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Reinsurance Regulation

IOWA AND VIRGINIA INSURANCE REGULATORS ADOPT THE NAIC’S TERM MODEL RULES GOVERNING TERM AND UNIVERSAL LIFE INSURANCE RESERVE FINANCING

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Insurance regulators in Iowa and Virginia have adopted the NAIC’s Model Rules regulating term and universal life insurance reserve financing. The stated purpose of the rules is “to establish uniform, national standards governing reserve financing arrangements pertaining to life insurance policies containing guaranteed nonlevel gross premiums, life insurance policies containing guaranteed nonlevel benefits, and universal life insurance policies with secondary guarantees” and to require certain funds or securities to be held in association with such financing arrangements. The regulations “specif[y] additional requirements relating to the valuation of asset or reserve credits, the amount and forms of security supporting certain reinsurance arrangements, and the circumstances pursuant to which credit will be reduced or eliminated.

Both states provide a rule specifically prohibiting an insurer that has policies covered by the rules from “tak[ing] any action … or enter[ing] into any transaction … if the purpose of such action, transaction or arrangement … is to avoid the requirements of this chapter, or to circumvent its purpose and intent.”

The Iowa regulations take effect on January 10, 2018, and can be found at 191 – Chapter 112, Iowa Administrative Code. The Virginia regulations take effect on January 1, 2018, and can be found at Title 14, Chapter 318, Virginia Administrative Code.

This post written by Benjamin E. Stearns.

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DISTRICT COURT DISCHARGES PHOENIX FIRE AND MARINE INSURANCE COMPANY CONSERVATOR

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After 14 years, the Commissioner of Insurance of the Virgin Islands has been discharged as conservator of Phoenix Fire and Marine Insurance Company (“Phoenix”).  The Commissioner reported that: $15,936,228.13 had been paid to claims under Phoenix policies; $298,452.38 in unearned premiums disbursed to policy holders; $1,819,449.76 held in trust; and there is a balance of $3,819,449.76 in outstanding claims and unearned premiums.

In addition to discharging the Commissioner, the Court awarded $400,000 in administrative fees and deposited $1,396,169.10 in unclaimed funds with the Commission of Finance to be designated as the Phoenix Fire Trust Fund, into which any unclaimed funds shall be deposited.  Potter v Phoenix Fire and Marine Ins. Co. Ltd., et al., Civil No. 1991-271 (USDC D.V.I. Nov. 3, 2017).

This post written by Nora A. Valenza-Frost.
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WISCONSIN ADOPTS NEW CREDIT FOR REINSURANCE RULE BASED ON CERTIFIED REINSURERS

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On November 7, 2017, the Commissioner of Insurance for the State of Wisconsin issued an order approving a new rule to be added to Section Ins. Ch. 52, Wis. Adm. Code. The rule is intended to modernize Wisconsin’s credit for reinsurance provisions by aligning them with the Nonadmitted and Reinsurance Reform Act of 2010 and amendments to the NAIC Credit for Reinsurance Model Law.

As currently written, reinsurers are required to post collateral equal to their total liability for ceding insurers in order for the insurers to take full credits for reinsurance. The new rule allows for the use of certified reinsurers. Certifications will be made at different levels based on financial strength ratings and will allow certified reinsurers to post less than 100 percent collateral on the risk they assume. Reinsurers with the three highest financial ratings will have lower collateral requirements of 0-10-20 percent, respectively. Reinsurers with the three lowest financial ratings will have collateral requirements of 50-75-100 percent, respectively. By making these revisions, Wisconsin’s reinsurance provisions will be consistent with changes made in other states. The new rule becomes effective on January 1, 2018.

This post written by Alex Silverman.
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TREASURY RELEASES REPORT ON ASSET MANAGEMENT AND INSURANCE

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The U.S. Department of the Treasury has released a report entitled “A Financial System that Creates Economic Opportunities: Asset Management and Insurance,” the third of four reports to be issued by the Department in response to Executive Order 13772 of February 3, 2017, in which President Trump set forth a set of “Core Principles” to be applied by his administration in the regulation of the financial system.  The report includes numerous recommendations, including:

  • moving away from entity-based system risk evaluations of insurance companies and towards an activities-based approach that would identify business activities that have higher systemic risk characteristics;
  • harmonizing the group capital initiative of the NAIC, the states, and the Federal Reserve to reduce the existence of duplicative regulatory burdens for insurers;
  • recommending that the International Association of Insurance Supervisors, in developing its Insurance Capital Standard, “recognize the diverse approaches to solvency” by various regulators to ensure that the business model of U.S. insurance companies and the state-based insurance regulatory system of the U.S. are accommodated;
  • clarifying, through legislative action, the “business of insurance” exception of Dodd-Frank to ensure that the CFPB is not overseeing activities already regulated by state insurance regulators;
  • taking steps to encourage private insurers to participate in the market for terrorism insurance;
  • recommending that states adopt the NAIC Insurance Data Security Model Law and, if uniform requirements are not adopted in five years, passing federal legislation setting forth data breach notification standards specific to insurers;
  • encouraging the sharing of information within the insurance industry regarding issues related to cybersecurity;
  • encouraging the consultation of and participation by state governments when the business of insurance is impacted by the decisions of federal agencies and regulators;
  • directing the Federal Insurance Office to advocate for the U.S. state-based insurance regulatory system before the International Association of Insurance Supervisors and recommending that the FIO have a permanent, voting membership on the IAIS Executive Committee.

While some of these recommendations are within the direct power of the executive branch, most will require the cooperation of Congress, state regulators, or other bodies outside of the President’s control, making it an open question how successful President Trump will be in implementing the ideas described in the report.

This post written by Jason Brost.
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NATIONAL FLOOD INSURANCE PROGRAM IS RELIEVED OF $16 BILLION OF DEBT

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On October 26, 2017, President Donald Trump signed H.R. 2266, a disaster relief bill. Pursuant to section 308 of the bill, the Department of the Treasury will forgive $16 billion in debt owed by FEMA under the National Flood Insurance Program. The forgiven debt is designated as an emergency requirement under the Statutory Pay-As-You-Go Act of 2010 and the Balanced Budget and Emergency Deficit Control Act of 1985. See the full text H.R. 2266 here.

This post written by Jeanne Kohler.
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