Dear [name deleted]:

This is in response to your letter dated December 5, 1996, and related correspondence, in which you requested staff confirmation that certain reinsurance activities proposed to be conducted by [BHC], through its subsidiary, [Offshore Sub], would be consistent with section 4(c)(13) of the Bank Holding Company Act ("BHC Act") and section 211.5(d)(16) of the Board's Regulation K. Currently, [Offshore Sub] underwrites insurance for [BHC] affiliates pursuant to Regulation K and section 4(c)(1)(C) of the BHC Act. [Offshore Sub] has no offices in the United States.

[BHC] has proposed that [Offshore Sub] would reinsure certain annuities sold in the United States to U.S. residents. These annuities would be underwritten by a U.S. insurance company unaffiliated with [BHC], and sold by various insurance agencies, including those affiliated with [BHC]. The U.S. insurance company would cede a portion of the portfolio of annuities sold to [BHC] customers (the "[BHC] portfolio") to a foreign affiliate and [Offshore Sub] would enter into a retrocession agreement¹ with that foreign company to reinsure no more than 50 percent of the [BHC] portfolio.

The U.S. underwriter of the annuities would be responsible for handling all claims and settlements related to the annuities. [Offshore Sub] would not have any contact with the annuity purchasers and would assume no liability to them. Moreover, [Offshore Sub] would have no reinsurance liability to the U.S. insurance company, but only to the foreign affiliate of the U.S. insurance company.

Based on the specific facts of this proposal, staff has decided not to recommend that the Board take any action against [BHC] should [BHC] decide to proceed with this proposal on the basis of [BHC]'s interpretation of relevant law and regulations. Nevertheless, the proposal raises a number of issues under the BHC Act and its implementing regulations that the staff is continuing to evaluate and will explore with the Board in connection with the upcoming review of Regulation K. Public comment may be sought on these issues in connection with that review.

The no action position set forth in this letter should not be construed as confirming or setting a precedent with regard to your interpretation of relevant law and regulations and does not extend to other similar proposals. The Board has taken no position on [BHC]'s proposed interpretation and retains the right to determine that this type of proposal is not consistent with the purposes of the BHC Act.

Very truly yours,

(signed) William W. Wiles

William W. Wiles

Footnotes 1. A retrocession agreement involves the reinsurance of a previously reinsured risk. Return to text