With so much light being beamed on captive reinsurers – the so-called shadow insurance industry – of late, perhaps it was not too surprising that ING U.S. and Harbinger Group Inc. (HGI) announced major reinsurance deals yesterday that captured headlines.
In the case of ING U.S., it involves shifting their offshore reinsurance subsidiary, Security Life of Denver International Ltd. (SLDI), from the Cayman Islands to Arizona, effective Dec. 20. SLDI’s main job is to reinsure the living benefits associated with ING U.S.’s closed block of variable annuity business. According to the company, the Arizona Department of Insurance has already approved SLDI as a state-domiciled captive reinsurer.
The move is strikingly similar to one that MetLife undertook in May when it brought its offshore captives back to the U.S. At the time, the insurer said it decided to do so in order to “improve the risk profile and transparency of our variable annuity business.”
Insurers’ use of offshore captive reinsurers has come under scrutiny by state regulators, particularly Ben Lawsky, superintendent of New York State’s Department of Financial Services, as well as federal insurance officials, who have expressed concern that these captive reinsurers may be undercapitalized, especially if they are located outside the U.S. and subject to less strict regulations.
According to a statement from ING U.S., SLDI intends to adopt a modified form of U.S. GAAP rules and the move will have no effect on its statutory financial statements or those of its insurance subsidiaries.
A spokesperson for ING U.S. said the switch was made for several reasons. “We felt it was appropriate to move SLDI onshore and under the jurisdiction of a U.S. regulator, and we are using this as an opportunity to align SLDI’s accounting basis to U.S. GAAP,” said Christopher Breslin via email.
Also unchanged is the company’s combined risk-based capital ratio. As of Sept. 30, 2013, ING U.S.’s estimated combined risk-based capital ratio for its four principal domestic insurance subsidiaries was 470 percent, which it stated was above its target level of 425 percent. ING U.S. also stated it plans to continue to utilize the same hedging strategies for its closed VA book as it had previously.
Harbinger, Bankers Life deal
HGI’s reinsurance subsidiary, Front Street Re Ltd., based in Bermuda, sealed its first reinsurance treaty with an entity not affiliated with its parent company. Under the deal, which is retroactive to Nov. 30, 2013, Bankers Life Insurance Co. ceded approximately $160 million of its annuity business to Front Street Re.
According to a statement from HGI, the agreement has already been approved by Florida’s insurance regulatory agency.
“This treaty is another important step for Front Street Re in its growth as a provider of customized reinsurance solutions to the life insurance and fixed annuity industry,” said Phil Gass, Managing Director of HGI, in a statement. “During the year after its inaugural reinsurance treaty, Front Street Re has become an increasingly important component of HGI’s strong and growing financial services franchise. We see significant additional opportunities for Front Street Re to support the life insurance and fixed annuity industry for years to come.”
This isn’t HGI’s only recent notable deal in recent months. Late last week, it took its Fidelity & Guaranty Life (FGL) unit public in a $165.8 million IPO on the New York Stock Exchange. FGL’s main business is providing fixed indexed annuities. In 2011, HGI, which lists itself as a publicly traded diversified holding company, acquired Fidelity & Guaranty Life (FGL) for $350 million. A SEC filing noted that of Sept. 30, 2013, FGL had $1.4 billion in recoverables with Front Street Re.
In October, the Harbinger name was again in the news when Lawsky barred Philip A. Falcone, its chairman and CEO, from any involvement in the operations of Fidelity & Guaranty Life of New York. In the SEC settlement, Lawsky stated there were “serious issues related to Mr. Falcone’s fitness to control the management, operations, and policyholder funds of a New York insurance company.”