Captive Reinsurance

  • Shadow Insurance
  • 2016 0317 - OFR - Mind the Gaps: What Do New Disclosures Tell Us About Life Insurers' Use of Off-Balance-Sheet Captives?, by Jill Cetina, Arthur Fliegelman, Jonathan Glicoes, and Ruth Leung - 10p
  • (p41) - Use of captives has grown rapidly since 2000, when the National Association of Insurance Commissioners (NAIC) passed its Valuation of Life Insurance Policies Regulation.
    • The regulation, which most states have adopted, requires insurers to hold higher reserves on newly issued term and universal life insurance.
    • Reserves ceded through captive reinsurance grew from $11 billion in 2002 to $364 billion in 2012 and now have expanded to include risk-sharing on products such as annuities that are not covered by the regulation.

2014 - OFR - OFR Annual Report - 164p

  • October 2011, the NAIC Executive (EX) Committee charged the Financial Condition (E) Committee to: “Study insurers’ use of captives and special purpose vehicles to transfer third-party insurance risk in relation to existing state laws and regulations and establish appropriate regulatory requirements to address concerns identified in this study.
  • The appropriate regulatory requirements may involve modifications to existing NAIC model laws and/or generation of a new NAIC model law.”
  • 2021 06 - Brookings - Task Force on Financial Stability, Glenn Hubbard, Donald Kohn - 135p
    • Captive reinsurance, or “shadow insurance,” has also increased the opacity of the industry.
    • Shadow insurance developed in response to regulatory changes in 2000 and 2003 for term and universal life insurance, known as “Regulations XXX and AXXX.”**
    • These regulations tightened the regulatory capital requirements for these traditional products—for operating companies, which sell directly to consumers, but not for reinsurance companies.