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14 September 2014 | The Self-Insurer © Self-Insurers’ Publishing Corp. All rights reserved.
by Dick Goff
ART GALLERYNAIC Proposal Threatens ART Industry
When SIIA member Kevin Doherty volunteered to represent the organization at meetings of the National Association of Insurance Commissioners (NAIC) he had no idea that it would prompt the ironic proverb that no
good deed goes unpunished.
Kevin, a partner in the Nashville law firm Nelson Mullins, who has long
served SIIA in ART leadership roles, has found himself embroiled in a major
controversy as the NAIC moves to require some captives to observe the
same regulatory reporting requirements as traditional insurance companies.
In this case I’m a “glass half-empty” kind of guy believing that the current
NAIC incursion is just the camel’s nose poking under the tent flap, and that
soon would follow broader transparency applications to more – perhaps all
– of ART. The end result could be the wipeout of all the U.S. ART world.
“In essence, the NAIC is proposing a redefinition of multi-state
reinsurance that would make captives subject to multi-state accreditation
standards and treat them like traditional insurers,” Kevin says. “This is
unnecessary because captives only conduct direct business in their state of
domicile, and it would defeat the purpose of being a captive.”
Being under no obligation for diplomacy, I can point out that the NAIC
going back at least ten years has had ART in its cross hairs, first in the case
of risk retention groups, then trying (unsuccessfully) to regulate stop-
loss insurance, and now attempting nationwide state regulation of large
reinsurance contracts such as those used by life insurance companies. Next
they could broaden their focus to all of ART, and would the last captive
manager leaving for Bermuda please
turn out the lights?
Kevin Doherty has endured the
reinsurance definition controversy while
the NAIC has come under a barrage of
attacks from the captive industry during
the first half of this year. “I can report
that attending NAIC meetings is no
fun,” he says.
“There is suspicion about captives
among some NAIC committees and
working groups,” Kevin says. “When
industry representatives attend
meetings there, we just watch the
deliberations and may or may not be
allowed to speak.”
Kevin says it’s unfortunate that
NAIC meetings aren’t more collegial.
“These issues aren’t easy to understand,
and it would benefit the commissioners
and their staffs to learn more about
them from people in the industry,” he
says. “Regulators from states with active
captive markets understand this, but it
is not true across the board,” he added.
“It’s unfortunate because it could
send more people in the direction
of wanting a strong federal insurance
regulatory framework rather than
the inconsistent patchwork of 50
regulators. But that’s not a perfect idea,
either,” Kevin adds.
But even during a period of
controversy Kevin has noted some
improvement in support of ART
among the commissioners. “As more
states become serious about operating
captives and the ART industry becomes
a larger part of risk management, I have
sensed some softening of attitudes at
the NAIC,” he says.
© Self-Insurers’ Publishing Corp. All rights reserved. The Self-Insurer | September 2014 15
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16 September 2014 | The Self-Insurer © Self-Insurers’ Publishing Corp. All rights reserved.
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Your risk is as unique as your business. After all, medical risk is constantly in flux. Markets change and so do opportunities. Over the past twenty years, we have grown and evolved across multiple lines of business and geographies. This means that while we possess the expertise, scope and scale to protect against a wide array of risks, we continue to focus on only one. Yours. To see how our experience and insight can work for you, visit: www.partnerre.com/risk-solutions/health
Your risk is a unique combination of factors. Shouldn’t your solution be too?
Underwritten by PartnerRe America Insurance Company Executive Office: 199 Fremont St., San Francisco, CA 94105Form H0214 03/2014
Pre_Health_Ad_8.5x11_RELEASE.indd 1 4/24/14 4:54 PM
Your risk is as unique as your business. After all, medical risk is constantly in flux. Markets change and so do opportunities. Over the past twenty years, we have grown and evolved across multiple lines of business and geographies. This means that while we possess the expertise, scope and scale to protect against a wide array of risks, we continue to focus on only one. Yours. To see how our experience and insight can work for you, visit: www.partnerre.com/risk-solutions/health
Your risk is a unique combination of factors. Shouldn’t your solution be too?
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© Self-Insurers’ Publishing Corp. All rights reserved. The Self-Insurer | September 2014 17
Now, with more than half of the
states having captive-enabling laws in
force, I believe the future could go
either way for captives. But as long as
the NAIC employs blackmail tactics of
captive-stifling regulations in order for
states to receive its accreditation, the
future is indeed in jeopardy.
Just last month Fitch Ratings called
for the NAIC to clarify whether all
captives should be liable under its
proposed accreditation standards. In
reports by Captive Review and Captive
Insurance Times, the firm asked the NAIC
whether new reporting requirements
would subject corporate captive
insurers to full accreditation standards,
a condition which would materially
increase costs for those captives.
One report indicated that
oppressive reporting requirements
for captives would lead to more of
them being moved offshore, a trend
which could have the unintended
consequences of weakening, rather
than strengthening, captive regulation
and disclosure.
The Captive Insurance Companies
Association and insurance
commissioners of both New York
and Delaware have gone on record
opposing NAIC proposals regarding
captives. Delaware Insurance
Commissioner Karen Weldin Stewart
reportedly called on the state’s
captive industry to rally against the
NAIC proposals.
Kevin Doherty views advocacy
for the ART industry as a long-term
process requiring constant vigilance.
“Often when the NAIC encounters
strong pushback from the industry
it will modify its positions,” he says.
“But this requires a lot of hard
work. You have to show up at every
opportunity and be ready to express
cogent opinions however that can be
done. Often individual contact with
state regulators and their staffs can
have a positive affect when those
same people participate in the NAIC
legislative process.”
I won’t even bother pointing
out that the NAIC is a self-styled
legislature without any constitutional
rights of regulation or law-making. It
has occurred to me that the NAIC
as a whole attempts to regulate ART
because it doesn’t trust individual state
insurance commissioners with the job.
This column may prompt more
questions, so next month we’ll
specifically examine the NAIC proposal
and provide fuel for rebuttal. n
Readers who wish to comment on this
column or write their own article are
invited to contact Editor Gretchen Grote
at [email protected]. Dick Goff is
managing member of The Taft Companies
LLC, a captive insurance management
firm at [email protected].
Your risk is as unique as your business. After all, medical risk is constantly in flux. Markets change and so do opportunities. Over the past twenty years, we have grown and evolved across multiple lines of business and geographies. This means that while we possess the expertise, scope and scale to protect against a wide array of risks, we continue to focus on only one. Yours. To see how our experience and insight can work for you, visit: www.partnerre.com/risk-solutions/health
Your risk is a unique combination of factors. Shouldn’t your solution be too?
Underwritten by PartnerRe America Insurance Company Executive Office: 199 Fremont St., San Francisco, CA 94105Form H0214 03/2014
Pre_Health_Ad_8.5x11_RELEASE.indd 1 4/24/14 4:54 PM