SOURCE: U.S. RE Corporation

January 23, 2006 13:05 ET

Multi-Year Reinsurance Contracts Achieve New York Insurance Department Approval, U.S. RE Reports

NEW YORK, NY -- (MARKET WIRE) -- January 23, 2006 -- The legitimate utilization of multi-year, catastrophe, excess-of-loss reinsurance contracts that can be classified as finite risk coverage was reaffirmed by the New York Insurance Department in a letter to U.S. RE Corporation, reports Tal P. Piccione, Chairman/CEO of U.S. RE.

"We're pleased to have the Department's favorable stance on the legitimate use of these contracts because the displacement of reinsurance capacity as a result of both the severity and frequency of hurricane losses in 2004 and 2005 has created an urgent need for sufficient reinsurance and retrocessional capacity. U.S. RE believes it is essential for the market to be able to provide for structured, multi-year reinsurance and retrocessional protections to insurers and reinsurers as was done in the period following Hurricane Andrew in 1992," Piccione said.

He pointed out that a U.S. RE proprietary multi-year product was provided to the Department as an example of a risk transfer mechanism formulated to meet criteria adhering to risk transfer and accounting standards. The Company has been a pioneer in the design of multi-year reinsurance products that meet risk transfer standards and in 1994 obtained NY Department approval after rigorous Departmental review of a proposed contract.

The Department's response letter to U.S. RE's recent request for review stated that:

"U.S. RE Corporation has requested the Department's position on the use of multi-year catastrophe excess of loss reinsurance contracts providing coverage for reinsurance protection for reinsurers and insurers in the context of current issues raised by the use of finite reinsurance. U.S. RE believes that the continued utilization of products will serve to enhance the availability and affordability of protections to insurers and reinsurers particularly in the face of a hardening reinsurance market. U.S. RE has also expressed a concern that these contracts can be generically classified as falling under the heading of finite risk and the concurrent belief that an example drawn from a regulatory perspective as to its appropriateness, in the face of current inquiry on the use of finite risk, would be helpful to the industry at large and to insurance consumers.

"It is not the Department's objectives to prohibit the legitimate utilization of finite risk protections which are transparent in their construction, not entered into primarily for accounting reasons, provide risk transfer and are accounted for in accordance with Statutory and GAAP accounting.

"Catastrophe protection formatted on a multi-year basis and cancelable by both the cedent and reinsurer on an annual basis, in which the premium and limits for the entire term are pre-established at the outset including industry insured loss triggers and a cancellation penalty is not impermissible per se. The presence of these elements in contracts does not preclude the contracts from being properly accounted for as reinsurance."

"We believe the statement by the New York Insurance Department should encourage insurance and reinsurance professionals to move forward on the deployment of multi-year catastrophe protections that are transparent in the ability to quantify adherence to proper risk transfer and accounting standards," Piccione stated.

Inquiries concerning U.S. RE's proprietary products should be directed to Brian R. McGuire, Senior Vice President/Director, U.S. RE Corporation (bmcguire@usre.com).

For more information, contact Mechlin Moore, MDM Communications, 239-777-1595 or email to mmoore7412@aol.com.

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