Bur Bureau of eau of Ca Captiv ptive and e and Financial Financial Insur Insurance Pr ance Products oducts Delaware Captive Insurance Association Fall Forum October 28, 2014 Steve Kinion, Director of Captive Bureau of Captive and Financial Insurance Products DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART Bureau of Captive and Financial Insurance Products 1 Delaware is the 3 rd Largest U.S. Captive Domicile and the World’s 6 th Largest Captive Domicile
Outline of Outline of Presen Presentation tation - • Changes since last DCIA fall forum and upcoming changes. • Domicile numbers update. • Regulatory guidance for applications and business plan changes. • Pools and other regulatory issues. • Federal Housing Finance Agency proposed rule for captives • Q &A. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 2 Bureau of Captive and Financial Insurance Products
Chang Changes es Sinc Since e Las Last t DCIA DCIA Forum in Forum in May 2014 May 2014 • Last forum we introduced three new analysts: Sean Brown, Willie Marshall, and Sam Marzar. • We are now interviewing for one additional analyst. • Addition of Mark Murowany to focus on “in Delaware.” • Moved RRGs to BERG. • SBUs now pay the $3,200 application fee. Effective September 1. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 3 Bureau of Captive and Financial Insurance Products
Upc Upcoming Regula oming Regulatory tory Changes Changes • New annual statement forms and instructions on website no later than November 15. • Balance sheet and income statements are the same, but we are asking for other assets explanation and explanation and listing of all coverages. • Instructions for filing actuarial opinions. NAIC format for opinions. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 4 Bureau of Captive and Financial Insurance Products
Size of the Delaware’s Captive Insurance Captive Insurance Market Market Prem Pr emium ium Gr Growt owth • Delaware ranks as the third largest U.S. captive domicile in terms of premium. • 2013 Captive Insurance Premium Ranking 1. Vermont had $25.5 billion of premium 2. Arizona had $12.4 billion of premium 3. Delaware had $6.6 billion of premium • For comparison, in 2012 Delaware’s captive premium was $2.4 billion and it was ranked 7 th in the U.S. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 5 Bureau of Captive and Financial Insurance Products
Captiv Ca ptive Number e Numbers s A A Comp Compar arison ison fr from F om For orum um to to For orum um • As of November 7, 2013 Delaware had licensed 237 captive insurers, 13 protected cells, and 413 series business units. • As of October 27, 2014 Delaware had licensed 319 captive insurers, 13 protected cells, and 641 series business units. • As of November 7, 2013 there were 215 active captives, 12 active protected cells, and 392 active series business units. • As of October 27, 2014 there are 285 active captives, 12 active protected cells, and 558 active series business units. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 6 Bureau of Captive and Financial Insurance Products
Regula Regulatory G tory Guideline uidelines • Maximum premium to surplus ratios. For series captives the maximum is 3:1 while other forms of captives can be as high as 5:1 if actuarially feasible. • After the initial five years pro forma, then submit a three year expected scenario every three years. • Investment plans. Pure captives are unlimited per the law. All series investment plans will be reviewed. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 7 Bureau of Captive and Financial Insurance Products
Regula Regulatory G tory Guideline uidelines • Maximum premium to surplus ratios. For series captives the maximum is 3:1 while other forms of captives can be as high as 5:1 if actuarially feasible. • List of restricted lines of business for series captives. No third party coverage and no pollution. • Series captives formed as association captives will be regulated like association captives. • May I convert a series to a pure or other form of captive? Yes. There will be no regulatory fees assessed for such a conversion. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 8 Bureau of Captive and Financial Insurance Products
Applica Application Pro tion Proces cess • Year end 2014 applications – what is the cut-off date and time? Answer: December 31, 2014 at 11:59:59 P.M. EST. • Money and genuine signature portion of biographical affidavits must be received no later than 5:00 P.M. EST on January 12, 2015. • The Captive Bureau only needs hard copies with pen and ink signature of the application and first page of biographical affidavits. The remainder of the application is filed electronically. • File electronically at captive@state.de.us DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 9 Bureau of Captive and Financial Insurance Products
Applica Application Pro tion Proces cess • If changes must be made to the application, then all changed documents must be dated with the new date clearly noted on the document. • Policies need to state the risk being covered and the conditions under which a claim occurs. • All policies must be submitted with the application. • Asking for a waiver of actuarial and audit reports for December 31 licensees? Please send this request separate from the application. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 10 Bureau of Captive and Financial Insurance Products
Applica Application Pro tion Proces cess • Send business plan and pro-forma in both pdf, word processing and spreadsheet, i.e. MS Word and Excel, formats. • Only completed applications will be reviewed. • Be patient. On January 1, 2013 the Captive Bureau had 114 applications ready for processing and on January 1, 2014 the number exceeded 150. Reviewing applications takes time. • Submitting an application is not a guarantee of approval. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 11 Bureau of Captive and Financial Insurance Products
Busines Business Plan s Plan Changes Changes • What level of materiality requires prior regulatory approval? Answer: If the change is such that it necessitate a business plan change, then it mandates prior regulatory approval. • What are examples of changes necessitating prior approval? Answer: New lines of coverage, ownership changes, and changes affecting 10% or more of the capital and surplus. Each time a business plan change is submitted, the Captive Bureau needs a NEW BUSINESS PLAN and a red line version submitted with the request. • If the business plan change impacts financial statements then new pro- forma financial statements for a five year period must be filed. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 12 Bureau of Captive and Financial Insurance Products •
Busines Business Plan s Plan Changes Changes • Effective as of January 1, 2014, business plan changes must be submitted in the following format: Redline showing changes. Simple addendums will no longer be accepted. In word processing format, i.e. MS Word, WordPerfect, etc. Spreadsheets in Excel, Quatro Pro, etc., format. • No dividend and loan requests nor coverage changes allowed for series captives during first-year of operations. Ownership changes are allowed. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 13 Bureau of Captive and Financial Insurance Products
Other Regulatory Issues Other Regulatory Issues • NAIC definition of Multi-State Insurer. • Some pools are domiciled in other jurisdictions. Developing better communications with other captive domiciles. • Captive Managers – greater oversight. Example is effort within NAIC to apply holding company requirements to managers of RRGs. • Controlled unaffiliated business – new NAIC inquiry. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 14 Bureau of Captive and Financial Insurance Products
Feder ederal al Hou Housing sing Financ Finance e Agenc Agency Pr y Proposed oposed Rule ule • Federal Housing Finance Agency is a regulator that regulates Government Sponsored Enterprises (GSE). • Fannie Mae • Freddie Mac • Federal Farm Credit Banks • Federal Home Loan Banks (FHLB) • Federal Home Loan Bank membership is limited to • Insurance companies • Banks • Credit Unions • Savings & Loan Associations DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 15 Bureau of Captive and Financial Insurance Products
Impact of Impact of FHF FHFA A Rule on ule on Ca Captiv ptive e Regula gulation tion • Proposal does not include captive insurers in the definition of “insurance company” to mean a company that has as its primary business the underwriting of insurance for nonaffiliated persons. • Proposal would exclude captive insurers from Federal Home Loan Bank membership. • Membership of existing captive insurers would be “sunset” over five years with defined limits on advances. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 16 Bureau of Captive and Financial Insurance Products
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