Reinsurance Focus

A court in the United Kingdom has approved the transfer of the entire long-term insurance business of Prudential Annuities Limited (PAL) to The Prudential Assurance Company Limited (PAC). The transfer’s purpose was to simplify the corporate structure of Prudential UK’s business, improve the flexibility and efficiency of capital management, and facilitate Prudential’s response to regulatory developments. The transfer affected approximately 134,000 contracts of long-term insurance business, all non-profit pension policies, and approximately 90,000 policyholders. Regulators did not object to the transfer and an independent expert and three actuaries all supported it.

PAL was already an asset of the PAC fund to which its business was transferred and, since 2012, the vast majority of PAL’s business had been reinsured by that fund. The court found that the reinsurance arrangements for the transfer significantly restricted the ability of the PAC fund to “walk away” from PAL and agreed with the independent expert that there would be no adverse change to either PAL or PAC policyholders from the transfer. Finding that all requirements of the Financial Services and Markets Act 2000 had been met, the court sanctioned the transfer of business. In the Matter of Prudential Annuities Ltd., [2014] EWHC 4770 (Ch.) (High Courts of Justice (Chancery Division) Cos. Ct.) Nov. 13, 2014).

This post written by Renee Schimkat.

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The Connecticut Insurance Department has issued two Bulletins revising certain financial reporting requirements for certain insurers.  Bulletin FS-4AR-14 (November 25, 2014) revises the annual financial filing requirements for accredited reinsurers, requiring the submission of an annual statement that complies with the NAIC’s Annual Statement Instruction Manual, an actuarial opinion and management discussion and analysis, a copy of the reinsurer’s annual independent audit report as of December 31, 2014 and a list of insurers domiciled in Connecticut ceding business to the accredited reinsurer as of December 31, 2014.  Bulletin FS-4C-14 (November 24, 2014) requires that all captive insurance companies domiciled in or, in the case of a branch captive insurance company, licensed in Connecticut, file annual financial statements verified under oath by two executive officers.  The annual financial statements must be certified by an independent public accountant and must include certain actuarial certifications.

This post written by Rollie Goss.

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The Council and Mayor of the District of Columbia have approved enacting amendments to the Captive Insurance Company Act of 2004 to, in part, strike references to segregated accounts; clarify certain statutory requirements for protected cell captive insurers and protected cells; confirm the confidentiality of capital insurers’ license application materials and clarify when they may be shared; and permit the Commissioner of the Department of Insurance, Securities and Banking to extend or waive the requirement to conduct a financial examination of captive insurers every 5 years upon the satisfaction of specified criteria. The amendments will take effect following a 30-day period of congressional review and will be cited as the “Captive Insurance Company Amendment Act of 2014.” D.C. Act 20-497 (Dec. 8, 2014).

This post written by Renee Schimkat.

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At its December 11, 2014 meeting, the National Association of Insurance Commissioners (NAIC) approved seven foreign countries as Qualified Jurisdictions so that reinsurers licensed and domiciled in those jurisdictions will be eligible for reinsurance collateral reduction requirements under NAIC’s Credit for Reinsurance Model Law. Four of those jurisdictions – Bermuda, Germany, Switzerland, and the United Kingdom, were previously on NAIC’s list of Conditional Qualified Jurisdictions. Effective January 1, 2015, these four, along with Japan, Ireland and France, will be full Qualified Jurisdictions subject to a 5-year term, after which they will be re-evaluated under the provisions of the Qualified Jurisdiction Process.

NAIC also adopted the Revised Insurance Holding System Regulatory Act and Actuarial Guideline 48. The Act, in part, updates the model to clarify the group-wide supervisor for a defined class of internationally active insurance groups. AG 48 establishes national standards regarding certain captive reinsurance transactions and includes regulation of the types of assets held in a backing insurer’s statutory reserve. AG 48 takes effect in 2015. NAIC issued a news release on its actions, which can be found here.

This post written by Renee Schimkat.

