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Reinsurance Regulation

STATE CAPTIVE INSURANCE UPDATE

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Following are some updates on the regulation of captive insuers by New Jersey and Nevada.

New Jersey

On October 25, 2010, the New Jersey Assembly passed unanimously A2360, which creates a regulatory and licensing scheme for captive insurers in the state. This bill, as amended, is identical to SB168. It provides, among other things, that a captive insurer must meet certain requirements, including those relating to formation, capital and surplus, examination, local office presence, ability to meet policy obligations, payment of certain fees and taxes, and annual reporting.

Following passage of A2360 by the New Jersey Assembly, the bill was referred to the New Jersey Senate Commerce Committee and Senate Budget and Appropriations Committee. On December 6, 2010, the Senate Commerce Committee reported favorably on the legislation, with amendments (bill text and committee report). The amendments to the bill: (1) clarify that, in addition to an insured or affiliate of a captive insurance company, a claimant thereof shall not receive a benefit from a plan, pool, association, or guaranty or insolvency fund; and (2) eliminate the transfer of 10% of the premium tax revenues collected under the bill to the commissioner for the regulation of the captive insurance companies. A2360 was also reported favorably out of the Senate Budget and Appropriations Committee (committee report) two days after the Senate Commerce Committee’s December 6th report. The legislation remains pending in the New Jersey Senate.

Nevada

On December 15, 2010, SB46 (bill text) was prefiled in the Nevada Senate. The bill allocates a portion of revenue from the premium tax on captive insurance to the Commission on Economic Development for promotion of the captive insurance industry in Nevada. The bill was referred to the Committee on Revenue.

This post written by Karen Benson.

NAIC ADOPTS REINSURANCE AND SURPLUS LINES PROPOSALS; NCOIL ALTERNATIVE GAINS SUPPORT

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On December 16, 2010, the NAIC adopted the proposed Reinsurance Collateral Reduction & Accreditation Recommendations and the Nonadmitted Insurance Multistate Agreement (“NIMA”), which were profiled in our December 6, 2010 post. The broader surplus lines proposal adopted by the National Conference of Insurance Legislators, profiled in the same post, now has the support of both the Council of State Governments and the National Conference of State Legislatures. The open question is how the states will react to these non-binding proposals.

This post written by Rollie Goss.

SPECIAL FOCUS: REGULATING “COLLATERAL DAMAGE”: NEW YORK FINALIZES COLLATERAL REDUCTION REGULATION

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New York recently joined Florida in adopting a regulation approving reduced collateral for certain reinsurance agreements based largely upon the financial strength of the reinsurer. In this Special Focus article, Carlton Fields partner Anthony Cicchetti provides an analysis of the New York regulation, which takes effect January 1, 2011.

REINSURANCE COLLATERAL, CREDIT AND SURPLUS LINES REGULATORY UPDATE

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There has been a flurry of activity on the regulatory front on a variety of issues that the Dodd-Frank Act deferred to the states:

  • The New York Department of Insurance has approved a reinsurance collateral regulation (effective 1/1/2011) which is somewhat similar to Florida’s regulation. The Department’s final review of comments submitted on the proposed regulation is also available. We will post a Special Focus piece on this new regulation soon.
  • The NAIC: (1) has reinsurance collateral recommendations pending, which are being framed as accreditation issues; (2) has a proposal under consideration for a surplus lines interstate compact; and (3) may consider amendments to the model acts and regulations regarding reinsurance credit. According to some media reports, there has been some disagreement within the NAIC as to the scope of the NAIC’s surplus lines initiative, with some states seeking to limit the scope to premium tax issues and a larger number seeking to broaden the scope to cover other areas of surplus lines operation mentioned in Dodd-Frank. The proponents of the narrower premium tax only approach apparently are prevailing
  • NCOIL recently approved a proposal addressing various surplus lines issues, but has not been active on the reinsurance collateral issue. Unlike the relatively narrow NAIC approach, NCOIL’s surplus lines proposal addresses not only premium tax issues, but also other issues, including some related to eligibility, brokerage and placement activities.

This post written by Rollie Goss.

SHOULD REINSURERS BE SUBJECT TO SYSTEM RISK REGULATION UNDER THE DODD-FRANK ACT?

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The Financial Stability Oversight Council has been receiving comments on the implementation of the systemic risk provisions of the Dodd-Frank Act. Many property and casualty companies and trade associations for both property and casualty and life insurers (e.g., the Property Casualty Insurers Association of America and the American Council of Life Insurers) have submitted comments contending that companies in that industry should not be subject to such regulation. The Reinsurance Association of America has submitted a comment supporting those submissions, and arguing that the reinsurance industry does not present a potential for systemic risk to the economy, and hence should be exempted from such regulation. The RAA bases its argument, in part, on analyses from the Group of 30 and the International Association of Insurance Supervisors, which have been the subject of posts to this blog. The popular wisdom seems to be that the regulators, being concerned of being under inclusive, are erring on the side of being over inclusive in this definition effort, which will make any industry-wide exemption difficult to obtain.

This post written by Rollie Goss.