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You are here: Home / Archives for Reinsurance Regulation

Reinsurance Regulation

Financial Stability Oversight Council Determines Bank Holding Company Will Not Be Treated As a Nonbank Financial Company Post Merger

September 25, 2018 by John Pitblado

Following its impending merger, Zions Bankcorporation requested the Financial Stability Oversight Council not treat the bank holding company, as a nonbank financial company supervised by the Board of Governors of the Federal Reserve System (“Board of Governors”). The company argued, among other things that:

  • Any material financial distress at the company would not pose a risk to U.S. financial stability;
  • The company was relatively small, lacked complexity and had low levels of interconnectedness; and
  • The company was a source of credit for low interest, minority, and underserved communities.

The Council scrutinized the company and resolved that “if the company were to fail, its expected post-merger legal and operational structure does not appear to have features that would have the likelihood of a disorderly resolution that would pose a threat to U.S. financial stability.”

In determining whether to grant the request, the Council considered the extent to which the company would be subject to regulation and supervision if it were not treated as a nonbank financial institution. It looked at: (1) whether regulators could impose capital and liquidity requirements; (2) whether regulators would have the authority to bring enforcement actions; (3) impose detailed and timely reporting obligations; (4) whether regulators would have the ability to dissolve the company; and (5) the existence and effectiveness of consolidated supervision. Finding there to be sufficient oversight and regulation, the Council granted the company’s request to not be treated as a nonbank financial company post-merger.

FSOC has been criticized in the past for imposing “bank centric” requirements and analyses on insurance companies and other nonbank financial companies.  It remains to be seen whether the analysis in this decision, which focuses more than previous decisions on the activities at issue, marks a departure from the “bank centric” approach to FSOC’s decision making with respect to nonbank financial companies.

Final Decision of the Financial Stability Oversight Council Regarding the Appeal of Zions Bankcorporation, September 12, 2018.

This post written by Nora A. Valenza-Frost.

See our disclaimer.

Filed Under: Reinsurance Regulation, Week's Best Posts

New Mexico Adopts NAIC Credit for Reinsurance Model Regulation

September 12, 2018 by Michael Wolgin

Effective July 24, 2018, New Mexico adopted the NAIC Credit for Reinsurance Model Regulation. New Mexico adopted the Model Rule as “part of a broad effort to modernize reinsurance regulation and to conform with the Nonadmitted and Reinsurance Reform Act component of Dodd-Frank.” The new rule is codified in the New Mexico Administrative Code at 13.2.8 NMAC – Insurance Company Licensing and Operation – Credit for Reinsurance. The Notice of Proposed Rulemaking and the now-adopted rule is linked here.

This post written by Benjamin E. Stearns.

See our disclaimer.

Filed Under: Accounting for Reinsurance, Reinsurance Regulation

Delaware Bankruptcy Court Confirms Restructuring Plan Involving Scottish Re

September 11, 2018 by Michael Wolgin

A Chapter 11 restructuring plan involving various affiliates of Scottish Re, each of which separately declared bankruptcy in different jurisdictions, was recently approved by a bankruptcy court in Delaware. The finalization of the plan depended on coordination among: (1) Scottish Holdings Inc. (“SHI”), (2) Scottish Re: Group, LTD., SHI’s parent company, (3) Scottish Annuity & Life Insurance Co. Ltd. (“SALIC”), an indirect debtor subsidiary, and (4) Scottish Financial Luxembourg (“SFL”), a financing entity. Prior to the approval of the plan, the receiver for SFL, which asserted an unsecured, nonpriority claim against SALIC in the amount of $63,536,041.32 for a debenture assigned from Scottish Re, stipulated with SHI that any potential claims against certain current or former members of the board of managers for SFL would be preserved. The stipulation and the restructuring plan was then approved. In re Scottish Holdings Inc. et al., Case No. 18- 10160 (U.S. Bankr. Ct. Del. Aug. 22, 2018).

This post written by Gail Jankowski.

See our disclaimer.

