According to Fitch Ratings, increased regulatory scrutiny and the need for collateral to support statutory reserve credit and meet increasing margin requirements on derivative trading is driving US life insurers to make changes in their captive reinsurance arrangements.
Heightened transparency and regulatory oversight associated with new regulatory requirements is viewed positively by Fitch and the ratings firm expects other US life insurers to make changes to their affiliated capital reinsurance arrangements as well.
Recently MetLife announced that it was merging its offshore, used to reinsure the company’s variable annuity (VA) guarantee risk, into a domestic insurance company.
“The recapturing of VA ceded to a captive reinsurer reverses an industry trend as US life insurers rethink their use of captive reinsurance in response to regulatory changes.”
“US insurance regulators have increased their scrutiny of affiliated captive reinsurance arrangements,” said Fitch in a recent release.
To try and abate the issue the National Association of Insurance Commissioners has formed a subgroup to stud the industry’s use of captives and make recommendations to modify existing regulatory requirements and/or introduce new requirements.
