The National Association of Insurance Commissioners (NAIC) Actuarial Task Force continues its work on developing reserve adequacy testing guidelines for life reinsurance contracts, an issue that will be a key topic during the group’s annual summer meeting, scheduled for August 12-16 at McCormick Place in Chicago.

The task force began considering proposals in February that would require insurers to conduct asset adequacy analysis of reinsurance contracts. According to a report by A.M. Best, the proposed approach would use a cash flow test, with ceded reinsurance treated as a core component of asset-intensive businesses.

Fred Andersen, chief actuary of the Minnesota Department of Commerce’s Insurance Division, explained at a July task force meeting that the asset adequacy test proposals have three main goals: to provide state regulators with better tools to review reserves and solvency, to avoid conflicts with cross-jurisdiction and covered agreement issues, and to prevent U.S. cedants from entering into agreements where the risk is not material.

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Regulators are able to review the assumptions used in asset adequacy testing to ensure that reserves are adequate, Andersen said. But when business is ceded to companies that are not required to file asset adequacy test notes, regulators lose the ability to effectively assess reserve adequacy. The increased reliance on reinsurance in recent years has exacerbated these concerns among regulators.

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The American Council of Life Insurers noted that it is working with regulators on the framework, stressing the need to respect existing agreements and recognize the critical role that reinsurance plays in risk management.

Brian Byrle, ACLI’s chief insurance officer, said efforts must balance the practicality and actual risks of reinsurance while preserving the industry’s ability to provide essential financial protection and retirement solutions.

Bayerle also noted that ACLI members support a disclosure-focused approach that uses existing information and allows insurers to meet their obligations.

During a July task force meeting, Andersen said he expected to provide preliminary guidance at the summer meeting, though he cautioned against appearing to rush the development process. Discussions on adequacy testing would likely extend beyond the Chicago meeting and into 2025, he added.

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