CICA criticises NAIC report into captive regulation
The Captive Insurance Companies Association (CICA) has this week criticised the findings of a white paper published by the National Association of Insurance Commissioners (NAIC) that examined the use and regulation of captives and special purpose vehicles by insurers and which recommended regulatory change.
The report, entitled Captives and Special Purpose Vehicle Use, expressed concerns about the lack of consistent requirements in the use of captives used by insurers especially in respect of financial reporting and capital requirements. The thrust of a number of specific recommendations was that such vehicles should be subject to standardised regulation potentially following international models and standards. But Dennis Harwick, the president of the CICA, was scathing about both the scope of white paper and its conclusions. “It draws several conclusions for which there are little support in the White Paper,” he stated in the letter.
He questioned the white paper’s suggestion that a recent increase in the number of captive insurers being formed can be attributed to “an intention to finance perceived redundant reserves without actually transferring the risk”. Harwick stated: “Captives are formed…for a wide variety of reasons. Financing perceived redundant reserves is just one reason among many and constitutes a relatively small portion of all captive formations.”
The paper also suggests that captives should be subject to a similar regulatory framework as commercial insurers. Harwick points out that the CICA supports the state-based regulatory system in the US, many of which have specific laws for captives, and says: “Without further detailed examination, it seems premature for the Subgroup to draw the conclusion that regulators should generally follow international standards.”
Finally, Harwick takes issue with the NAIC’s proposition that a database of captive insurers be made, maintaining that such a database would prove to be unnecessary.
You can read Harwick’s full response letter here.