12 Days of SSAP: SSAP No. 61 – Risk Transfer Analysis on Combination Reinsurance Contracts
Reinsurance contracts can be tricky, dotted with complex clauses that can cloud the ultimate intent of accomplishing risk transfer. Individually, a life-based reinsurance agreement may seem fairly straightforward as to its risk components. Yet, when we start embedding other qualifying components such as experience refunds and other risk-limiting corridors, the questions of true risk transfer and resulting reserve credit allowances have become a concern among our state insurance regulators. The topic was clarified in 2025 by the Statutory Accounting Principles Working Group (SAPWG) and is summarized below.
Regulators raised concerns about how risk transfer is being evaluated for certain life reinsurance treaties that combine multiple, interdependent forms of reinsurance, most commonly coinsurance and YRT, with aggregate experience refunds and linked recapture provisions. In these structures, the components cannot be meaningfully evaluated on a stand-alone basis.
It was also observed that some insurers analyzed each component separately and took proportional reserve credit on the coinsurance portion, even though the reinsurer is only exposed to losses in limited “tail” scenarios when the treaty is viewed as a whole. From an actuarial perspective, regulators agreed this overstates reserve credit because not all actuarial risks are actually transferred.
The substance of these arrangements more closely resembles non-proportional reinsurance, as the economic design primarily compensates the cedant only in adverse scenarios, while in most expected outcomes the arrangement functions more like a financing structure. SSAP No. 61 permits reserve credit only for risk that is truly transferred, and regulators agreed proportional credit is inappropriate when risks are not fully transferred in aggregate.
To address this, SSAP No. 61 was revised by incorporating guidance similar to existing P&C reinsurance guidance in SSAP No. 62. The clarification would require insurers to evaluate risk transfer at the contract level when multiple interdependent reinsurance features exist, considering all provisions that may offset or reimburse reinsurer losses, rather than assessing each component in isolation.
The revised guidance is effective immediately for new or newly amended contracts, while existing contracts may continue under current guidance until December 31, 2026. The revisions were further approved by the Accounting Practices and Procedures (E) Task Force and, after further discussion, by the Financial Condition (E) Committee earlier.. The Committee added a clarification specifying that application of guidance to existing contracts should be treated as a change in accounting principle, avoiding prior-period restatements and confirming prospective application as of December 31, 2026.
Effective Date
- Immediately – for new contracts
- December 31, 2026 – for existing contracts
Deep Dive
You can read more at the NAIC here.
