Oct 16 (The following statement was released by the rating agency)
A lack of consensus among state regulators on captive insurance companies and reserves is
creating an uncertain environment for the U.S. life insurance industry, which could ultimately
adversely affect insurer ratings, according to a new Fitch Ratings' report.
The New York State Department of Financial Services (NYSDFS) published very
critical commentary alleging weakness in regulation exhibited by other states,
and in the oversight provided by the National Association of Insurance
Commissioners (NAIC). The department's focus was on captive arrangements
described as 'shadow insurance', Actuarial Guideline 38 (AG38) and
principles-based reserving (PBR).
The NYSDFS concludes that New York insurers have engaged in $48 billion of
so-called shadow insurance transactions, and that the related reserve transfers
'artificially' inflate capital. In addition, the NYSDFS asserts that certain
other states may be 'racing to the bottom' in governing such transactions, while
concurrently making information on their captives unavailable to other state
regulators, such as New York.
Other state regulators declined to implement a moratorium on captives, and some
criticized NYSDFS's allegations, adding that New York breached certain
regulatory protocols in making its statements. There has also been push back on
the issue of PBR.
Fitch's report provides an analysis of the conflicting regulatory treatments of
these issues. As a matter of transparency, Fitch believes that insurers should
be required to publicly disclose key information in a systematic and consistent
basis, and accelerate efforts already underway.
The full report 'New York Insurance Regulatory Criticisms' is available at