Growing Challenges To NY Shadow Insurance Transactions

Law360, New York (May 16, 2014, 7:00 PM EDT) -- In the wake of a 2013 New York State Department of Financial Services (NYDFS) report, so-called "shadow insurance" transactions are now facing challenges from both policymakers and policyholders, including a putative class action filed recently in the Southern District of New York.

Known more formally as captive reinsurance, so-called "shadow insurance" (a term coined by NYDFS and its Superintendent Ben Lawsky) involves reinsurance of a subset of an insurer's existing policies through a wholly owned subsidiary rather than through a third party. The subsidiaries are often located in jurisdictions that have less stringent reserve and capital requirements than the requirements of...

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