Filed Under: Reorganization and Liquidation, Week's Best Posts

An Update on the Implementation of the US-EU Covered Agreement

August 27, 2018 by Rob DiUbaldo

We have previously reported on the NAIC’s strategy of assisting the states in the implementation of the Covered Agreement through revisions to the Credit for Reinsurance Model Law and the Credit for Reinsurance Model Regulation (“the Models”). The Reinsurance Task Force of the Financial (E) Committee exposed drafts of proposed revisions to the Models on June 21. By the NAIC’s Summer National Meeting in Boston early this month, the Reinsurance Task Force had received eighteen comment letters on the exposure drafts from regulators, trade associations, insurance/reinsurance companies, and other interested parties. The meeting package for the Task Force’s August meeting included pertinent written materials. The Task Force heard limited oral statements at its meeting and proceeded to move the Model exposure drafts to the next step. According to the summary of this meeting, revised exposure drafts are anticipated in mid-September, with another comment period, followed by possible final consideration at the NAIC’s Fall National Meeting in November of this year.

The written comments did not contain significant opposition to the Model revisions, but did contain some constructive suggestions for changes to the exposure drafts at both conceptual and detailed wording levels. The major themes of the written comments include:

  1. Desire for uniformity – Perhaps the most widely voiced comment was a desire for uniformity in the implementation of the Covered Agreement. This principle found expression in three topics:
    • Primacy of the Model Law – Several commentators suggested that significant substantive requirements be contained in the Model Law rather than in the Model Regulation, in order to foster a greater likelihood that the overall requirements would remain uniform, with minimal substantive variation from state to state.
    • Regulatory discretion – Several commentators suggested that although it is customary to reserve discretion to individual state insurance commissioners to make customizations or other changes to a model, that such individual discretion is not desirable in situations, such as this, in which uniformity of treatment is an important goal. In particular, comments called out the discretion of individual state commissioners to impose additional requirements for states to qualify as Reciprocal Jurisdictions, and discretion in determining certain requirements for non-EU reinsurers.
    • Certified Reinsurers – One commentator implicitly questioned the future utility of the Certified Reinsurer status, and the potential interplay between that concept and the new Reciprocal Jurisdiction concept. If there is a lack of uniformity in this area, such differences might have a significant impact on the broader reinsurance market.
  2. Equal treatment – Concern was voiced that there should be equal treatment for EU and non-EU domiciled reinsurers, including US domiciled reinsurers. Some commenters suggested that the current exposure drafts would permit different treatment for reinsurers with different domiciles. One commentator suggested recognizing as a Reciprocal Jurisdiction U.S. states that meet certain NAIC accreditation requirements.
  3. Solvency – The exposure drafts provide authority for state commissioners to deal with additional collateral issues with respect to reinsurers subject to rehabilitation or liquidation proceedings. A number of comments suggested that, when applicable, such considerations should be exercised by the appropriate rehabilitation or insolvency proceeding court instead of a state commissioner.
  4. Effective date – Several commentators noted ambiguity in the effective date provisions of the revised Models and a desire to coordinate the effective date of the Model revisions with the effective date of the Covered Agreement’s reinsurance collateral provisions.

Perhaps the most interesting issue in discussion is whether and the extent to which to permit individual state insurance commissioners discretion in the implementation of the revised Models, in particular in determining the requirements for finding a particular jurisdiction to be a Reciprocal Jurisdiction. While it is customary, given the state-based system of insurance regulation, to afford individual state commissioners discretion in the implementation of Model Laws and Model Regulations, there appears to be a strong desire, if not a need, for more strict uniformity in the implementation of the Covered Agreement, and in the regulation of reinsurance activity throughout the broader market. It will be interesting to see how these somewhat competing interests are resolved.

Overall, it appears that this process is “on track” compared to the expectations of the NAIC stated earlier this year, with very good consensus emerging as to not only the broad lines of the amendments to the Models, but also of the wording of such amendments.

This post written by Rollie Goss.
See our disclaimer.

Filed Under: Accounting for Reinsurance, Reinsurance Regulation, Week's Best Posts

National Flood Insurance Program Extended to November 30, 2018

August 23, 2018 by Michael Wolgin

On July 31, 2018, President Trump signed the National Flood Insurance Program Extension Act of 2018. The act extends the duration of the National Flood Insurance Act to November 30, 2018, updating both the “Financing” (42 U.S.C. § 4016(a)) and “Program Expiration” (42 U.S.C. § 4026) provisions of the Act. The program was set to expire on the day the law was passed. Calls for reform of the program remain outstanding. S. 1182, 115th Cong. (2018).

This post written by Benjamin E. Stearns.

See our disclaimer.

Filed Under: Reinsurance Regulation

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