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Reinsurance Regulation

REINSURANCE (E) TASK FORCE OF THE NAIC MEETS IN NEW ORLEANS

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The minutes of the April 4, 2016 task force meeting (available here) included the following seven items of activity:

  • Adopted its Jan. 6, 2016 and Dec. 9, 2015 minutes (which were attached), which reflected the adoption of revisions to the Credit for Reinsurance Model Law (#785).
  • Received a status report from the Qualified Jurisdiction (E) Working Group.
  • Adopted the report of the Reinsurance Financial Analysis (E) Working Group, which had reviewed and recommended three renewals for certified reinsurer passporting purposes, and discussed and made revisions to the Uniform Application Checklist for Certified Reinsurers (attached to the minutes).
  • Requested an extension from the Financial Condition (E) Committee in order to continue working on a proposed XXX/AXXX Credit for Reinsurance Model Regulation (Model Regulation).
  • Discussed comments received on the Feb. 26 draft of the Model Regulation (attached to the minutes) and the accompanying NAIC staff memorandum (also attached), which details the revisions made from the prior exposure draft. Comment letters were received from a handful of organizations, state regulators, and insurance companies. Affiliated captive reinsurance was addressed as a significant focus area for several federal agencies. Several reports published by these agencies were discussed detailing significant concerns with the use of affiliated captive reinsurance. A comment letter from the Life Actuarial (A) Task Force submitted to the Reinsurance (E) Task Force was also discussed (attached to the minutes).
  • Adopted the recommendation of the Valuation of Securities (E) Task Force to expand the NAIC Bank List, which is used by insurers to identify letters of credit that can be used as collateral in reinsurance transactions under Model #785, to include eligible non-bank financial institutions. Proposed amendments to the Purposes and Procedures Manual of the NAIC Investment Analysis Office and an executive summary from the Securities Valuation Office were attached to the minutes.
  • Discussed reinsurance collateral next steps. Regarding the states’ implementation of the revised Model #785 and Credit for Reinsurance Model Regulation (#786), to date 32 states have passed legislation to implement the revised Model #785, with 22 of those states enacting Model #786 as well. Insurers domiciled in these states represent more than 66% of the direct insurance premium written in the U.S. across all lines of business.

This post written by Michael Wolgin.
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NEBRASKA DEPARTMENT OF INSURANCE ISSUED NOTICE OF ADOPTION OF AMENDMENTS TO CREDIT FOR REINSURANCE RULES

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On February 25, 2016, the Nebraska Department of Insurance issued a notice to all insurers that amendments to Chapter 65, “Credit for Reinsurance”, of the Insurance Department Rules, have been filed with the Secretary of State for adoption. The amendments are to implement the recent statutory changes to sections pertaining to credit for reinsurance that were enacted in the 2015 Legislative Session and to reflect the changes made by the NAIC to the Credit for Reinsurance Model Act. A copy of the revised Chapter 65 is attached hereto, which shows in redline form the changes to it.

This post written by Jeanne Kohler.

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SPECIAL FOCUS: WHAT IS THE FUTURE OF THE MULTI-STATE ALLOCATION OF NONADMITTED PREMIUM TAX REVENUE?

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In the portion of the Dodd-Frank Act known as the Nonadmitted and Reinsurance Reform Act, Congress established a public policy and stated its desire that “each State adopt nationwide uniform requirements, forms, and procedures, such as an interstate compact, which provide for the reporting, payment, collection, and allocation of premium taxes for nonadmitted insurance ….”  15 U.S.C. § 8201(b)(4) .  In a Special Focus article we provide an update on the lack of progress made by the states towards this goal.

This post written by Rollie Goss.
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OFFICE OF FINANCIAL RESEARCH ISSUES BRIEF ANALYZING DISCLOSURES BY INSURERS OF 2014 DATA RELATED TO CAPTIVE TRANSACTIONS

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On March 17, 2016, the Office of Financial Research, an agency created by the Dodd-Frank Act of 2010 to analyze risk to the financial system, released a brief discussing “recent policy measures” by the NAIC “and the data that insurers began reporting in 2015 about their captive transactions.” The brief analyzes financial data for the year-end 2014, which revealed that U.S. life insurers’ use of captives totaled $213.4 billion in reserve credit. The brief observes that a “little more than a third of the reserve credit backs higher-risk product lines, such as variable annuities and long-term care.” The brief notes that state regulators have begun to revise reporting standards to improve publicly available data to measure the risks from captives and the impact on insurers’ financial condition, but that certain “gaps” in disclosure remain. For example, the brief notes that insurers have disclosed the quality of assets for only 55% of term and universal life captives, measured by reserve credit, largely due to statutory “exemptions.” The brief also cautions that recent NAIC asset quality requirements for new term life and universal life captives can also be bypassed by exemptions — a concern that the OFR believes should be addressed.

This post written by Michael Wolgin.

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SPECIAL FOCUS: THE METLIFE DECISION AND SIFI DESIGNATIONS FOR REINSURANCE COMPANIES

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The designation of MetLife as a systemically significant nonbank financial institution (SIFI) by the Financial Stability Oversight Council (FSOC) was recently rescinded by the United States District Court for the District of Columbia.  The Treasury Department has indicated that the government will appeal the decision.  In a SPECIAL FOCUS article, Roland Goss profiles the court decision and the prospects for a reinsurance company being designated by FSOC as a SIFI.

This post written by Rollie Goss.
See our disclaimer.