FSA to consult over use of financial reinsurance
Earlier this year, the FSA wrote to firms asking about their use of financial reinsurance. Their responses have helped to develop the proposals being consulted upon. The FSA is also looking into the use of financial reinsurance contracts by a number of insurers. Financial reinsurance is a term that refers to certain types of reinsurance arrangements. Typically these arrangements are used to improve, or sometimes to smooth, reported profits, or to improve the reported balance sheet position. David Strachan, the FSA's sector leader for insurance, said, "The use of financial reinsurance is an issue that the FSA has been examining for some time. Our research has shown that its use is not widespread. Whilst there can be perfectly legitimate reasons for using financial reinsurance, its use should be properly disclosed. "Our work has identified a small number of contracts that warranted further examination. Where we find firms have made improper use of such contracts or not made a full disclosure of financial reinsurance contracts or arrangements, we will take action."