The Captive Insurance Companies Association (CICA) has officially expressed its objection to the Financial Regulation Standards and Accreditation (F) Committee’s proposed revisions to the definition of “multi-state reinsurer”.
CICA has written a letter to the committee in which it argues that the revisions would impose an “unreasonable and unneeded regulatory burden on the captive industry”.
The letter is an answer to concerns expressed by Superintendent Torti regarding the utilisation of special purpose vehicles (SPVs) and captives as reinsurance mechanisms by life and annuity insurers regarding the excess reserves required by Regulation XXX and AXXX.
CICA has claimed that the revision is overly broad and the language is imprecise, as it states: “A multi-state reinsurer is an insurer assuming business that is directly written in more than one state and/or in any state other than its state of domicile. This includes but is not limited to captive insurers, special purpose vehicles and other entities assuming business”.
This broad definition would sweep in numerous alternative risk structures that have nothing to do with life reinsurance, including some captives that operate on a direct basis.
The vast majority of captives insure or reinsure some form of property/casualty risk. No supporting information has been provided by Superintendent Torti, or any other NAIC representative, as to why the property/casualty industry should be included in the proposal.
According to CICA: “The proposed definition is vague and, in some instances, contradictory.”
“For example, it references ‘business that is directly written’ in the context of a reinsurance captive, which does not directly write, but rather reinsures. The imprecision of the language may stem from the fact that the problem to be remedied has not been established.”
The effect of the proposal would be to impose National Association of Insurance Commissioners (NAIC) accreditation standards on most captive reinsurers.
According to CICA, the proposal poses legal problems, violates the NAIC’s own rules regarding the adoption of amendments to the accreditation standards and contains exceptions that are “too narrow and ineffectual”.
In the letter, CICA claims that the adoption of the proposal would cause severe damage to the captive insurance industry and also that “no bases have been put forward as to why the proposal should apply to the entire captive industry”.
