How does a regulator assess a captive's reinsurance?
The question is whether the recoverable can actually be recovered
Fenhua Liu treats reinsurance as central to solvency rather than as a schedule item. The department looks at who the proposed reinsurers are and asks one question: if this cover is triggered, will the money actually arrive. A reinsurer rated A minus or above by AM Best reads as more credible. Where the risk is ceded to an affiliate or to a smaller reinsurer, the department may require additional collateral behind the reserves so the claims can still be paid, and where a reinsurer is unrated it examines the financial strength directly.
Liu's framing is the one to carry away. Reinsurance is not judged on whether it exists but on whether it will perform. She describes the department looking at who the reinsurers named in the application are, and asking whether the recoverable can be recovered.
For a captive taking property risk that is the whole ballgame. Property losses arrive large and together, and a reinsurance panel that cannot pay is worse than no panel at all, because the captive priced as though it had cover.
Key takeaways
Connecticut assesses reinsurance on whether the recoverable can actually be recovered, treating it as central to the captive's solvency.
An AM Best rating of A minus or above reads as credible, but an unrated reinsurer is assessed on its financial statements rather than refused.
Ceding to an affiliate or to a smaller reinsurer can trigger a requirement for additional collateral behind the reserves.
A rating is a shortcut through that question. Liu names A minus or above from AM Best as reading more reputable and more credible, which is the conventional threshold and tells an applicant where the easy path is.
It is a shortcut rather than a requirement. She is explicit that an unrated reinsurer is not automatically refused.
From the conversation
Fenhua Liu
Assistant Deputy Commissioner and Director of Captive Insurance, Connecticut Insurance Department
“we want to make sure the reinsurance recoverable can be recovered”
This answer begins at 21:59 of the full conversation. Watch or listen to the whole thing.
Citations
Sources
- Captive Insurance Regulation, Connecticut Insurance Departmenthttps://portal.ct.gov/cid/mission-and-divisions/captive-insurance
The views expressed are those of the featured guest, drawn from a recorded conversation, and reflect their own professional experience. Nothing on this page is insurance, tax, legal, or investment advice. Consult your own advisors about your specific situation.
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