LONDON BUSINESS SCHOOL RESEARCH CLAIMS US INSURERS SHIFT LIABILITIES ABROAD

Insurers in the US have shifted more than $360bn in liabilities to jurisdictions that are less tough on reserve requirements, according to analysis by the London Business School, reported in this morning's Financial Times. The researchers asserted that these "shadow" insurance arrangements exposed policyholders to risks equal to an estimated three notches of an aggregate credit rating across the industry. It was observed that it was hard to see any reason for creating a captive in a low-reserve jurisdiction unless it was to get around regulatory requirements in the home state of the ceding insurer. The American Council of Life Insurers has said that "US life insurers using captives hold 100% of reserves as required by law". It said that the reason behind such arrangements was that companies could "finance a portion of their statutory reserves on a cost-effective basis with ... full review and approval by their regulator".