Regulators Tackle Special Purpose Reinsurance Vehicle Model Act
Regulators came close to advancing the Special Purpose Reinsurance Vehicle Model Act along the road to a vote by the general membership of the National Association of Insurance Commissioners, but in the end could not make that leap.
Additionally, a representative of the American Council of Life Insurers indicated that the life insurance industry was considering how it could use SPRVs.
Virginia Insurance Commissioner Alfred W. Gross, who chairs NAIC’s Financial Condition (E) Committee, indicated at the NAIC summer meeting here that the committee has combed the provisions of the model act to clear up inconsistencies and fine-tune the statutory language.
The committees Insurance Securitization Working Group voted to approve the SPRV Model Act when it met last March in Nashville.
Section 4C of the Model Act emerged as problematic in the committee’s review of the statutory language, reported committee member Arnold Dutcher, an Illinois regulator.
In the version submitted by the working group, the section says a state insurance regulator could not approve an application or issue a limited certificate of authority for an SPRV before finding that the proposed plan of operation would provide “a reasonable expectation of a successful operation.”
Dutcher–who described an SPRV as a device that transforms an insurance risk into a security–submitted a proposed amendment that additionally requires a state regulator to find “that the terms of the SPRV contract and related transactions comply with this act and are not hazardous to policyholders.”
The amendment goes on to state that, if the regulator refuses to approve such an application or to issue a certificate of authority, the regulator “shall grant the prospective SPRV organizer a hearing on request.” This amended language takes into account issues that were brought up by various regulators and industry representatives in Nashville.
In New Orleans, groups representing primary insurers–such as the National Association of Independent Insurers and the Alliance of American Insurers–commended the committee and the working group for considering the use of SPRVs on U.S. shores. The groups urged the committee to endorse the model act and pass it on to the NAIC’s Executive Committee for approval.
Stephen Broadie, vice president-financial legislation and regulation for the Des Plaines, Ill.-based NAII, said one reason his group supports the model act is because it would allow multiple cedants to use an SPRV. This in turn would give medium- and small-sized insurers access to the securitization markets, he said. Broadie said most SPRVs now operate offshore, and only large, well-funded institutions can take advantage of them.
The National Association of Mutual Insurance Companies, Indianapolis, and the American Council of Life Insurers, Washington, also expressed support for the SPRV Model Act, but with some caveats.
William D. Boyd, financial regulation manager for NAMIC, said his group would like to see “more tax certainty” for SPRVs; currently, the model act takes no position on the tax treatment of SPRVs.
Paul S. Graham III, managing actuary for ACLI, observed that SPRVs traditionally have been thought of for securitizing catastrophic risk. But he urged the committee to keep a place open in the model act for other insurance risks.
“Because were so late in the game, we dont have complete thoughts laid out on how the life insurance community would use SPRVs,” Graham admitted.
Graham was alluding to the fact that the life insurance industry is about two years behind the property-casualty insurance industry in considering both the use of domestic SPRVs and the SPRV Model Act.
“Much work remains to be done” to determine other uses that could be made of SPRVs, Graham added.
However, the reinsurance industry continues to see U.S.-based SPRVs as a threat. Joseph Sieverling, a vice president at the Reinsurance Association of America, Washington, outlined several reasons for RAAs opposition to the model act: