OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. views as positive the life insurance industry’s ongoing discussions related to increased regulatory scrutiny and transparency of captive reinsurers. In general, A.M. Best believes these transactions are reasonable mechanisms for companies to proactively address conservative statutory reserve requirements and achieve some capital and tax efficiency. As a result, A.M. Best adheres to specific analytical processes and rating factors that are relevant for life insurance organizations using captive reinsurers.
For more than a decade, A.M. Best has been monitoring how captive strategies have evolved and been used after the emergence of Regulation XXX (XXX) term life and Actuarial Guideline 38 (AG38 or AXXX) “redundant” reserve requirements. Writers of guaranteed level term or universal life policies with secondary guarantee have continued to resort to internal reinsurance, often through the use of domestic captives or offshore entities—typically in Bermuda—to support XXX and AG38 reserves.
It is important to note that A.M. Best receives proprietary, detailed financial information on all key reinsurance transactions undertaken by its population of rated companies. Captive reinsurance transactions are similar to commercial reinsurance transactions as they must meet the same regulatory requirements for the ceding company to receive credit for reinsurance. However, two regulators—one from the insurance company’s state of domicile and the other from the captive’s domiciliary state—review each captive transaction. Currently, more than 30 states are captive domiciles.
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