Posted on 13 Oct 2011
The National Association of Insurance Commissioners (NAIC) has charged its Financial Condition Committee with investigating how insurers are using captives to transfer third-party insurance risks, in the wake of media reports that captives were being used to create a shadow insurance industry.
During a conference call, Rhode Island Insurance Superintendent Joseph Torti III recommended the NAIC "examine the issue more closely and determine whether there are regulatory changes that need to be made," saying it is "part of an effort to ensure regulators are aware of potential issues related to captives and that we are ensuring that there is transparency."
Torti cited a May story in The New York Times that reported Vermont and other states are aggressively remaking themselves as destinations of choice for "the kind of complex private insurance transactions once done almost exclusively offshore."
Dennis P. Harwick, president of the Captive Insurance Companies Association, declined to comment on the NAIC's action, saying the organization's board had not had time to consider the move.
The NAIC's Executive Committee and plenary voted unanimously to adopt the new charge for the Financial Condition Committee. The committee will study insurers' use of captives and special purpose vehicles to transfer third-party insurance risk in relation to existing state laws and regulations. If the study turns up any concerns, the committee will recommend possible modifications to existing NAIC model laws or the creation of a new model law.
The task for the committee comes at a time when states across the country are loosening restrictions on captives as part of an effort to stay competitive in that market.
So far this year, Nevada, New Jersey and Tennessee have made moves to make their states more attractive to companies looking to set up a captive.
Nevada Gov. Brian Sandoval, a Republican, signed into law a bill that streamlines the reporting requirements placed on captives doing business in the state, doing away with a requirement that single-payer captives undergo a full regulatory examination every three years. At the time, former Nevada
Insurance Commissioner Brett Barratt told Best's News Service the new law would make the state more "business friendly" because those examinations cost companies between $8,000 and $12,000.
Tennessee Gov. Bill Haslam, a Republican, signed a bill that allows captives to write workers' compensation policies directly.