Insurance Regulation:

State Reinsurance Oversight Increased, but Problems Remain

GGD-90-82: Published: May 4, 1990. Publicly Released: May 4, 1990.

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Pursuant to a congressional request, GAO reviewed property/casualty reinsurance practices and regulations, focusing on: (1) the types and limitations of reinsurance activity data available to regulators; (2) the extent of state reinsurance regulation; and (3) recent regulatory improvements.

GAO found that: (1) state regulators could not adequately assess the effect of reinsurance on its participants' financial condition because they could not separately detail reported annual aggregate data, and unlicensed foreign reinsurers were not subject to U.S. regulatory jurisdiction or filing requirements; (2) each state emphasized regulation of ceding insurers and reinsurers within its jurisdiction; (3) in 1984, the National Association of Insurance Commissioners (NAIC) developed a model law to encourage uniform reinsurance regulation, and amended it in 1989 to increase the minimum standards; (4) some states adopted the model law; (5) NAIC increased reinsurance reporting requirements for annual financial statements, which allowed state regulators to better assess the impacts of reinsurance, quantified overdue reinsurance, and enabled regulators to better detect potential problems with uncollectible reinsurance; and (6) since not all states had implemented the model law and the financial reporting requirements, it could not determine whether the regulatory changes would prove effective, how consistently they would be implemented, or whether additional regulatory initiatives would be necessary.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Given the importance of reinsurance to the continued health and solvency of the U.S. insurance industry, the recommendation is still valid. While GAO expects the subcommittee to continue its inquiry, oversight is an ongoing process, and no action is intended to bring this recommendation to closure. Oversight hearings are being held by several congressional committees on insurance.

    Matter: While regulatory controls over reinsurance have increased, some controls have not yet been fully implemented by the states and NAIC, and many states have not yet adopted other controls. Thus, Congress should continue its oversight of state efforts. Congress could do so by focusing on the effectiveness of recent reforms and the extent to which changes are implemented across the states.


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