29 September 2014Law & regulation

FIO: keeping an eye on captives

The US Treasury’s Federal Insurance Office (FIO) is set to continue monitoring the issue of captive life reinsurance.

This is according to the FIO’s second annual report which discusses developments in the insurance industry.

In December 2013, the FIO released a modernisation report and recommended that states “develop a uniform and transparent solvency regime for the transfer of risk to reinsurance captives.”

The FIO said the recommendation is addressed particularly to the practice by some commercial US life insurers of transferring insurance risk to captive life reinsurance companies as a means of addressing certain regulatory reserve requirements for some life insurance and annuity products.

In 2011-12, state regulators began to address the issue. The FIO said that a proposal developed by a National Association of Insurance Commissioners (NAIC) consultant received a range of replies from state insurance regulators in the first quarter of 2014.

A revised proposal was released in June 2014 and the NAIC received additional comment from regulators and other stakeholders. The second annual report added that the NYDFS characterised the June proposal as a step backward which, if adopted, would leave unresolved a “gaping regulatory problem that is… central to the protection of policyholders.”

The FIO will continue to monitor and report on the regulatory treatment of this issue.