Insurance holding companies must disclose various information to state regulators, including details on each insurer within their system’s financial condition and management as well as details about any material agreements or transactions between insurer and affiliates (e.g. asset sales/purchases, loans, dividends/distributions to shareholders/pledge of stock).
ALIGNED can connect you with a commercial insurance expert who can understand the unique requirements of your holding company and create a policy to suit.
What is a Holding Company?
Holding companies are corporate structures that group insurers together for economies of scale and flexibility in dealing with differing state insurance regulations. Most often used to refer to property-casualty firms, although other types can also fall under this heading. Within the US, an insurance holding company must obtain licenses in each state where any insurer it controls operates in order to conduct business legally.
The National Association of Insurance Commissioners (NAIC) oversees insurance holding companies under its Insurance Holding Company Act, which requires reporting to regulators on multiple topics pertaining to ownership, management and financial condition of insurance holding companies. Furthermore, this law mandates that ultimate controlling persons of an insurer file an annual enterprise risk report with their state commissioner that identifies any material risks that could jeopardise its solvency.
NAIC rules mandate the filing of a comprehensive summary of any material transactions between an insurance holding company and its affiliates, such as sales, purchases, exchanges, loans and investments as well as management or service contracts and cost-sharing arrangements between them. Transactions may need approval or non-disapproval by regulators in certain cases; furthermore certain rules may state that dividend payments only occur under certain conditions with approval beforehand from regulators for extraordinary dividend payments.
Regulators also set examination frequency parameters based on each firm’s complexity classification. Complex insurance holding companies would generally undergo point-in-time examinations while noncomplex firms adhered to an annual examination schedule. This approach was similarly taken with large bank holding companies, to balance supervisory activities against each firm’s specific risk profile.
Holding companies offer numerous advantages, but these structures also pose certain risks. Commercial insurance policies are an invaluable way of mitigating many of these exposures; at ALIGNED our experts specialize in helping clients identify an ideal policy to protect their holding company against various liabilities such as directors and officers liability, employment practices liability and commercial general liability.
What are the Benefits of Holding Company Insurance?
An ownership structure such as a holding company provides many advantages for any business, enabling you to manage multiple subsidiaries more easily while reducing liabilities and taxes, accessing capital faster, and offering valuable strategic planning and management consultancy services.
As a business owner, you face risks that can be minimized with the appropriate insurance policy. At ALIGNED, our team is here to assist in finding just that policy: from directors and officers liability coverage through employment practices liability policies or commercial property coverage and cyber liability policies – whatever fits best with your needs!
The Insurance Holding Company Act mandates insurers and their affiliates to file information pertaining to their capital structure, ownership structure and financial condition. Furthermore, this act regulates intercompany arrangements such as management service agreements, purchase/sale of assets transactions loans/guarantee agreements cost-sharing/allocation agreements or reinsurance agreements before implementation; lead state commissioner must review these transactions prior to their implementation; ultimate controlling person of an insurer must also submit an annual enterprise risk report detailing potential negative impacts on an insured’s finances.
Typically, the lead state commissioner will classify an insurance group as either complex or noncomplex. A complex firm is defined as any firm with total consolidated assets exceeding $100 billion and typically undergoes greater regulatory oversight than noncomplex firms. Examiners often conduct point-in-time examinations on complex firms while noncomplex ones typically adhere to an annual examination schedule.
Though the insurance industry is vast and well-established, it still presents unique challenges. At ALIGNED, our team is dedicated to offering our clients expert advice and solutions they need to overcome these hurdles, regardless of size or complexity of business operations. From small family-owned enterprises to global conglomerates, our experience and expertise enable us to assist them with finding policies tailored exactly to their needs. Get in touch with us now so we can start helping! We look forward to hearing from you! ALIGNED is a full-service commercial insurance brokerage operating from Canadian offices.
How Can I Buy Holding Company Insurance?
For holding company insurance, the ideal route is through a commercial insurance broker who possesses expertise in this area. At ALIGNED, your account will be assigned an expert who will understand all your needs and find an appropriate policy to cover them.
Insurance holding companies must comply with state insurance law regulations when operating. These include filing information regarding capital structure, ownership structure and financial condition of their holding company as required. They may also need to disclose intercompany arrangements such as management service agreements, purchase of assets loans guarantees tax sharing arrangements or allocation agreements and reinsurance agreements.
Your holding company requires directors and officers liability insurance, which covers legal fees and damages associated with claims of negligence, breach of fiduciary duty or similar violations made against its directors and officers. Business interruption insurance should also be purchased to cover lost income resulting from insured perils like theft, fire, flood, vandalism windstorms or water damage. Furthermore cyber liability coverage provides coverage against data breach incidents or hacks.
What Factors Impact the Cost of Holding Company Insurance?
Cost of insurance held by a company depends on various factors, including policy size, number and state in which insurer operates. Furthermore, size of company and losses experienced have an effect on price as larger ones tend to incur higher premiums as more risk is assumed by insurance market.
Holding companies are subject to the same laws that apply to insurance businesses in their respective states, though the level of regulation varies between states; some adopting the model Insurance Holding Company System Act while others create their own legislation. Such laws often pertain to acquisition of control of an insurer; filing of information by insurance holding company systems and their affiliates; review, approval or non-disapproval of certain transactions between these holding companies and affiliates; as well as potential mergers among holding company affiliates.
Regulations require the ultimate controlling person of an insurer to file an annual enterprise risk report which, to their best knowledge and belief, describes any material risks in their holding company system that might threaten to compromise the solvency of a controlled insurer. The report must be filed with the lead state commissioner.
Insurance holding companies must also abide by other regulations that govern their activities, including registering with the relevant state insurance department and filing financial statements in accordance with generally accepted accounting principles. These statements must then be reviewed by regulators who may decide that the company cannot meet its solvency requirements.
One important regulation involves the requirement that an insurance holding company file its group capital calculation with the lead state commissioner, even if it does not conduct banking operations or fall under the Board’s banking capital rules. This will enable the lead state commissioner to share this information with other supervisors of its consolidated group.