Other state insurance regulators have responded coolly to the report released by the New York Department of Financial Services on June 12. That report recommended that “State insurance commissioners should consider an immediate national moratorium on approving additional shadow transactions until those investigations are complete . . . .” By “shadow transactions,” the report meant parental guarantees that some life insurers used to meet their capital requirements. One form of these guarantees involved captive insurers, which would reinsure the parent insurer’s claims, thereby freeing the parent’s reserves for other purposes. As the captive enjoys reserve and collateral requirements that are relaxed in comparison to New York’s, the parent usually bears the captive’s risks by paying claims if the captive’s reserves are exhausted (or so says the New York Department’s report). Edwards Wildman summarized the New York report here. Also, Edwards Wildman has summarized the NAIC’s white paper on this use of captives here, and it has analyzed the issue generally here and here.

Law360 reported that NAIC president and Louisiana insurance commissioner Jim Donelon expressed reluctance to impose any moratorium any time soon – see here. During a June 13 call between NAIC leadership and the media, Mr. Donelon stated that he was not in a hurry to respond to suggestions from New York. The NAIC would continue to study whether oversight of these transactions needed to be improved. For good measure, NAIC committee chairwoman and Tennessee insurance commissioner Julie Mix McPeak added that captive life insurers have uses that are legitimate.

While every state can decide for itself whether to heed New York’s call, Delaware has decided against it. At the AIRROC conference held in Chicago on June 13, Steve Kinion, Director of the Delaware Department of Insurance’s Captive Bureau, said that Delaware Insurance Commissioner Karen Weldin Stewart rejects any moratorium as to such uses of captive life insurers. In the Delaware Department’s view, these transactions are not “shadowy,” they are properly lawful. Indeed, the Department believes it would contradict the Delaware Revised Captive Insurance Company Act if it did impose a moratorium. That Act seeks growth of captive insurers in Delaware, and as of mid-May, 2013, Delaware had licensed 224 captive insurers, 10 protected cells, and 371 series business units. The Department remains confident in its ability to license and regulate captive insurers, and it believes that if the Department ought to react in any way to using captive insurers to meet capital requirements, it would simply devote more regulatory attention to those captives.