While high-profile insurers are using different accounting treatments to value reinsurance, the National Association of Insurance Commissioners (NAIC) is pushing for improved disclosure requirements to avoid misuse.

Since American International Group Inc. restated its earnings by $3.9 billion in May, investigators have been taking a sharp look at how certain insurers account for a type of reinsurance that can be abused to hide losses or inflate reserves. AIG is accused of misusing finite reinsurance transactions to boost its financial statements rather than transferring actual risk. U.S. prosecutors have sent more than a dozen subpoenas since last year, Bloomberg News reported.

More recently, the Wall Street Journal has raised questions about three contracts signed last year by Tennessee life insurer UnumProvident and property-and-casualty company National Indemnity. Both companies accounted for the contracts differently, a practice called unusual by insurance regulators and experts who spoke to the Journal.

The NAIC, which helps state regulators develop and coordinate insurance rules, says that in the case of UnumProvident and National Indemnity, differing accounting guidelines should not result in one party treating a contract as risk-transfer reinsurance and the other recording it as a low- or no-risk deposit transaction.

But that is exactly what happened – Unum treated the contracts as reinsurance contracts, with the aim of transferring risk of losses to National Indemnity. National Indemnity recorded the contracts as if Unum had simply deposited funds with the insurer so that the money could be used to pay Unum's claims. National Indemnity, based in Omaha, Neb., declined comment, but state regulators have questioned the company about the differing accounting treatments, the Journal reported.

"The business purpose of this transaction was to provide protection above our established reserve levels in the event of an adverse risk," Jim Sabourin, a Unum spokesman, told the newspaper. "The company's accounting for this reinsurance transaction was subjected to rigorous accounting and regulatory review." The outside auditor, Ernst & Young, and Massachusetts insurance regulators, which oversee one of the Unum units involved, approved the accounting arrangement.

The NAIC earlier this month announced that it supports improved disclosure requirements for insurers that use finite reinsurance, which has limited risk transfer features.

The NAIC calls for insurers to report to state insurance regulators any finite reinsurance agreement that alters policyholders' surplus by more than 3 percent, or that represents more than 3 percent of ceded premium or losses. To improve transparency, the NAIC also calls for reporting more information on contract terms, and a signed statement by the insurer's CFO and CEO that no side agreements exist and that legitimate risk has been transferred.