In a National Association of Insurance Commissioners (NAIC) meeting in August, a subgroup dealing with captives and Special Purpose Vehicles (SPV) met to discuss regulator concerns regarding the use of captives and special purpose vehicles by life insurance companies to transfer insurance risk.
During the meeting, the subgroup also discussed its own draft Captive and Special Purpose Vehicle White Paper. The paper addresses state authority, confidentiality and transparency, types of business ceded to captives and SPVs, capitalisation, credit for reinsurance, holding company analysis considerations and provides conclusions and recommendations from the subgroup’s study.
The recommendations address accounting considerations regarding the treatment of XXX and AXXX reserve redundancies, possible enhancements to the Special Purpose Reinsurance Vehicle Model Act, adherence with the International Association of Insurance Supervisors standards related to use of captives, and enhanced disclosure and transparency to other functional regulators.
The subgroup stated that it planned to review the draft over the next two weeks, and then release it for public comment on a future conference call.
“The subgroup was formed during early 2012 given the broadened use of captives, and the potential concern that a shadow insurance industry is emerging, with less regulation and more potential exposure than policyholders may be aware of as compared to traditional insurers,” stated the whitepaper.
“This potential concern becomes amplified when academics claim the shadow banking system was believed to have contributed to the recent financial crisis; thus, putting significant pressure on state insurance regulators and the NAIC to assess the merits of these aforementioned claims. “
The subgroup’s aim is to study insurers' use of captives and special purpose vehicles to transfer insurance risk, other than self-insured risk, in relation to existing state laws and regulations, with the appropriate regulatory requirements possibly involving modifications to existing NAIC model laws and/or generation of a new NAIC model law.
