How does statutory accounting for these up-front costs differ from GAAP?
They are very different. GAAP accounting already offsets first-year losses by recognizing in income the expected future gains on the business at the outset. Adjustments are made so any reinsurance gain doesn’t create double counting. So when we talk about accounting for life financial reinsurance, we are primarily talking about its impact on the statutory financial statements. Mr. Spitzer’s reviews are primarily aimed at the GAAP accounting statements. On the statutory side, the life industry is subject to risk transfer accounting rules and regulations that are designed to ensure that reinsurance is reflected in the statutory balance sheet only if the reinsurer is irrevocably required to reimburse the benefits reinsured. Therefore, life financial reinsurance is not designed to manage earnings inappropriately, as has been discussed in the press, but rather to give insurers a business partner for investing in the business and managing the risk profile over time. The New York Insurance De
