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Captive Insurance Companies in Tennessee Receive Guidance on How To Get Unauthorized Reinsurer Approval

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November 06, 2015

The Tennessee Department of Commerce and Insurance recently issued a bulletin on Credit for Reinsurance Ceded to Unauthorized Reinsurers. The bulletin contains the following guidance to the state's captive insurance companies.

1. Gives the commissioner of commerce and insurance the discretion to allow a captive insurance company to take credit for reinsurance ceded to an unauthorized reinsurer on a case-by-case basis;

2. Allows a captive reinsurance company to take credit for reinsurance of risks ceded to a pool, exchange, or association subject to the commissioner’s authorization;

3. Absent specific notification, a captive is allowed to cede reinsurance to an unauthorized reinsurer where it has included specific information on the prospective use of an unauthorized reinsurer in its original business plan or approved business plan change; and

4. Provides that any authorization made by the department is valid only if it is included in an approved business plan or change in the captive business plan.

The Tennessee bulletin also outlines the primary criteria by which the department will evaluate credit for reinsurance ceded to unauthorized reinsurers, as follows.

  • The policy issued to the original named insured is issued by a traditional admitted domestic insurer acting as a front.

  • The reinsurance agreement is made upon secured collateral. This includes reinsurance agreements made on a funds withheld basis, via a domestic US trust, or via a letter of credit issued by a reputable US-based financial institution.

  • The reinsurance agreements are obtained from an accredited reinsurer as defined by Tenn. Code Ann. § 56-2-208.

  • Reinsurance is obtained from a reinsurer that is highly rated by a reputable rating agency.

  • The reinsurer has a paid in unencumbered capital and surplus of at least $20 million and agrees to submit to Tennessee copies of its audited annual financial statements as well as copies of any examination report conducted by its home domicile.

  • The department will give weight to arrangements where the reinsurer is domiciled in a jurisdiction with a solid reputation for providing accountability and oversight to its insurers. The department also places weight on the experience and reputation of the captive manager and other service providers selected by the captive owner.

  • For captives that choose to participate in reinsurance exchange pooling arrangements, the department will give the greatest weight to arrangements where the ceded premium is held in a domestic US trust, or where all pool participants are managed by the same captive manager.

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