Steve Kinion, Delaware’s captive and financial insurance products director, has condemned a memorandum from Rhode Island insurance superintendent Joseph Torti that attempts to change the definition of a multi-state insurer to include captive insurance companies.
The memorandum requested that the National Association of Insurance Commissioners (NAIC) consider changing the definition of ‘multi-state insurer’ in its accreditation programme so that it includes captives.
The memorandum was issued prematurely, in Kinion’s opinion, because the NAIC is only beginning to gather data about life-insurer owned captives.
Its investigation into these entities was only initiated in August, and the final report prepared by Rector & Associates on life insurer-owned captives is not complete.
Kinion said that if the NAIC intends to develop uniform regulatory standards for life-insurer owned captives, then a “monumental amount of work remains to be done.”
In August, Torti presented the same memorandum to the Delaware Department of Insurance, which it opposed.
According to Delaware’s 12 December official response to John Huff, chair of the NAIC’s financial regulation standards and accreditation committee, written on behalf of the state’s insurance commissioner, its position has not changed.
In the response, Kinion stated: “The application of the accreditation standards to these captives would directly conflict with not only Delaware law, but very likely the laws of the 30-plus states that are now captive insurance domiciles. Chapter 69 of the Delaware Insurance Code specifically exempts captive insurers from all other provisions of the insurance code unless otherwise stated. For purposes of Superintendent Torti’s request this means captive insurers are exempt from Parts A through D of the accreditation standards.”
“When states are required to adopt laws in order to satisfy accreditation requirements, it typically means adding new laws. In order to implement superintendent Torti’s request it would mean changing existing laws, which in states like Delaware have been in place for many years. In Delaware’s case it would mean asking the Delaware General Assembly to change a public policy it enacted years ago and for which no in-state constituency desires a change. Seeking such change will be a formidable challenge, especially because the facts do not support doing so.”
The response suggested that the NAIC needs to further assess the solvency implications of life insurer-owned captive insurers and other alternative mechanisms in the context of principle-based reserves.
In 2013, the New York State Department of Financial Services published critical commentary on ‘shadow insurance’ transactions in the state and the oversight provided by the NAIC.
The department concluded that the reserve transfers related to the shadow insurance transactions have ‘artificially’ inflated capital. It also asserted that certain other states may be ‘racing to the bottom’ in governing such transactions, while concurrently making information on their captive unavailable to other state regulators.
