NCOIL Adopts Insurer Division Model Act

 

For Immediate Release
May 3, 2021
Contact: Tess Badenhausen
(732) 201-4133

NCOIL ADOPTS INSURER DIVISION MODEL ACT
Model Builds on Insurance Business Transfer Model Adopted by the Organization Last Spring; Provides Legal and Economic Finality to Insurers Transferring or Assuming Block of Insurance

Manasquan, NJ – At the NCOIL Spring Meeting in Charleston, SC, the organization adopted the NCOIL Insurer Division Model Act sponsored by CA Asm. Ken Cooley, NCOIL Vice President, and CT Sen. Matt Lesser. The Model passed on a voice vote by both the NCOIL Financial Services & Multi-Lines Issues Committee and NCOIL Executive Committee.

Insurance business transfers (IBT) and insurer divisions are restructuring mechanisms that aim to address the significant limitations in the current methods available to insurers to transfer or assume blocks of insurance business in an efficient and cost-effective manner that provides needed legal finality. In March of 2020, NCOIL adopted an IBT Model that was based on Oklahoma’s IBT law.

he U.S. insurance regulatory framework currently offers limited options to provide the legal and economic finality of insurance risks when an insurer changes its business strategy or decides to internally reorganize, completely exit, or acquire new business. Divisions provide that legal and economic finality to insurers and allows for more efficient allocation of capital which can benefit policyholders. More efficient allocation of capital can lead to better product pricing. Policyholders also benefit when insurance businesses are aligned with an insurer’s current business strategy and are the current focus of management, shareholders and regulators.

Five states currently have insurance-specific division statutes, Connecticut, Illinois, Michigan, Iowa, and Georgia, while Arizona and Pennsylvania have corporate division statutes that apply to all industries. Colorado also has an insurance division bill currently under consideration, which the Model relied heavily upon.

CA Asm. Ken Cooley stated, “Now that NCOIL has adopted both an Insurance Business Transfer Model Act, and an Insurer Division Model – similar but distinct restructuring mechanisms – NCOIL can truly be looked at as a leader in providing states guidance on insurance restructuring issues. We worked hard on this Model and I am confident that states will introduce it during future legislative sessions.”

LA Rep. Edmond Jordan, Chair of the Financial Services & Multi-Lines Issues Committee said, “I appreciate all the work that went into developing this Model. I am proud to be a part of NCOIL which continues to take important and timely insurance issues, discuss them in a way that ensures all perspectives are heard, and ultimately adopt model legislation that can be introduced in state legislatures. A restructuring mechanism like an insurer division is a very complex transaction, so states that they are looking to develop a law on this issue will greatly benefit from starting with the Model knowing that it was developed only after a thoughtful and deliberative process.”

NCOIL CEO, Cmsr. Tom Considine said, “I am pleased that this Model was adopted at the Spring Meeting. After NCOIL adopted the Insurance Business Transfer Model Act last March, it made sense that we have both Models in place as there should not be one Model without the other for states to consider adopting. This Model is going to be a great foundation for states seeking to enact an insurer division statute in upcoming legislative sessions.”

During the drafting discussions of the Model, NCOIL legislators and staff heard from several experts and interested parties including Kathy Belfi, Director of Financial Regulation at the Connecticut Insurance Department; Jared Kosky, General Counsel at the Connecticut Insurance Department; the American Council of Life Insurers (ACLI); the Reinsurance Association of America (RAA); America’s Health Insurance Plans (AHIP); and Talcott Resolution.

Highlights of the Model include:

• Requiring a dividing insurer to file a plan of division with the insurance commissioner which shall include, among other things: the name of each resulting insurer created by the proposed division and, for each resulting insurer, a copy of the resulting insurer’s proposed articles of incorporation and bylaws ; and a reasonable description of all liabilities and all assets that the dividing insurer proposes to allocate to each resulting insurer, including the manner by which the dividing insurer propose to allocate all reinsurance contracts;

• Ensuring that a division does not become effective until it is approved by the insurance commissioner, who, before approving a plan of division shall:

o in large or complex divisions, hold a public hearing on the terms and conditions of the proposed division;
o provide notice of the public hearing to state insurance regulators and appropriate state guaranty associations in states in which the dividing insurer is authorized to do business;
o be satisfied that the dividing insurer has made reasonable efforts to provide notice to all policyholders, contract holders, reinsurers, and other persons with an interest in the proposed plan of division;
o in large or complex divisions, select and retain an independent expert who shall review the plan of division and issue a report to the commissioner which shall address, among other things, the business purposes of the proposed division, capital adequacy and risk-based capital, including consideration of the effects of asset quality, non-admitted assets, and actuarial stresses to reserve assumptions, and management’s competence, experience, and integrity.

 

A full copy of the Model can be found here: http://ncoil.org/wp-content/uploads/2021/04/NCOIL-Insurer-Division-Model-Adopted-4-18-21-1.pdf