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Increased regulatory scrutiny and the need for collateral to support statutory reserve credit and meet increasing margin requirements on derivative trading is driving US life insurers to make changes in their captive reinsurance arrangements, according to Fitch Ratings. Heightened transparency and regulatory oversight associated with new regulatory requirements are viewed positively by Fitch and they expect other US life insurers will likely make changes to their affiliated capital reinsurance arrangements as well. Last week, MetLife said it would combine its offshore captive used to reinsure the company's variable annuity(VA) guarantee risk into a domestic insurance company. Completion is expected by the end of 2014. The recapturing of VA risk ceded to a captive reinsurer reverses an industry trend as US life insurers rethink their use of captive reinsurance in response to regulatory changes. Fitch notes that US insurance regulators have increased their scrutiny of affiliated captive reinsurance arrangements. Towards that end, the National Association of Insurance Commissioners(NAIC) formed a subgroup to study the industry's use of captives and make recommendations to change/modify existing regulatory requirements and/or introduce to new requirements. |
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