Commissioners.” Florida State University Law Review. 26. 1999: 625-699.
Reinsurance Section, Society of Actuaries. “Life Reinsurance Administration Panel Discussion.” Reinsurance News, May 2006 Issue 57.
Robertson, R.S. “GAAP Accounting for Reinsurance Accepted” and “GAAP Accounting for Reinsurance Ceded.” TSA XXVII, 1975, 375.
Rosenthal, I. “Limits of Retention for Ordinary Life Insurance.” RAIA, XXXVI (1947), 6.
Serra, Benjamin. “French Insurance-Stable outlook for P&C, negative for life.” http://moodys.com, February 29, 2013.
Schibley, J.V. “A Sampler of Legal and Regulatory Issues Concerning Life Reinsurance” The Reinsurance Reporter (Lincoln National Life Insurance Company), First Quarter, 1990.
Schibley, J.V. “The Life Reinsurance Contract.” Unpublished presentation to the American Bar Association, August 10, 1987.
Semple, T.D. and Hall, R.M. “The Reinsurer’s Liability.” Proceedings of ABA National Institute on Insurer Insolvency, June 7‑8, 1986.
Society of Actuaries. “Professional Actuarial Specialty Guide-Life Reinsurance.” April 1, 1997.
Spring Consulting Group. “Funding Employee Benefits: A Risk Manager’s Guide.” www.springgroup.com, May 2013.
Standard and Poors. “Global Reinsurance Highlights 2012.” http://www.standardandpoors.com/.
Stern, Larry. “Annuities, Longevity, and Reinsurance of Other Product.” Presentation: Advanced and Current Topics Reinsurance Seminar, August 27, 2014.
Stern, Larry. “Captive Reinsurance.” Presentation, Advanced and Current Topics in Reinsurance Seminar. New York, New York, August 27, 2014.
Stockman, Steve & Cardinal, Tim. “Life Reinsurance Treaty Construction.” Reinsurance News, March 2013.
Strain, R. W. Reinsurance. Athens: Strain Publishing, 2001.
Tiller, John E. “Reinsurance Trends.” RSA Vol. 7, No. 3, 1981, 1085.
Tract, H.M. “The Effect of the Insolvency of Reinsurer on Letters of Credit.” Proceedings of ABA National Institute on Insurer Insolvency, June 7‑8, 1986.
Trefis. “An Overview of the Japanese Life Insurance Market.” http::www.trefis.com, April 10, 2013.
Trefis. “An Overview of the Chinese Life Insurance Market.” http://www.trefis.com, May 8, 2013.
Towers Watson. “The Chinese Insurance Market.” www.towerswatson.com, October –December 2011.
Vermont Captives. www.vermontcaptive.com.
Wallace, Diane B. & Jarvis, Donna R. “Life Reinsurance Regulatory Modernization.” Journal of Insurance Regulation, Spring 2006, Vol. 24, Issue 3, 49-58.
Wallace, Diane. “Risk Transfer in Life Insurance Company Reinsurance Transactions.” Reinsurance Section, Society of Actuaries, August 1995.
Bibliography Part 2: Professional, Regulatory, and Governmental Agencies
Actuarial Standards Board (www.actuarialstandardboard.org)
American Academy of Actuaries (www.actuary.org)
American Arbitration Association (www.adr.org/aaa/faces/home)
American Council of Life Insurers (www.acli.com)
AIDA Reinsurance and Insurance Arbitration Society-US
(www.arias-us.org)
Assuris (www.assuris.ca)
Association for Cooperative Operations Research and Development (https://www.acord.org)
Canada Revenue Agency (www.cra-arc.gc.ca)
Canadian Council of Insurance Regulators (www.ccir-ccrra.org/en/)
Canadian Institute of Actuaries (www.actuaries.ca)
Canadian Insurance Services Regulatory Organizations
(www.cisro-ocra.com)
Canadian Life and Health Insurance Association (/www.clhia.com)
Canadian Reinsurance Conference (www.crconline.ca)
European Union (Europa.eu)
Financial Accounting Standards Board (www.fsab.org)
Pre Codification Standards--Superseded
Government of Canada (laws-lois.justice.gc.ca)
International Association of Insurance Supervisors (www.iaisweb.org)
International Financial Reporting Standards (www.ifrs.org)
International Insurance Organizations
Internal Revenue Service (www.irs.gov)
Revenue Rulings:
· Rev. Rul. 82-69. 1982-1 C. B. 102.
