31 March 2014Analysis

Delaware signals objections to Rector Report

Delaware’s Captive Insurance Association has voiced its opposition to the NAIC’s Rector Proposal, which intends to limit the flexibility of assets used to support insurance reserves and may impact the value proposition of life reinsurance captives.

Under the Rector Report’s guidelines changes will not affect reserve levels as set out by the NAIC’s Standard Valuation Law, but will address “the types of assets permitted to support those reserves”

“For example, whether the reserves must be completely supported by assets that are traditionally allowed under insurance statutory accounting or whether, instead, other assets may be used to support a portion of the reserves (and, if so, the extent to which such other assets may be used).”

“Regardless of what assets are allowed to support the reserves, however, the full statutory policy reserve must be established and must be supported in full by assets of one type or other.”

Reinsurance captives are coming under scrutiny as a result.

The report states that these requirements are not meant to be viewed as an attack on the captive sector, but it is apparent from elements of the report that it favours direct insurance, rather than the use of captive reinsurance.

Delaware Insurance Commissioner, Karen Weldin Stewart warned that should the measures be implemented, they would increase life insurance premiums by as much as 40 percent.  “The result will be more costly and less affordable insurance”, said Weldin Stewart.

The Delaware Captive Insurance Association (DCIA) argues that the “existing credit for reinsurance model works well”, adding that the report’s suggestion that a new credit for reinsurance model be introduced would only create a “layer of unnecessary regulation”.

The DCIA also criticised the report for its lack of public debate on the issue and its focus on resolving a “problem” without considering the outcomes.

For details of the report click here.