1 August 2014Law & regulation

Fitch: NAIC accreditation standards would hit captives

Fitch has stated that subjecting captives to full NAIC accreditation standards “could materially increase costs” and might lead to the disclosure of information sensitive to the parent’s competitive position.

Fitch said that such moves might encourage captives to move offshore, reversing recent successes achieved by the US captive industry in encouraging new formations to remain onshore.

The rating agency added that doing so could have the “unintended consequence of weakening, rather than strengthening, captive regulation and disclosure.”

Fitch believes that the NAIC’s regulatory proposals have been motivated by recent controversies regarding captive life reinsurers, particularly following attacks from the likes of Benjamin Lawsky, financial regulator at the New York Department of Financial Services.

The NAIC recently proposed new accreditation standards that would require certain captives to comply with the accounting and disclosure rules for traditional insurance companies. This addresses a core concern voiced by critics, which is lack of transparency and consistency in the regulation of captives.

Fitch however voiced concern that while aimed at life reinsurance captives the legislation, the wording might expose other forms of captives to additional and burdensome oversight.

Fitch has said that the NAIC needs to clarify its position as regards captives. While the rating agency “supports greater public disclosure”, public policy decisions “must weigh all perspectives, including the sponsor's or captive's desire to protect market-sensitive information”.