· Rev. Rul. 2002-89. 2002-2 C.B. 984
· Rev. Rul. 2002-90. 2002-2 C.B. 985
· Rev. Rul. 2002-91, 2002-c C.B. 99
Private Letter Rulings:
· PLR 93460004
· PLR 93460004
· PLR 9339001
· PLR 9335056
US Code, Title 26 Subtitle A: Income Taxes, Chapter 1: Normal taxes and surcharges, Subchapter L: Insurance companies,
International Regulatory Bodies
Australia: Australian Prudential Regulatory Authority (APRA). (wwwapra.gov.au).
· Life Insurance Company Act of 1995
· Life Insurance Regulations of 1995
· Life Insurance Prudential Standards
· inancial Sector (Collection of Data) Act 2001.
The Bahamas: Insurance Commission of the Bahamas. (www.icb.gov.bs).
· Insurance Act (amended 2009)
· External Insurance Act (2009)
Barbados: Insurance Division of the Financial Services Commission (FSC). (www.fsc.gov.bb).
· Financial Services Act of 2010
· Barbados Exempt Insurance Act of 1983
Bermuda: Bermuda Monetary Authority (BMA), (www.bma.bm).
· Insurance Company Act of 1978.
· Bermuda Insurance Advisory Committee. (www.bermuda-insurance.org/).
British Virgin Islands: The Financial Service Commission (FSC). (www.bvifsc.vg).
· Insurance Act 2008,
· Insurance Regulations 2009
· Regulatory Code 2009
Cayman Islands: Cayman Islands Monetary Authority. (www.cimoney.com.ky).
· Insurance Law 2010, Insurance
· Law Amendment 2012, Insurance
· Law Amendment 2013
· Insurance (Capital Solvency) Regulations 2013
China: China Insurance Regulatory Commission (CIRC). (www.circ.gov.cn/web/site45).
Germany: Federal Financial Supervisory authority (BaFin). (www.bafin.de/EN).
Guernsey: Guernsey Financial Services Commission. (www.guernseyfinance.com)
Italy: Institute for Supervision of Insurance Companies (IVASS). (www.ivass.it).
Ireland: Life and General Insurance Supervision Divisions of the Central Bank of Ireland. (www.centralbank.ie/regulation/industry-sectors/insurance-companies).
Japan: Commissioner of Financial Services Agency. (www.fsa.go.jp)
· Insurance Business Act of 1995.
Luxembourg: Commissariat aux Assurances (CAA). (www.commassu.lu).
· The Law of 6 December 1991 as amended.
· The Grand Ducal Regulation of 14 December 1994.
Switzerland: Swiss Financial Market Supervisory Authority-FINMA. (www.finma.ch).
· Swiss Insurance Market Report. 2011.
· Circular 2008/44 SST: Swiss Solvency Test. 2008.
United Kingdom: Prudential Regulation Authority. (www.bankofengland.co.uk/pra/).
· Bank of England. The Prudential Regulatory Authority Approach to Insurance Supervision. April 2013
· Government of the United Kingdom. The Insurer’s Reorganisation and Winding Up Regulations 2004.
National Association of Insurance Commissioners (www.naic.org)
National Organization of Life and Health Insurance
Guaranty Associations (www.nolhiga.com)
Office of the Superintendent of Financial Institutions-Canada (www.osfi-bsif.gc.ca/eng)
Organization for Economic Cooperation and Development (www.oecd.org)
Reinsurance Administration Professionals Association (www.reinsadmin.org)
United Nations Commission on International Trade Law. (www.uncitral.org/uncitral)
United States and Canadian Court Cases
United States Government
Congressional Acts:
· Deficit Reduction Act of 1984, Public Law 98-369 (DEFRA).
· Dodd-Frank Wall Street Reform and Consumer Protection Act. H.R. 4173. 110th Cong., 2nd sess. January 5, 2010.
· Employee Retirement Income Security Act of 1974 (ERISA), Pub. L. No. 93-406, 88 Stat. 829.
· Federal Liability Risk Retention Act of 1986, 15 USC 3901-3906 (1981 as amended 1986).
