The Insurer TV: NAIC involvement crucial to help standardise US IBT structure

Industry leaders in the legacy market have called on the National Association of Insurance Commissioners (NAIC) to create nationwide legislation to help insurance business transfers (IBTs) become more widely accepted in the US market following initial success.

Many years in the making and modelled on the Part VII transfer process in the UK and Europe, there is a great deal of enthusiasm around the adoption of IBTs among practitioners.

But in order for the solution to gain the level of widespread acceptance of Part VII transfers in the UK there will need to be greater uniformity in the IBT process and regulatory acceptance.

“Conceptually, it’s terrific,” said Linda Johnson, head of the legacy practice at TigerRisk, in the latest edition of The Insurer TV’s analysis programme, Prospective.

“And if it was a US national law and we had a set of rules that apply to all insurance companies that would be great, but in the US, insurance is regulated on a state level and so you kind of always run into these conflicts of: ‘I am a nationwide writer, I’m based in Rhode Island and my regulators are comfortable with me doing this IBT or division, but how will New York respond when it impacts their policyholders?’ So, it definitely has some risk involved,” she explained.

Prospective: Legacy - Seg 1, snippet

“To get to where we need to get to, the NAIC will have to create some model acts and have them uniformly applied, which would be more similar to the different transfer laws in Europe,” said Johnson.

However, unfortunately for the industry, the timeframe for when this will move forward isn’t clear and Johnson said it will be a “matter of priorities”.

Linda Johnson, Head of Legacy Practice, TigerRisk Partners

“I think that we will get there, but I don’t think it has raised to the top of the list of priorities at the NAIC,” she added.

Paul Corver, group head of M&A at Randall & Quilter Investments Holdings (R&Q), added that without nationwide legislation on IBTs, there is a risk terms of the transaction may become nuanced in certain states.

“The NAIC is very keen on looking at it as it is obviously concerned if states develop their own individual legislation that could almost be a race to the bottom of each state trying to outcompete the previous by making it a bit easier for a transaction to happen.

“So some sort of countrywide NAIC legislation in that regard would be very welcomed,” said Corver.

As previously reported, in October 2020 Enstar completed the first ever IBT in the US between two run-off subsidiaries using a legislative framework established in Oklahoma for such transactions.

A second IBT structured by rival R&Q has since secured approval from the Oklahoma Insurance Commissioner for what would be the first transaction between unrelated parties.

Corver noted in the programme that R&Q is currently in the process of doing a third-party transfer of business into its Oklahoma vehicle which – at the time of speaking – had received the regulatory approval, with the process due to go for Court approval in August.

Click below to watch the full episode of Prospective, where we explore the key drivers behind the increasing number of restructuring deals and heightened interest in the market, how solutions are evolving, new entrants and scale-ups as well the sector’s outlook.