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In 2003 and 2004, the Internal Revenue Service disallowed deductions taken by SHI Group, a subsidiary of the Swedish company Securitas AB, for insurance expenses related to a captive insurance arrangement established by Securitas AB. SHI Group, which maintained an office in California, petitioned the disallowance of these deductions in the United States Tax Court. The Internal Revenue Code permits deductions for insurance premiums as business expenses. Although the insurance premiums may be deductible, amounts placed in reserve as self-insurance are not and can only be deducted at the time the loss for which the reserve was established is actually incurred. While neither the Code nor the regulations define insurance, courts have looked primarily to four critieria in deciding whether an arrangement constitutes insurance for income tax purposes: (1) the arrangement must involve insurable risks; (2) the arrangement must shift the risk of loss to the insurer; (3) the insurer must distribute the risk of loss to the insurer; and (4) the arrangement must be insurance in the commonly accepted sense. Based on the complicated facts before it, the Tax Court determined that the captive arrangement at issue constituted insurance, allowing deductions for the related expenses. Securitas Holding, Inc. v. Commissioner, No. 21206-10, T.C. Memo 2014-225 (U.S.T.C. Oct. 29, 2014).

This post written by Leonor Lagomasino.

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On September 16, 2014, Assembly Bill No. 2734 (“AB 2734”) was signed into law. AB 2734 authorizes trusteed surplus to be reduced to not less than 30% of the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers covered by the trust if the Insurance Commissioner expressly finds that appropriate circumstances justify a lower level of minimum required trusteed surplus. AB 2734 also reduces the period during which the Insurance Commissioner is prohibited from taking final action on an application for certification as a reinsurer from 90 days to 30 days after posting the required notice concerning receipt of the certification application.

This post written by Kelly A. Cruz-Brown.

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In July of this year, the State Corporation Commission of the Commonwealth of Virginia issued an Order declaring Southern Title Insurance Company insolvent and ordering its liquidation. Among other things, the Order authorized the receiver to use approximately $10 million of its assets “to enter into contracts of reinsurance to pay all policyholder claims.” The Order also set a Claims Filing Deadline and established other procedures and guidelines for the liquidation. Commonwealth ex rel. State Corp. Comm’n v. Southern Title Ins. Co., No. INS-2011-00239 (Va. State Corp. Comm’n July 28, 2014).

This post written by Catherine Acree.

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On September 4, 2014, the receivership court for the Reliance Insurance Company (“Reliance’) estate (the “Reliance Estate”) approved a settlement agreement allowing the Liquidator to terminate and commute the obligations between Odyssey and Reliance under the reinsurance agreements. The receivership court accepted the liquidator’s representations that the settlement agreement is a fair and reasonable settlement of Odyssey’s obligations to the Reliance estate under the reinsurance agreements and that the payment contemplated under the settlement constituted fair and reasonable value to the Reliance Estate. The Reliance estate will receive an economic benefit amounting to $6,450,000. In re Liquidation of Reliance Insurance Company, Docket No. 1 REL 2011 (Pa. Comm. Ct. Oct. 8, 2014)

This post written by Kelly A. Cruz-Brown.

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The Ohio Department of Insurance requires that Ohio domestic insurance companies taking credit for ceded insurance on their financial statements to comply with certain statutory conditions, including requiring that the assuming reinsurer must be authorized in Ohio as of the date of the financial statement. Additionally, domestic insurers may take credit for reinsurance ceded to certain unauthorized reinsurers that meet the US reinsurance trust requirements under certain Ohio statutory requirements.

This post written by Leonor Lagomasino.

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Effective September 2, 2014, Insurance Regulation 59 entitled “Credit for Reinsurance” is amended to update the regulation to the current version of the National Association of Insurance Commissioners (NAIC) Model Regulation and to make changes necessitated by amendment of Rhode Island’s Credit for Reinsurance Act, R.I. Gen Laws § 27-1.1-1 et seq.

The amendments to Insurance Regulation 59 also include the adoption of Forms CR-1, entitled “Certificate of Certified Reinsurer,” CR-F parts 1 and 2 entitled “Assumed Reinsurance as of December 31, Current Year” and “Ceded Reinsurance as of December 31, Current Year,” and CR-S entitled “Reinsurance Assumed Life Insurance, Annuities, Deposit Funds and Other Liabilities Without Life or Disability Contingencies, and Related Benefits Listed by Reinsured Company as of December 31, Current Year.”

This post written by Kelly A. Cruz-Brown.

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