Contract Certainty
On October 16th, 2008, NY Superintendent Eric Dinallo released a circular letter calling for all property/casualty insurance policies and all reinsurance contracts be finalized within thirty days of their inception. Licensees are called to strive for contract certainty in at least ninety percent of policies.
RIMS is supportive of Superintendent Dinallo's efforts. RIMS believes that contract certainty is an issue at the heart of customer service deficiencies on the part of brokers and insurers. RIMS looks forward to working with regulators and industry groups in coming to a consensus on this issue so that similar regulations can be taken up in other states. The National Association of Insurance Commissioners has agreed to make this issue a topic of discussion in 2009.
RIMS press release endorsing Superintendent Dinallo's circular letter can be found here.
NAIC Reinsurance Collateral Proposal
On December 7, 2008, the National Association of Insurance Commissioners fully adopted its Reinsurance Regulatory Modernization Framework proposal. Key elements of this proposal include:
- Establishment in the NAIC of a Reinsurance Supervision Review Department (RSRD)
- The RSRD's functions would include determination of jurisdictions eligible to be recognized as "port of entry" states.
- U.S. supervising jurisdictions for a national reinsurer or POE reinsurer would assign the reinsurer a rating which would then determine the collateral requirements on a sliding scale.
- Within two years after the first full year of operation of the new collateral requirements, the RSRD is required to reexamine the collateral requirements.
Both New York and Florida, who had proposed their own regulations, have agreed to adopt the NAIC language. The NAIC is now looking to the federal government to grant them authority to move forward with this proposal.
RIMS is hopeful that this modified regulatory framework, when fully implemented, will result in additional capacity and the equitable and efficient regulation of the reinsurance industry in a manner that meets the needs of commercial policyholders. RIMS press release on this issue can be found here.
Excise Tax on Foreign Captives Regulation
The Internal Revenue Service proposed a regulation affecting the taxation of single parent captive insurance companies and certain foreign captives electing to be taxed as a domestic and whose parent files a consolidated return. The proposed regulation deferred the tax deduction for an incurred loss arising from related party business until it is actually paid, which meant there would be no deduction for discounted loss reserves as is currently available. This regulation would have affected domestic captives which are a part of the same consolidated tax return group as the premium payer. Foreign captives, group captives, risk retention groups, and captives writing 95% of unrelated business would generally have not been affected by this proposed regulation. New and existing captives would have been affected equally as the regulation would apply to all transactions entered into in tax years beginning on or after the regulation was published in its final form.
RIMS filed a letter with the IRS in opposition to this proposal on December 27, 2007 and also requested a public hearing on the issue. The IRS decided to pull this proposal on February 20, 2008, before the public hearing was held.