The New York State Insurance Department intends to revamp accounting rules for reinsurance deals that transfer little risk to the reinsurer. A "discussion draft" with the proposed changes was presented to a group of accounting professionals at the National Association of Insurance Commissioners in Chicago yesterday.

At the moment accounting rules allow insurance companies a choice between booking the deal as insurance or deposit. The new regulation, if adopted, would require that the risk transferral element of the deal be booked as insurance, while the financing element goes to the bank-deposit account. This would preclude violations by the companies.

The proposal covers the particular type of reinsurance deals known as finite risk that is in fact a combination of financing with true reinsurance that allows to spread risks of losses from payouts on policies. This type of transaction that occurred between General Re and American International Group is now under scrutiny of regulators.

"The goal is to match the accounting of significant reinsurance transactions with the economics of what’s happening," said Mike Moriarty, a director in the New York insurance department.

The probe into the accounting of AIG has proved detrimental to its share price as regulators’ scrutiny caused the stock to lose 2.2% of its value on the Big Board on February 14, the day when AIG revealed subpoenas from the regulating authorities. It has recently surfaced that AIG’s CEO Maurice ’’Hank’’ Greenberg could have posted orders for a stock buyback within too short a distance of the market close. The company can now be accused of manipulating its share price.