Reinsurance Focus

Following are selected Federal and/or State legislative and regulatory developments in the areas of reinsurance, captive insurance, and catastrophe funds:

Federal Reinsurance: H.R. 4944, Siding with America’s Patients Act was referred on April 30, 2010 to the Subcommittee on Health, Employment, Labor, and Pensions. The proposed bill, as it relates to reinsurance, amends the Internal Revenue Code to allow a tax credit for qualified health insurance costs to residents of a State that implements a high-risk pool, a reinsurance pool, or other risk-adjustment mechanism.

State Reinsurance: New Jersey A2670, the Reinsurance and Surplus Lines Stimulus and Enhancement Act, was introduced on May 13, 2010. The proposed bill provides incentives for surplus lines insurers and reinsurers that are financially sound to do business in New Jersey. It establishes a process, under the oversight of the Commissioner of Banking and Insurance, for a domestic insurer with policyholder surplus in excess of $15 million to be designated as a domestic surplus lines insurer. Under this designation, a domestic surplus lines insurer could only insure New Jersey risks procured from a surplus lines producer in accordance with the provisions of the surplus lines law. A domestic surplus lines insurer could not issue policies of private passenger automobile insurance, workers’ compensation or workers’ occupational disease insurance. Additionally, the proposed bill permits the Commissioner in his discretion to allow credit for reinsurance if the reinsurance is ceded to an assuming insurer that holds surplus or the equivalent in excess of $250 million. In determining whether credit should be allowed, the Commissioner shall consider certain requirements enumerated in the proposed bill, which largely relate to the adequacy of the regulatory authority in the insurer’s domiciliary jurisdiction. An identical bill, S2010, was introduced in the New Jersey Senate.

The Office of General Counsel of the New York Insurance Department on March 5, 2010 issued Opinion 10-03-02, which addressed two questions on the prior approval of reinsurance agreements. The first question addressed was whether “insurance in force,” as those words are used in New York Insurance Law § 1308(e)(1)(A), mean all of the in-force policies issued by an insurer, or a sub-class thereof, such as in-force policies that are reinsured and cover risks located in New York. According to the Opinion, insurance in force means all of the in-force policies issued by an insurer, regardless of whether the policies are reinsured or cover risks located in New York. The second question, which was answered in the affirmative, addressed whether a property/casualty insurer should submit to the Superintendent of Insurance its proposed reinsurance agreement to reinsure all, or almost all, of its motor vehicle lessor/creditor gap insurance policies through an insurer that is not authorized to do business as an insurer in New York.

State Captive Insurance: On May 6, 2010, a bill (A2360) that seeks to create a captive insurance market in New Jersey was reported out of the Assembly Financial Institutions and Insurance Committee favorably with committee amendments. The proposed bill, as amended, permits a captive insurance company to be licensed by the New Jersey Department of Banking and Insurance to do business in the State in any of the lines of insurance in subtitle 3 of Title 17 of the Revised Statutes or Title 17B of the New Jersey Statutes, generally including contracts or policies of life insurance, health insurance, annuities, indemnity, property and casualty, fidelity, guaranty and title insurance, and reinsurance, provided the captive meets certain requirements relating to formation, capital and surplus, examination, local office presence, ability to meet policy obligations, payment of certain fees and taxes, and annual reporting. The proposed bill would regulate captive insurers, association captive insurers, sponsored captive insurers, and industrial insured captive insurers. Among other things, the proposed bill would create a Captive Insurance Regulation and Supervision Fund to provide the financial means for the Commissioner to administer the bill’s requirements. A companion bill, S168, was introduced in the New Jersey Senate.

Federal Catastrophe Funds: H.R. 2555, the Homeowners’ Defense Act of 2009, (mentioned in our June 9, 2009 posting) was ordered on April 27, 2010 to be reported to the House, as amended, with a favorable recommendation by a record vote of 39 yeas and 26 nays. The bill proposes to establish a program to provide Federal support for State-sponsored insurance programs to help homeowners prepare for and recover from the damages caused by natural catastrophes, to encourage mitigation and prevention for such catastrophes, to promote the use of private market capital as a means to insure against such catastrophes, to expedite the payment of claims and better assist in the financial recovery from such catastrophes.

This post written by Karen Benson.