Insurers with legacy blocks of business, or with other motivations to enter into block transfers of business or corporate split-offs, should consider a recent regulator call on so-called Insurance Business Transfers (IBTs) and corporate divisions. These are techniques that would allow an insurer to (i) assign a book of insurance policies to another carrier without unanimous affirmative policyholder consent (a so-called IBT) or (ii) to split into multiple distinct entities (a division). Some states have already adopted statutes allowing these types of transactions, which have invited comparison to the United Kingdom’s Part VII. IBTs and corporate divisions are subject to state regulatory approval, and in some cases judicial review, following a prescribed process under the respective state statutes.
The Restructuring Mechanisms Subgroup of the Restructuring Mechanisms Working Group within the National Association of Insurance Commissioners’ (NAIC) Financial (E) Committee is tasked with developing best practices with respect to these kinds of transactions and also considering any needed changes to risk-based capital rules arising out of these matters. On a May 4, 2022, video call with interested parties, the Subgroup discussed “foundational principles” and proposed best practices associated with IBTs and divisions. The Subgroup addressed materials, issued in late April and available here, that set out the NAIC’s priorities governing these transactions.
The foundational principles are summarized below, along with some highlights of the call. As a general comment, it was noted on the call that some states already have assumption and novation statutes expressly requiring unanimous policyholder consent, and therefore it might be unrealistic for such a state to relax these requirements in an IBT or division context. At the same time, the need for uniformity among state procedures governing IBTs and divisions was also emphasized by some.
The “best practices” document goes into some additional detail on each prong of the foundational principles above.
The foundational principles and best practices documents were exposed for a 45-day comment period.