· Foreign Account Tax Compliance Act (FATCA) Tax Reform Act of 1986, Internal Revenue Code §1471 et seq
· Life Insurance Income Tax Act of 1959: Public Law 86-89; June 25, 1959; Sections 801-820 of the Internal Revenue Code.
· Omnibus Budget Reconciliation Act of 1990, Public Law 99-272 (OBRA 90).
· Omnibus Budget Reconciliation Act of 1993, Public Law 103-66 (OBRA 93).
· Patient Protection and Affordable Care Act, 42 U.S.C. § 18001 (2010).
· Tax Equity and Fiscal Responsibility Act of 1982, Public Law 97-248 (TERFA).
Staff of the Joint Committee on Taxation, General Explanation of the Deficit Reduction Act of 1984. H.R. 4170. 98th Cong., prepared by the Staff of the Joint Committee on Taxation. December 31, 1984.
Committee on Government Reform, House of Representatives, “The Collapse of Executive Life Insurance Company and Its Impact on Policyholders,” Serial No. 107-142. October 10, 2002.
The Fifth Protocol to the Convention Between Canada and the United States of American with respect to Taxes on Income and Capital, entered into force on December 15, 2008.
“Table 1221. U.S. Life Insurance Companies Summary 1990-2009,” Statistical Abstract of the United States 2012. www.cenus.gov.
United States General Accounting Office (www.gao.gov)
Insurer Failures: Property/Casualty Insurer Insolvencies State Guaranty Funds. GGD-87-100, July 1987.
Insurer Failures: Life/Health Insolvencies and Limitations of State Guaranty Funds. GAO/GGD-92-44, March 1992.
Insurance Regulation: The NAIC Accreditation Program Can Be Improved. GAO-01-948. August 2001.
Corazzini, Arthur J., Deputy Director. “Taxation of the U.S. Life Insurance Industry.” Statement to House Ways and Means Committee, May 10, 1983.
Meyers, Morton A., Director. “Letter to The Honorable Dan Rostenkowski regarding Modified Coinsurance and its use by some Life Insurance Companies to Reduce Taxes, B-206899.” April 14, 1982.
The Financial Crisis of 2008 is the most critical factor as it affected the financial services industry in the US and abroad. In the US, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act created the Federal Insurance Office to collect and analyze data on the insurance industry and identify risky insurers for Federal Reserve supervision. The NAIC responded with new regulations and updates to older regulations and only three regulations discussed in this text pre-date 2008: Assumption Reinsurance Model Act (1999), Disclosure of Material Transactions Model Act (2001), and Insurance Receivership Model Act (2007). All of the Actuarial Standards of Practice notes discussed herein were issued by the Actuarial Standards Board between 2010 and 2012.
The Financial Crisis of 2008 was not as severe in Canada because of the different regulatory system, still all OFSI Guides, Guidelines, and Guidance relating to reinsurance used in this text were issued in the years since 2008.
The second factor was a long needed decision to expand content relating to Canada. Two new chapters were added: Canadian Regulation of Reinsurance and Canadian Reinsurance Accounting and Tax Considerations. The Reinsurance Treaty chapter was expanded to compare and contrast treaty provisions between Canada and the US. Other chapters include expanded comments to highlight practices specific to Canada. In researching and writing these additions, the authors' respect and admiration for the Canadian system grew and we encourage our US readers to study these chapters.
The third factor was the decision to expand the history sections. In conversations with other actuaries, the authors realized that the backstory surrounding the development of regulation, taxes, and the reinsurance industry itself is worthy of preservation in one text. Students may hate us for the decision, but we felt it was important for people new to the field to understand how and why we got to this place. We expanded coverage of important court cases and revenue rulings as these shaped how we work today. We included brief stories of Baldwin-United, Equity Funding, and First Executive Life because these are examples of the clash of ethics and money that result in financial hardship for policyholders and reinsurers and should not be forgotten.
The international chapter, Reinsurance in Other than the US and Canada, was also greatly expanded. In a global economy, it is important the understand regulation and markets in other countries and how companies in the US and Canada can work with them.
Other areas that were significantly expanded include captives, inforce reinsurance transactions, dispute resolution, and risk transfer.
