Bur Bureau of eau of Ca Captiv ptive e and and Financial In Financial Insur surance ance Pr Products oducts Delaware Captive Insurance Association Fall Forum November 12, 2015 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
Out Outli line ne of P of Prese resenta ntation tion • Changes since last DCIA fall forum and upcoming changes. • Domicile numbers update. • Application process. • Reinsurance. • Investments generating qualified opinions. • Regulatory changes. • Business plan changes. • Q&A. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 2 Bureau of Captive and Financial Insurance Products
Than Thank k you you! • Thank you for bringing either your captives or the captives that you manage to Delaware. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 3 Bureau of Captive and Financial Insurance Products
Cha Chang nges es Si Sinc nce e La Last st DCIA DCIA Fo Forum rum in in Octo Octobe ber r 20 2014 14 • Codification of House Bill 15. See Captive Insurance Advisory Memorandum 2015-1. • Recognizes a series as a captive insurance company. • Amends section 330 to add liability protection to a person who communicates or delivers information to the Commissioner pursuant to an examination, investigation, or regulatory inquiry conducted by the Commissioner. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 4 Bureau of Captive and Financial Insurance Products
Licen Licenses ses Issued Issued as of No Novemb mber r 1, 2015 Variety of Captive Types Number Licensed Licenses Issued Captive Insurance Companies 1,167 Protected Cells 14 Active Captives/Licenses Captive Insurance Companies 989 Protected Cells 12 DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 5 Bureau of Captive and Financial Insurance Products
App Appli lica cation tion Proce Process ss • Year end 2015 applications – what is the cut-off date and time? Answer: December 31, 2015 at 11:59:59 P.M. EST. • Fees and genuine signature portion of biographical affidavits must be received no later than 5:00 P.M. EST on January 12, 2016. • The Captive Bureau only needs hard copies with pen and ink signature on the application and the 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 6 Bureau of Captive and Financial Insurance Products
App Appli lica cation tion Proce Process ss • 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 7 Bureau of Captive and Financial Insurance Products
App Appli lica cation tion Proce Process ss • 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. On January 1, 2015 the number exceeded 200. Reviewing applications takes time. • Submitting an application is not a guarantee of approval. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 8 Bureau of Captive and Financial Insurance Products
Reinsu Reinsuran rance ce • Clarification for what qualifies as multi-state reinsurance under NAIC Accreditation Preamble. • Section 6911(a) of Title 18 of the Delaware Code, provides “Any captive insurance company may provide reinsurance, on risks ceded by any other insurer, in accordance with § 910 of this title.” • 18 Del C. § 910 provides, “Any authorized insurer may reinsure all or any part of an individual risk or of a particular class of risks in any other insurer or accept such reinsurance from any other insurer. Domestic insurers will be subject to § 4944 of this title with regard to bulk reinsurance .” DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 9 Bureau of Captive and Financial Insurance Products
Reinsuran Reinsu rance ce • Dodd-Frank provides that if the state of domicile of a ceding insurer is an NAIC-accredited state or has financial solvency requirements substantially similar to the requirements necessary for NAIC accreditation, and recognizes credit for reinsurance for an insurer’s ceded risk, then no other state may deny such credit. • All laws, regulations, and other actions of a state that is not the domiciliary state of the ceding insurer, except those with respect to taxes and assessments on insurance companies or insurance income, are preempted. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 10 Bureau of Captive and Financial Insurance Products
Reinsurance Reinsuran ce • Proposal before the NAIC to amend the Credit for Reinsurance Model Law (MDL-785) to say, • MDL-785, Section 2 . . . Credit for reinsurance shall be allowed a domestic ceding insurer as either an asset or a reduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of Subsections A, B, C, D, E or F of this section; provided further, that the commissioner may adopt by regulation an approval requirement and specific additional requirements relating to valuation of assets and obligations, and the amount and forms of security held, in connection with particular types of reinsurance arrangements , or may specify by regulation that credit will be reduced or eliminated in connection with particular types of reinsurance arrangements . DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 11 Bureau of Captive and Financial Insurance Products
Reinsuran Reinsu rance ce • MDL-785, Section 3 . . . An asset or a reduction from liability for the reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of Section 2 shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer; provided further, that the commissioner may adopt by regulation an approval requirement and specific additional requirements relating to valuation of assets and obligations, and the amount and forms of security held, in connection with particular types of reinsurance arrangements , or may specify by regulation that credit will be reduced or eliminated in connection with particular types of reinsurance arrangements. • This proposal is known as Option 3. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 12 Bureau of Captive and Financial Insurance Products
Reinsu Reinsuran rance ce • Send comment letter or email message opposing Option 3. • Please address comments to the Honorable John M. Huff, Chair of the Reinsurance (E) Task Force, and direct to jarpin@naic.org and dschelp@naic.org. • Reinsurance (E) Task Force meets on Friday, November 20. • Comment period ended November 11, but Delaware informed the NAIC that late comments would be forthcoming due to the DCIA meeting. • Send comments no later than Tuesday, November 17. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 13 Bureau of Captive and Financial Insurance Products
Inve Investmen stments ts Crea Creating ting Quali Qua lifi fied ed Opinion Opinions s • Background: Captives investing in LLCs which generate unqualified opinions because the CPA cannot value the LLC investment. What should be the regulatory response? • Response under consideration: The Captive Bureau will prohibit LLC investments that cannot be valued. • Why? Investments must be valued. If a value is given but an auditor cannot confirm the value which results in a qualified opinion, then the investment is prohibited. • What is the regulatory value of a qualified opinion? Answer: Zero. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 14 Bureau of Captive and Financial Insurance Products
Regulato Reg ulatory ry Cha Chang nges es • New annual statement forms and instructions published by year end. • The filing of pro-forma financial statements is no longer necessary for business plan changes. Exceptions are material changes and adding workers’ compensation and any other mandatory coverages. • Allowance for dormant captive. If a captive has not accepted premium and risk during a calendar year, it may apply for dormancy by becoming a special purpose captive insurer. Dormant captives do not pay a minimum premium tax but are subject to the $400 annual license renewal fee. DELAWARE DEPARTMENT OF INSURANCE INSURANCE COMMISSIONER KAREN WELDIN STEWART 15 Bureau of Captive and Financial Insurance Products
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