What You Need to Know
- U.S. insurers can sell entire companies, and they can buy reinsurance from companies that agree to accept all risk associated with the insurance policies that are reinsured.
- In most states, insurers have a hard time transferring full responsibility for a block of business to another entity.
- The United Kingdom and some U.S. states do allow for final transfer of insurance risk.
- Many insurers would love to shed responsibility for LTCI businesses. Drafters of an NAIC white paper say that could be complicated.
State insurance regulators are trying to develop rules that insurers could use to transfer blocks of business to other entities with finality, without worries about whether responsibility for the claims will come back to haunt them.
Many issuers of long-term care insurance (LTCI) would love to transfer responsibility for blocks of LTCI business to another entity.
But members of the Restructuring Mechanisms Working Group — a team at the National Association of Insurance Commissioners — say in a new draft white paper that reserving for LTCI “liabilities,” or benefits, may be too complicated for LTCI to be included in the insurance business transfer framework they’re trying to create.
Regulators have raised the possibility, however, that they could create another risk restructuring mechanism for LTCI issuers.
The working group posted a draft of the white paper on its section of the NAIC website earlier this week. A white paper is a report that summarizes what an organization thinks about a complicated issue.
Comments on the white paper are due Nov. 22.
For financial professionals, the white paper could eventually lead to rules that could determine what organizations end up really being responsible for paying clients’ life insurance claims, disability insurance claims and annuity benefits.
Today, U.S. insurers in most states can sell an entire insurance company affiliate. They can also pay for another company to assume responsibility for an unwanted block of insurance policies or annuities by paying for a reinsurance agreement.
But, if a reinsurer fails, the company that originally wrote the business will be responsible for paying the claims.
The United Kingdom lets insurers pass full responsibility for blocks of business on to other insurers through insurance business transfer arrangements.
Arkansas, Oklahoma, Rhode Island and Vermont are examples of U.S. states that have developed insurance business transfer rules based on the U.K. model.
The Restructuring Mechanisms Working Group is developing rules other states could use to copy Arkansas and Oklahoma.