A final factor that affected the content was the availability of relevant and reliable information on the Internet. The Reinsurance Section of the Society of Actuaries deserves special commendation for its contribution to the literature. The "alphabet soup" organizations: ACLI, AAA, AIDA, ASB, CIA, EU, FSAB, IAIS, IASB, IRS, NAIC, NOLHIGA, OECD, and the SOA have comprehensive and easy to search websites. The insurance supervisory entities of all the countries discussed in the text had English language versions of their websites, including China and Japan. Large accounting and law firms were also a valued source of information. The bibliography has been expanded to reflect the contributions of these sources and encourage the reader to continue to research.
It is important to note that, despite the twenty-five years since the first edition, the fundamental principles of life, health, and annuity reinsurance have not changed. Risk transfer is still the cornerstone of a reinsurance transaction. The three basic forms of reinsurance: yearly renewable term, coinsurance, and modified coinsurance are still the building blocks, and can be used in many ways to meet client needs. The information needs of the ceding and assuming companies, while unchanged, are now satisfied using electronic techniques no one could have dreamed possible in 1990.
This edition is intended to continue to serve as a reference for both experts and novices involved in assuming or ceding reinsurance. Of course, it is impossible for one book to contain all of the knowledge necessary to analyze or document every possible reinsurance transaction. The purpose of this book is to provide the historical foundation and the current regulatory and technological framework. The reinsurance professional can apply the foundation and framework in creative ways to design reinsurance programs to fit the 21st century.
Because regulations change, and vary by state in the US, the authors expect the professional always to refer to the most recent version of the applicable regulations. As this information is readily available online, there is no excuse.
The reader is assumed to have a working knowledge of individual life, health, and annuity products and practices in the US and Canada. It is also assumed that the reader has a basic understanding of taxation as well as statutory and GAAP accounting. Although the authors are both Fellows of the Society of Actuaries, and actuarial background is not necessary for understanding the concepts with the possible exception of some of the pricing and retention limit determination discussions.
The chapters are organized into six parts:
1. Introduction to Life, Health, and Annuity Reinsurance
2. Methods and Applications of Reinsurance
3. Treaties and Risk Considerations
4. Regulatory, Accounting, and Tax Considerations
5. Additional Products and Topics
6. Administration and Management Considerations
Bibliography Part I: Books, Journals, Reliable websites
Adney, John, JD. “Federal Tax update: Selected Developments & Issues Affecting Life Insurers.” Presentation: Society of Actuaries Life and Annuity Symposium, May 6-7, 2012.
A. M. Best. Best’s Insolvency Study: Property/Casualty Insurance 1969-1990. Oldwick: June 1991.
Antes, Richard, Ernst & Young. “Federal Income Taxation of Life Insurance Companies.” New York: Bender, 1988.
Barth, Michael M, PhD. “Risk Based Solvency Regulation in the U.S.” Paper presented at World Bank Contractual Savings Conference, Washington, D.C., November 3-7, 2003.
Basel Committee on Banking Supervision. Longevity risk transfer markets: market structure, growth drivers and impediments and potential risk. Bank for International Settlements. Basel: December 2013.
Becker, Joanna, FSA, MAAA. “Discussion of Reinsurance Provisions in a Life Reinsurance Agreement.” Treaty Committee-Reinsurance Section, Society of Actuaries, August 1, 1994.
Bluhm, W.F. Group Insurance, Sixth Edition. Winsted: ACTEX Publications, Inc., 2012.
Bluhm, W.F. & Leida, Hans. Individual Health Insurance. Winsted: ACTEX Publications, Inc., 2015.
Bormann, Fred F. J., Swales, Jason A., Welch, Jillian M. Canadian Insurance Taxation, Third Edition. Markham, Ontario, Canada: LexisNexis, 2009.
Bowers, N.R., et al. Actuarial Mathematics. Schaumburg: Society of Actuaries, 1997.
Bruggeman, David. “Life Reinsurance data from the 2013 Munich Re Survey.” Reinsurance News. Issue 79, August 2014.
Bunner, Bruce. “Will Setoffs be Set Aside?” Best’s Review, December 1989.
Business Insurance. “World's 10 Largest Captive Domicile.” https://businessinsurance.com. March 2013.
Carruthers, Stuart. “Country Q&C Canada.” Cross-border Insurance and Reinsurance 2011 Handbook. Practical Law Company. 2011.
