NAIC Adopts Actuarial Guideline Only for Life Insurer-Owned Captives

The National Association of Insurance Commissioners (NAIC) Executive Committee has adopted Actuarial Guideline 48 to apply only to captives used by the life insurance industry. The rules, which are effective January 1, 2015, are intended to bring uniformity to the regulation of (XXX/AXXX) life insurer-owned captive arrangements.

Actuarial Guideline 48 defines new terms, such as Primary Security and Required Level of Primary Security; specifies the Actuarial Method used to calculate the Required Level of Primary Security (also called the “economic reserve layer”); and specifies other requirements that must be followed when reinsurance is involved in order for the appointed actuary to render an actuarial opinion that is not qualified.

To comply with the Actuarial Guideline 48 Regulation as it relates to XXX/AXXX reinsurance arrangements, the opining actuary must issue a qualified opinion as to the ceding insurer’s reserves if the ceding insurer or any insurer in its holding company system has engaged in an XXX/AXXX reserve financing arrangement that does not adhere to the Actuarial Method and Primary Security forms adopted by the NAIC.

Life insurers have used captives as a tool because they allow the insurers to meet higher regulatory reserve requirements. The result has been a growth in the number of life insurance captives.

View a copy of the NAIC Actuarial Guideline 48 background and rules. The regulation is not retroactive.