NAIC Financial Condition Committee Contemplates Captive Transactions Review Board

 

During a July 17, 2013 meeting of the National Association of Insurance Commissioners’ (“NAIC”) Financial Condition Committee, regulators reviewed the draft “White Paper on Captives and Special Purpose Vehicles” and contemplated the creation of a captive transactions review board in the wake of solvency concerns about the use of captives by life insurers.

Proposed additional charges for the NAIC’s Financial Analysis Working Group would include:

• Performing analytical reviews of transactions (occurring on or after a date as determined by the NAIC membership) by nationally significant U.S. life insurers to reinsure XXX and/or AXXX reserves with affiliated captives, special purpose vehicles (SPVs), or any other U.S. entities that are subject to different solvency regulatory requirements than the ceding life insurers, to preserve the effectiveness and uniformity of the solvency regulatory system.
• For such transactions entered into and approved prior to this date and still in place, the collection of specified data in order to provide regulatory insight into the prevalence and significance of these transactions throughout the industry.
• Provision of recommendations to the domiciliary state regulator to address company specific concerns and to the Principles-Based Reserving Implementation Task Force to address issues and concerns regarding the solvency regulatory system.

To view the meeting materials, which include a copy of the draft “White Paper on Captives and Special Purpose Vehicles,” click here.

Comprehensive news coverage of the meeting by National Underwriter’s LifeHealthPro.com is reprinted in part below.

 

Should you have any questions or comments, please contact Colodny Fass& Webb.

 

NAIC seeks to create captive transactions review board

Operations would be handled by the Financial Analysis Working Group

The National Association of Insurance Commissioners (NAIC) is going further to address solvency concerns regarding the use of captives by life insurers.

The regulatory group is contemplating a system where regulators review certain captive transactions, collect data and express any concerns or recommendations to the state regulatory and a key reserving NAIC task force.

The goal, the state regulators say, is to preserve the effectiveness and uniformity of the solvency oversight system. 

On a conference call July 17 to discuss the new charges, one regulator went so far as to say that if the NAIC didn’t take up the charge, the federal government would come in and do it for the states while another regulator was concerned about creating a bureaucracy outside the bounds of state regulation.

“This is a fairly minimalist approach. We are all aware our brother in New York has called for a moratorium. California has declined to join in that call but we agree we have a big problem here,” California Insurance Commissioner Dave Jones said, referring to New York Superintendent of Banking and Insurance Ben Lawsky, who has cracked down on life insurers in his state accessing the captives industry to offload reserves. (Lawsky’s comprehensive report on what he terms “shadow insurance.”)

“As I read this charge, it is not subjecting every transaction to this review. This is a far cry from a moratorium on this action. I think we are at a very pivotal moment — if we do not at least do this, we run the risk of the Feds getting involved…this is keeping our house in order,” Jones said. 

“If we don’t,” Jones warned, “the Feds will jump in and take it away from us. I view it as the minimum we can do.”

Specifically, the Financial Condition (E) Committee of the NAIC supported a proposal by its financial policy group to perform analytical reviews of transactions by big U.S. life insurers to reinsure Triple X and/or AXXX reserves ceding to affiliated captives, special purpose vehicles (SPVs) or other entities with different solvency requirements than the ceding insurers.

For transactions done prior to a certain date and still in place, the group would collect specified data in order to provide information into the prevalence and significance of these transactions throughout the industry. The Financial Analysis Working Group (FAWG) group would also inform the domiciliary state regulatory and the Principles-Based Reserving (PBR) Task Force of any issues and concerns that arise from its review.

“XXX” is based on the name commonly used to refer to the NAIC Model Regulation, the standard that defines the reserve methodology for level premium term products. “AXXX” are statutory reserves underlying universal life with secondary guarantee products, where such reserves are calculated under NAIC’s Actuarial Guideline 38 (AG 38.) Tightening the screws on insurer use of AG 38 and on reserve securitizations has been a challenge for state regulators in recent years. 

To read the complete story, click here.

 

 

 

 

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