Cole, Cassandra & McCullough, Kathleen A. “Captive Domiciles: Tends and Recent Changes.” Journal of Insurance Regulation, Summer 2008, Vol 26.4, 61-90.
Cunningham, R.J., Herzog, T.N., London, R.L. Models for Quantifying Risk. Winsted: ACTEX Publications, Inc., 2005.
Dederer, James, JD. “U.S. Federal Income Taxes.” RSA Vol 8, No. 4, 1982, 1625-1643.
Ernst & Young. “Accounting for Reinsurance.” http://www.ey.com, November 2012
Festa, Elizabeth D. “NAIC captives/SPVs discussion spotlight state solvency oversight.” http//lifehealthpro.com, November 29, 2012.
Filmore, James & Rana, Binni. “Reinsurance Market.” Presentation: Introduction to Reinsurance Boot Camp, Society of Actuaries, Toronto, Canada, May 8, 2013.
Fitzgerald, John F. “Regulatory Lessons Learned from Baldwin-United Corporation.” Journal of Insurance Regulation, March, 1988, 285-309.
Freidstat, B. & Pichete, C. “Tax reserves and Related items” Presentation: Society of Actuaries Tax Reserve Seminar, Orlando, FL, March 2011.
Gallanis, Peter G. “NOLHGA, the Life and Health Insurance Guaranty System, and the Financial Crisis of 2008-2009.” American Bar Association, Tort Trial & Insurance Practice Session, “Insure Receivership and Run-off: The Next Level: June 5, 2009.
Gillis, John G. “Securities Law and Regulation: Equity Funding.” Financial Analysts Journal, July-August 1973, 8-13.
Gillis, John G. “Securities Law and Regulation: Equity Funding—A Continuing Saga.” Financial Analysts Journal, May-June 1981, 17-23.
Grossman, Eli. Life Reinsurance. Atlanta: Life Office Management Association, 1981.
Hall, Debra J. “Arbitration: New Development to Bring More Confidence to an Often Maligned System.” http://www.hallarbitrations.com/, 2009.
Hall, Debra J. “Rights and responsibilities of reinsurers in receivership,” The International Journal of Insurance Law, 1 (1996): 12-27.
Hall, Debra J. “Wall Street Reform and Consumer Protection Act: Its impact on Reinsurers.” Journal of Reinsurance, Fall 2010, Vol. 17 No. 4.
Herget, T. Editor. US GAAP for Life Insurers. Schaumburg: Society of Actuaries, 2006.
Holland, David A., FSA, MAAA. “A Brief History of Reinsurance.” Reinsurance News, Issue 65 February 2009.
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· Rev. Rul. 2002-89. 2002-2 C.B. 984
· Rev. Rul. 2002-90. 2002-2 C.B. 985
· Rev. Rul. 2002-91, 2002-c C.B. 99
Private Letter Rulings:
· PLR 93460004
· PLR 93460004
· PLR 9339001
· PLR 9335056
US Code, Title 26 Subtitle A: Income Taxes, Chapter 1: Normal taxes and surcharges, Subchapter L: Insurance companies,
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Australia: Australian Prudential Regulatory Authority (APRA). (wwwapra.gov.au).
· Life Insurance Company Act of 1995
· Life Insurance Regulations of 1995
· Life Insurance Prudential Standards
· inancial Sector (Collection of Data) Act 2001.
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· Insurance Act (amended 2009)
· External Insurance Act (2009)
Barbados: Insurance Division of the Financial Services Commission (FSC). (www.fsc.gov.bb).
· Financial Services Act of 2010
· Barbados Exempt Insurance Act of 1983
Bermuda: Bermuda Monetary Authority (BMA), (www.bma.bm).
· Insurance Company Act of 1978.
· Bermuda Insurance Advisory Committee. (www.bermuda-insurance.org/).
British Virgin Islands: The Financial Service Commission (FSC). (www.bvifsc.vg).
· Insurance Act 2008,
· Insurance Regulations 2009
· Regulatory Code 2009
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· Insurance Law 2010, Insurance
· Law Amendment 2012, Insurance
· Law Amendment 2013
· Insurance (Capital Solvency) Regulations 2013
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Germany: Federal Financial Supervisory authority (BaFin). (www.bafin.de/EN).
