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August 25, 2013 at 11:45 AM
Indianapolis — The summer meeting of the National Association of Insurance Commissioners (NAIC) became a proving ground for captive reinsurance and other reserving concerns, with insurance company lawyers coming in to present their cases with state commissioners, even as New York continued to call for a national moratorium on captive insurance transactions used to “artificially lower reserve and collateral requirements.”
One insurer noted that the NAIC membership is not as divided over the issue as one might think — that most regulators want measured use of captives for redundant reserves as overall reserving methods for the life insurance industry are modernized. NAIC conferences provide an opportunity for an easier exchange of views in hotel hallways and rooms. The industry generally supports greater disclosure on captives but wants freedom to do the transactions it sees fit — and there are many of these.
Although the New York Department of Financial Services (DFS) will not approve such transactions, other states are still trying to figure out to what extent they will curtail what some see as abuses or loopholes to offload excess reserves and free up capital.
The lobbying efforts by major insurers at the summer national meeting come at a time when the NAIC Principle-Based Reserving (PBR) Task Force will be accepting recommendations from the Financial Analysis Working Group (FAWG) as it completes a survey and analysis of existing and pending captive reinsurance transactions.
Some within the insurance sector want, as a minimum, the transactions to be approved only if they meet the threshold of “real,” as opposed to “artificial,” and are looking at the possibility of captive standards as an accreditation standard.
This would be a long way out, but co-chair of the PBR Implementation Task Force and Rhode Island Insurance Commissioner Joe Torti III said today in a brief remark that it was “possible” there could be some future captive-related accreditation standard.
PBR is supposed to address the practice of reinsuring Triple X and/or A-XXX’s (Actuarial Guideline 38) hefty reserves for universal life products with secondary guarantees to affiliated captives or special purpose vehicles (SPVs).
The first charge for the Captive Working Group is to address any remaining Triple X or AG 38 problems without encouraging the formation of significant legal structures using captives to cede business.
