Establishing an Analytical Framework for Measuring the Role of Reinsurance in the Health Insurance Market. 1. Indemnity Insurance


We were able to identify only one source of information on the amount of reinsurance purchased by indemnity insurers, which was the annual statements filed by licensed insurers with state insurance departments and with the NAIC. The annual statements are detailed financial disclosure documents that present a large amount of information about the financial and insurance transactions of licensed insurers. As discussed above, the reinsurance section of the annual statement (Schedule S) contains information that allows us to identify both companies that cede risk and companies that assume risk. The primary purpose of the annual statement is to permit state insurance regulators to assess the financial strength of insurers doing business in their states.

Although Schedule S contains a significant amount of data about the reinsurance transactions of indemnity insurers, the information is not collected or presented in a way that allows the types of transactions that we are interested in for this project to be isolated from other health-related reinsurance transactions. Conversations with NAIC staff confirmed that the transactions listed on the schedule could relate to many types of health coverages, including supplemental coverages (such as Medicare supplemental insurance and hospital indemnity coverage) or accident policies. In addition, our conversations confirmed that the schedule also includes transactions that relate to the sale of blocks of insurance coverage from one insurer to another. Often when an insurer transfers a piece of insurance business to another insurer, the purchasing insurers assumes the risk for the business through a reinsurance arrangement, called assumption reinsurance. The arrangement might be temporary (i.e., until new policies can be issued by the purchasing insurer to the policyholders) or it might last for a period of years.14 The potential inclusion of these other types of risks makes the Schedule S information unsuitable for our purposes.

If the targeting problem could be addressed, the reinsurance information shown in Schedule S could be useful in increasing our understanding of the role of reinsurance in this market. The schedule contains information on the amounts of reinsurance claims paid (both by ceding and assuming carriers) and on the premiums paid for reinsurance. However, information related to the structure of the reinsurance transactions is somewhat limited: coinsurance levels and deductible amounts that must be paid by the ceding insurer are not shown (although the presence of a coinsurance requirement is noted). An example of the type of information available in Schedule S is shown in Attachment A. To illustrate the magnitudes of reinsurance transactions shown on Schedule S, we compiled a list of the 50 reinsurers who reinsure the largest number of indemnity carriers, and their total premiums. This information is shown in Attachment B.

Suggested methods of collecting the information that would be needed to assess the role of reinsurance in the indemnity insurance market are discussed below in the section on Future Enhancements to Data Collection.

14 For example, under federal law related to Medicare supplemental policies, it is unlawful for an insurer to issue a policy that does not meet one of the ten standard policy designs developed by the NAIC. However, there are many Medicare supplemental policies in force that were issued prior to the effective date of the new standards. If an insurer wished to sell its old policies to a new insurer, or if a group wanted to move existing group policies to a new insurer, the new insurer could not reissue the old policy forms under its name, because it could not issue policies that do not conform to the new standards. However, the business could be transferred to a new insurer through an assumption reinsurance arrangement, under which the new insurer would assume 100 percent of the liability associated with the policies issued by the original insurer. The new insurer could assume the administration of the policies as well (although the original insurer would retain the ultimate financial responsibility if the new insurer was unwilling or unable to meet its responsibilities under the reinsurance arrangement).