Three additional states have followed the lead of Iowa and have recently adopted statutes allowing life insurers domiciled in their states to create limited purpose subsidiary (“LPS”) life insurance companies. Those states are Georgia (effective 1 July 2011), Indiana (effective 6 April 2011) and Texas (effective 17 June 2011).  

An LPS performs a function that is similar to a captive reinsurer and may only reinsure the risks of its parent life insurance company or of other affiliated life insurance companies that are domiciled in the state. (In Georgia, unlike the other three states, only risks of the parent may be reinsured, and the parent must itself be a life reinsurer.) An LPS has the authority to issue debt securities and access financial markets and alternative sources of capital through securitizations and other like transactions. An LPS is required to maintain a certain level of unimpaired paid-in capital and surplus determined by state law and comply with risk-based capital requirements. An LPS is permitted to purchase reinsurance to cede the reinsurance risks that it has assumed if given permission by the state regulatory body.

For more detail on the Iowa LPS regulations that became effective on 22 December 2010, please see our prior article, “Iowa Limited Purpose Subsidiary Life Insurance Companies” from our December 2010 bulletin.