Assumption Reinsurance

  • Life and health insurers have greater opportunity to transfer a set of policies from one company to another, using a transaction known as “assumption reinsurance” (a confusing term for what amounts to the sale of a block of policies with the “consent”—sometimes constructive—of each policyholder).105

2021 - LR - Uncertainty > Risk: Lessons for Legal Thought from the Insurance Runoff Market, Tom Baker - 51p

  • [Both Dates PDF-629p-GooglePlay, 0428-No Video / 0505-VIDEO-CSPAN- Insurance Policy Transfers]
  • 1997 - SOA - An Alternative to Assumption Reinsurance - 27p
  • NAIC - Assumption Reinsurance Model Act - 830 - 8p
  • 2008 0721 - NYSID - RE: Assumption Reinsurance/Novation - OGC Op. No. 08-07-15 - The Office of General Counsel issued the following opinion on July 21, 2008, representing the position of the New York State Insurance Department. 
  • 2016 08 - OSFI - Office of the Superintendent of Financial Institutions (Canada) - [link]

(p287) - Senator Howard Metzenbaum: 

Assumption reinsurance is a misnomer; it is an incorrect description.

  • You are not being reinsured.
  • Your policy has been transferred to another company without your consent.

Your original company has turned you into a commodity to be sold to another company without your consent.

  • The new company, the one that you might not know you are with, may have a lower credit rating, may not be licensed to engage in the business of insurance in your State, and may not even have your policy records.
  • It might even be teetering on the brink of insolvency.
  • It could be that you have never even heard of your new company before.

(p288) - Senator Howard Metzenbaum: 

In some cases, the transfer is not only to an unrated or lower rated company, but to one that soon becomes insolvent, such as Mutual Security Life of Indiana.

In mid- 1988, Mutual Security Life was in financial trouble.

To make matters worse, a lot of Mutual Security Life's annuities were about to mature and there wasn't enough cash to pay them off.

  • How to get the cash? --  Enter assumption reinsurance.

Mutual Security bought 92,000 policies from Capitol Life of Colorado in an assumption reinsurance transaction.

  • The 92,000 policy holders had paid an accumulated $136 million in premiums to Capitol Life.
  • That money transferred with the policies when they went to Mutual Security in Indiana.

But I said Mutual Security was in financial trouble, so how could it pay for the policies?

  • Mutual Security just gave back to Capitol Life $35 million of the $136 million Capitol Life had given to Mutual Security.

What happened to the 92,000 policyholders?

  • Most had purchased their policies when Capitol Life was rated A or better.
  • They were transferred to Mutual Security Life, a C+ rated insurer teetering in insolvency.
  • Neither Capitol Life nor Mutual Security asked the policyholders what they thought.
  • The deal was done and the money gone months before the policyholders were notified .

The Colorado and Indiana insurance departments let the transfer occur without the policyholders' consent.

  • Then, in 1990, Mutual Security was declared insolvent, leaving the 92,000 policyholders in limbo. 

(p392-393) - Senator Orrin Hatch (R-UT) - ....again I come back to my original statement.

  • Why is State contract law an insufficient remedy?
  • The answer to that, in my opinion, is it is a sufficient remedy.

[Both Dates PDF-629p-GooglePlay, 0428-No Video / 0505-VIDEO-CSPAN- Insurance Policy Transfers]