Magazine article American Banker

Insurers Fear N.Y. Warning on Reinsurance Kickbacks

Magazine article American Banker

Insurers Fear N.Y. Warning on Reinsurance Kickbacks

Article excerpt

Mortgage insurers fear New York's painting a new kind of relationship between them and insurers as an invitation to kickbacks will smear the arrangement nationwide.

At issue are so-called captive reinsurance subsidiaries, which insurers have been helping lenders set up. The idea is that the insurers would lay off some mortgage risk on these units and pay them part of the premiums.

But in at least one case, New York's Insurance Department said two weeks ago in a letter to insurers, the arrangement called for payments to a reinsurance unit in excess of the risk assumed. That, the state said, violated state law that prohibits payments meant as an inducement to do business with a company.

Though New York law bars lenders in the state from setting up New York reinsurance subsidiaries, it lets them use such units incorporated elsewhere.

In its letter, the department invited all mortgage insurance companies licensed in the state to meet with New York officials about how captive reinsurance arrangements can be run without violating New York law.

One mortgage insurance executive, who asked not to be identified, said it was unclear whether a reinsurer incorporated in another state but licensed to do business in New York would have to follow New York's strictures everywhere it did business. John Cal agna, spokesman for the department, agreed that the answer was not clear.

Several independent mortgage banks- including Countrywide Credit Industries, the nation's second-largest producer of home loans, and North American Mortgage Co. …

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