Regulators Aim to Make Troubled Insurers Work Better

State insurance regulators are trying to develop better strategies for dealing with seriously troubled insurers outside of formal receivership proceedings.

The Financial Condition Committee — an arm of the National Association of Insurance Commissioners (NAIC) — has set up a new Restructuring Mechanisms Working Group.

The working group will be looking at efforts to transfer the policies of failing insurers to stronger insurers; requirements for running insurers in runoff mode; and other methods for dealing with struggling insurers without putting the policyholders in the hands of state guaranty associations.

(Related: Life Insurers, Health Insurers Clash Over Penn Treaty Coverage)

Members of the Financial Condition Committee agreed to create the working group, and the subgroup, in February, during a conference call meeting.

The Words

The Financial Condition Committee has dealt with restructuring issues before. In 1997, for example, a committee working group noted in a paper about restructuring that an insurance company, or an insurance holding company, can restructure itself in many ways.

The working group said an insurer can restructure itself by:

• Walling off and selling certain operations to other companies.
• Selling control over some operations to public investors.
• Creating an entity outside of the United States, and transferring some liabilities or assets to the offshore entity.
• Separating ongoing and discontinued operations, and asking investors, regulators and others to focus mainly on the performance of the ongoing operations.
• transferring policyholders to a healthier insurer.

In some cases, entering run-off mode may be part of the restructuring process.

An insurer in runoff mode stops writing new business, but it continues to collect premiums and pay claims.

The New Working Group

Elizabeth Kelleher Dwyer is the co-chair of the new working group, and Bubby Combs of Oklahoma is the co-chair, according to the agenda for a working group conference call meeting held March 11.

The NAIC staff contacts for the working group are Dan Daveline and Casey McGraw.

The working group intends to:

• Develop financial solvency and reporting requirements for companies in runoff mode.
• Propose changes to the NAIC’s Guaranty Association Model Act, to make sure that policyholders who start with guaranty fund protection, and go through an insurer restructuring, will continue to have guaranty fund protection.
• Prepare a white paper that summarizes existing state restructuring statutes and talks about the issues the statutes are designed to remedy.

The Subgroup

The working group has a Restructuring Mechanisms Subgroup.

The subgroup is supposed to look into:

• Developing tools for monitoring companies in runoff mode.
• Adjusting risk-based capital formula rules, to help regulators see whether insurers in runoff mode have enough capital.
• Setting minimum capital requirements and minimum standards of review for companies involved in restructuring efforts.

Resources

Links to information about the restructuring mechanisms efforts are available here.

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