On August 24th, the Principle-Based Reserving Implementation (EX) Task Force (the “Task Force”) of the NAIC met at the NAIC Summer National Meeting. During the meeting, the Task Force set forth additional charges with respect to the use of captives by life insurers and determined that the NAIC needs to “further assess the solvency implications of life insurer-owned captive insurers and other alternative mechanisms in the context of [Principle-Based Reserving].” The Task Force will also create a subgroup to analyze the issue and propose solutions. In particular, the subgroup will attempt to propose solutions for XXX and AXXX reserve redundancies that life insurers cannot adequately address through Principle-Based Reserving, so long as such solutions do not encourage the ceding of business to captives.
We earlier reported here that the NAIC’s latest white paper moderated the NAIC’s criticism of financing of reserves through captives. However, the actions by the Task Force indicate that the practice of using captives to finance XXX and AXXX reserve redundancies remains a concern for the NAIC. Many industry participants believe that such transactions, if regulated, still provide market benefits, with the American Council of Life Insurers proposing that captives should be permissible for the aforementioned uses provided that each captive is assigned its own NAIC tracking code as well as a responsibility on the insure to disclose certain information on such captives in their annual statements.