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News Release

New Jersey Department of
Banking and Insurance


Commissioner Tom Considine

For Immediate Release:
May 7, 2010

For Further Information:
Ed Rogan or Marshall McKnight (609) 292-5064


Insurance Commissioner Applauds Captive Insurance Bill;  Unveils Reinsurance Initiative

First Part of Pro-Growth Package Advances
 

TRENTON – New Jersey Department of Banking and Insurance Commissioner Tom Considine today applauded Assembly Financial Institutions and Insurance (AFI) Committee Chairman Gary Schaer (D-36) and Assemblywoman Denise Coyle (R-16) for their leadership in sponsoring and moving legislation through that committee yesterday that would create a captive insurance market in New Jersey.  Commissioner Considine also announced the planned introduction of legislation that is intended to promote growth in the reinsurance market. 

“These two bills represent a smart, bi-partisan effort that would make some common sense changes to regulation and allow captive insurers, and carriers of reinsurance and surplus lines to operate more expansively in New Jersey,” said Considine.

By establishing a captive market, Commissioner Considine noted that the bill would promote growth in the state’s insurance market, create jobs, generate tax revenue, provide more choices for consumers, and advance Gov. Chris Christie’s “NJ: Open for Business” agenda.

The legislation would allow captive insurers to do business in the lines of life insurance, health insurance, annuities, indemnity, property and casualty, fidelity, guaranty and title insurance, and reinsurance. The legislation is intended to encourage the growth of an industry that in some states has brought in billions of investment and new high paying jobs.   

Captive insurance companies are insurance companies established with the specific objective of financing risks emanating from their parent group or groups. For example, a corporation could form a captive insurer company to insure its own worker’s compensation program. Currently, the law does not allow captive insurance companies in New Jersey.

The reinsurance bill to be introduced by Senate Minority Leader Tom Kean (R-11), Chairman Schaer and Assemblywoman Coyle would promote job creation by providing incentives to the most financially sound reinsurers to do business in New Jersey. The proposed bill would afford reinsurers more flexibility in how they deploy their capital, which should also put downward pressure on the rates charged by reinsurers to New Jersey domestic insurers.

Reinsurance is basically "insurance for insurance companies," a way for a primary insurer to protect against unforeseen or extraordinary losses. Sometimes an insurance company will purchase reinsurance as a “backstop” to guard against potential catastrophic losses.

“The result would be more jobs and economic growth in the insurance industry here and more choices for consumers. Our goal is to make the western shores of the Hudson River into the Silicon Valley of reinsurance," said Considine.  

The new legislation would also expand business opportunities and economic growth in the New Jersey insurance market by amending current New Jersey law which currently prohibits surplus lines insurers domiciled, or based,  in New Jersey from writing in the New Jersey surplus lines market. 

Surplus lines are products which provide insurance coverage not available from admitted companies in the regular market; e.g. if admitted companies limit writing of homeowner’s insurance in coastal areas, surplus lines make additional coverage available.

This legislation should attract surplus lines companies to re-domesticate in New Jersey as New Jersey would be only the second state in the U.S. to allow its surplus domestic companies to write in the New Jersey surplus lines market. 

“The legislation will pave the way for certain types of insurance lines to operate more freely and effectively in New Jersey and not diminish the state’s protection of consumers one iota,” said Schaer.  “This is a common-sense approach to expanding the state’s insurance market. It is win-win.”

“This legislation serves two purposes,” said Assemblywoman Coyle. “It will send the signal that insurance companies of all types should be able to set up in New Jersey, and it will create jobs and allow captive insurers, reinsurers and surplus lines firms to serve as engines of economic growth as they have in other states.”  

Regarding captive insurance, Vermont is viewed as the state model with the best design for the captive insurance market so far, with over $13 billion in gross written premiums in 2007.  This captive bill is based on Vermont’s law.  Currently 25 states and the District of Columbia permit captive insurers. There is not currently a captive market permitted in New Jersey.

“This is the kind of regulatory reform that will provide a boost to our financial services industry, maintain consumer protections and ultimately create well-paying private sector jobs,” said Kean.

“We appreciate Senator Nia Gill’s leadership on the captive issue in the Senate and look forward to her bill advancing there,” Considine said.

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