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Japan: Commissioner of Financial Services Agency. (www.fsa.go.jp)
· Insurance Business Act of 1995.
Luxembourg: Commissariat aux Assurances (CAA). (www.commassu.lu).
· The Law of 6 December 1991 as amended.
· The Grand Ducal Regulation of 14 December 1994.
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· Circular 2008/44 SST: Swiss Solvency Test. 2008.
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- Risk Management and Own Risk Solvency Assessment Model Act, MDL 505-1. September 2012.
National Organization of Life and Health Insurance
Guaranty Associations (www.nolhiga.com)
Office of the Superintendent of Financial Institutions-Canada (www.osfi-bsif.gc.ca/eng)
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Organization for Economic Cooperation and Development (www.oecd.org)
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Reinsurance Administration Professionals Association (www.reinsadmin.org)
United Nations Commission on International Trade Law. (www.uncitral.org/uncitral)
United States and Canadian Court Cases
- Alabama Reassurance Company v. Stucher, Statutory Liquidator of Inter-American Insurance Co., Illinois 1st, 1-98-2508.
- Ainsworth v. General Reinsurance Corporation. 751 F.2d 962 (8th Cir. 1985).
- Baer v. Associated Life Insurance Company, 248 California Reporter 1989.
- Carnation v. Commissioner, 640 F.2d 1010 (9th Cir. 1981)
- Capitol Life Insurance Co. v. The Queen, 84 DTC 6087, [1984] CTC 141 (FCTD), aff'd 86 DTC 6164, [1986] 1 CTC 388 (FCA).Colonial American Life Insurance Company v. Commissioner. 491 U.S.244 (1989)
- Colonial American Life Insurance Company v. Commissioner of Internal Revenue, 491 U.S.244 (1989)
- Fidelity & Deposit Company v. Pink, 302 U.S. 224, 82 L.Ed. 213, 58 S. Ct. 162 (1937), reh’g. denied, 302 U.S. 780, 82 L.Ed. 603, 58 S. Ct. 407 (1938).
- First Security Bank Utah v. Commissioner, 405 U.S. 394 (1972).
- Harper Group v. Commissioner,979 F.2d 1341 (9th Cir. 1992)
- Humana, Inc. v. Commissioner, 881 F. 2d 247 (6th Cir. 1989)
- Koken v. Legion Insurance Company. 831 A.2d 1196 (Pa. Commw. 2003).Paul V. Virginia, 75 U.S. (8 Wall.) 169,169 (1868).
- Paul v. Virginia, 75 U.S. (8 Wall.) 169,169 (1868).
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- Trans City Life Insurance Company v. Commissioner, 106T.C.274(1996).
- United Parcel Service v. Commissioner. 254 F.3d 1014 (11th Cir. 2001)
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· Dodd-Frank Wall Street Reform and Consumer Protection Act. H.R. 4173. 110th Cong., 2nd sess. January 5, 2010.
· Employee Retirement Income Security Act of 1974 (ERISA), Pub. L. No. 93-406, 88 Stat. 829.
· Federal Liability Risk Retention Act of 1986, 15 USC 3901-3906 (1981 as amended 1986).
· Foreign Account Tax Compliance Act (FATCA) Tax Reform Act of 1986, Internal Revenue Code §1471 et seq
· Life Insurance Income Tax Act of 1959: Public Law 86-89; June 25, 1959; Sections 801-820 of the Internal Revenue Code.
· Omnibus Budget Reconciliation Act of 1990, Public Law 99-272 (OBRA 90).
· Omnibus Budget Reconciliation Act of 1993, Public Law 103-66 (OBRA 93).
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· Tax Equity and Fiscal Responsibility Act of 1982, Public Law 97-248 (TERFA).
Staff of the Joint Committee on Taxation, General Explanation of the Deficit Reduction Act of 1984. H.R. 4170. 98th Cong., prepared by the Staff of the Joint Committee on Taxation. December 31, 1984.
Committee on Government Reform, House of Representatives, “The Collapse of Executive Life Insurance Company and Its Impact on Policyholders,” Serial No. 107-142. October 10, 2002.
The Fifth Protocol to the Convention Between Canada and the United States of American with respect to Taxes on Income and Capital, entered into force on December 15, 2008.
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