NAIC Panel Considers Defining Some Captives as Multistate Insurers
December 19, 2013 by Thomas Harmon
WASHINGTON – A National Association of Insurance Commissioners’ panel is considering the possibility of treating a small segment of the captive and special purpose vehicle market used by some life insurers in the same manner as multistate insurers for accreditation purposes. The action has created concern among captives insurance officials in Delaware, one of the nation’s top captive domiciles.
The panel asked its staff to clarify the definition of “multistate insurer” as it impacts certain life insurance companies who use XXX and AXXX captives and special purpose vehicles that are the target of NAIC efforts to lessen reserves of life insurers using them.
Panel Chairman John Huff, Missouri’s insurance commissioner, told Best’s News Service the panel discussed the possibility of treating captives as multistate insurers. Both Huff and Torti said the effort deals solely with the XXX and AXXX reserving tools.
Those pools are the target of NAIC’s principles-based reserving effort that is before the states for ratification. To date, the change has been approved by lawmakers in only a handful of states, but Torti has said once principles-based reserving is ratified, the need for XXX and AXXX reserving disappears.
Torti’s initial memorandum suggesting the panel take up the topic indicates that multistate companies be subject to NAIC accreditation standards “to ensure that we can rely on solvency regulation performed by our peers in other states and to ultimately ensure protection of consumers in our states,” he wrote. “I would therefore interpret this note to require that a reinsurer that is assuming risk from a company or companies in a different state than its domicile and/or from a company or company with policyholders in multiple states be considered a multistate reinsurer.”
Steve Kinion, director of the bureau of captive and financial products at the Delaware Insurance Department, said in a memo to Huff: “If this request becomes effective, then any captive reinsurer that reinsures risks located in a state other than the captive’s domiciliary state would be subject to the accreditation standards. While the thrust of Superintendent Torti’s request regards life insurer-owned captive insurers which reinsure XXX and AXXX excess reserves, the request would encompass practically all captives which act as reinsurers.”
Kinion said if the panel determines captives should be considered in the same manner for accreditation purposes as multistate insurers, they would all but cease to be captives. His memo said that applying accreditation standards to those captives would conflict with the state laws of every captive insurance domicile. NAIC’s principles-based reserving task force is in its early stages of data collection on life-insurer owned captives insurers that reinsure XXX and AXXX reserves and so Torti’s request is premature, he wrote (Best’s News Service, Dec. 16, 2013). NAIC could help develop guidance to help states review such transactions by filling its vacant captives working group.
(By Thomas Harman, associate editor, BestWeek: Tom.Harman@ambest.com)