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

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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 ggrote@sipconline.net. Dick Goff is

managing member of The Taft Companies

LLC, a captive insurance management

firm at dick@taftcos.com.

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