Insurance Business Transfer Model Bill Takes Center Stage at NCOIL

The National Conference of Insurance Legislators (NCOIL) met in Nashville last week and spent a good bit of time talking about the very hot topic Insurance Business Transfers (IBT). For many, this was the main event from the meeting. Some have regarded the NAIC as slow to act on corporate division and IBT legislation; its Restructuring Mechanisms Working Group, designed to address these issues, only recently held its first call. So NCOIL is looking to fill the vacuum by considering a Model IBT Law based on the Oklahoma IBT statute passed in 2018.  Here are highlights from the NCOIL discussion:

  • Beth Dwyer (RI) provided background on corporate division and IBT statutes passed to date and an overview of the NAIC Restructuring Mechanisms Working Group’s charges. She explained that working group will develop a white paper that will provide an overview of IBT/corporate division statutes and an explanation of the perceived need for these statutes. She noted that the working group is looking at consumer protections and that a subgroup has been developed to look at the financial standards used in reviewing these transactions. She explained that guaranty fund/association issues are relevant where the statute involves personal lines.
  • Buddy Combs (OK), who was instrumental in passing the Oklahoma IBT statute, provided an update on a current bill designed to help implement the IBT statute. Among other things, the bill (SB 885) tries to address two issues that have come up as Oklahoma thinks about implementing its statute – confidentiality and guaranty fund application. Combs noted that Oklahoma is not rushing to pass this bill and wants to make sure they get it right.
  • Robert Redpath (Enstar) gave a presentation on the benefits of IBT statutes – using UK Part VII transfers as an example of a transfer framework with effective process and established history of success. He noted that this allows companies to efficiently use capital and divest non-core business and redeploy capital.  He advocated for a model to ensure consistency between states and avoid potential disputes over conflict with other state’s laws.
  • Doug Wheeler (NY Life) argued that several companies are concerned about these laws because many lack necessary regulatory controls. He explained that this is an extraordinary process and suggested that the framework fundamentally changes the insurance promise without policyholder consent. He argued that division statutes have the potential to create a good company/bad company situation, which may increase the likelihood of insolvencies. He also noted that mono-line companies with long-tail business can create insolvency risks. He urged careful consideration of the proposed models, noting that additional insolvencies could erode trust in the state system. Finally, he encouraged NCOIL to reach out to Peter Gallanis from NOLHGA to get the benefit of his expertise in this area.  Here is the link to his presentation.
  • Karen Melchert (ACLI) noted that the ACLI is still developing its guidelines on these issues, and the core of the conversations to date center on policyholder protections, including the need for proper notice and process and ensuring appropriate guaranty association/fund coverage.
  • During the Q&A portion of the panel, NCOIL members had questions about how the independence of the independent experts is determined. The legislators and panelists agreed that any division or IBT involving long-term care (LTC) business should be carefully considered. Combs agreed and noted that not all lines of business will be treated the same under the Oklahoma; he explained that Oklahoma regulators are concerned about LTC failures and implied that any IBT transfer involving LTC business would be given heightened scrutiny.
  • Finally, a representative from the Reinsurance Association of America explained that the lack of policyholder consent in these laws may result in conflict with laws in other states that require policyholder consent when a policy is novated.
  • The Committee plans to continue discussion on this model at the Summer National Meeting in July.

NCIGF is paying close attention to all activity related to the IBT debate. I will be giving a brief presentation at the upcoming NAIC meeting on the potential impact of IBT on policyholder protection. We will update you on that in due course.