A sign that US insurance regulation needs to change September 16, 2013 at 7:30 am
The captive reinsurer problem is kicking up, thanks mostly to Benjamin Lawsky, NY state insurance commissioner. Lawsky is withdrawing from the new National framework on captives, saying that it did not work and was, in fact, making the “gamesmanship and abuses” in the industry even worse.
Now, I haven’t studied this issue in detail, but Metlife’s comment that captives are a
“cost-effective way of addressing overly conservative reserving requirements… Alternative means of financing such reserves have drawbacks. Using equity could reduce returns to levels below those required by investors”
does not read well. When a regulated firm is focussed on ‘the returns required by investors’ rather than a safe level of capital for its risks, one might reasonably infer the wrong attitude to capitalisation. If nothing else, Lawsky’s crusade against shadow insurance should provide good spectator sport.