US NAIC Spring 2026 National Meeting Highlights: Restructuring Mechanisms (E) Working Group

At the Spring 2026 National Meeting of the US National Association of Insurance Commissioners (“NAIC”) in San Diego, California, the Executive (EX) Committee and Plenary held a meeting on March 25, 2026, in which they adopted the Restructuring Mechanisms White Paper (the “White Paper”), which was prepared by the NAIC’s Restructuring Mechanisms (E) Working Group (the “Working Group”).

The White Paper, which updates the NAIC’s earlier 1997 Liability-Based Restructuring White Paper and 2010 Alternative Mechanisms for Troubled Companies, was adopted by the Financial Condition (E) Committee on December 11, 2025.

The White Paper examines the evolving mechanisms of insurance business transfers (“IBTs”) and corporate divisions (“CDs”), which are two potential mechanisms for insurers to manage legacy liabilities and run-off blocks of business. IBTs allow an insurer to transfer its existing insurance liabilities to another insurer without obtaining individual policyholder consent, though the transaction must receive regulatory and/or judicial approval. Following the completion of an IBT, the transferee insurer becomes directly liable for the policyholders, while the transferor insurer’s obligations in respect of the transferred policies are extinguished. A CD, on the other hand, involves dividing a single insurer into two or more resulting entities, with regulatory and/or court oversight, allocating assets and liabilities among the newly created insurers without requiring policyholder approval. Whereas IBTs generally require court approval, CDs typically do not. We discuss IBTs and CDs in our Legal Update, US NAIC Update: Restructuring Mechanisms (E) Working Group.  

Since the NAIC’s earlier white papers on restructuring noted above, several states have adopted IBT and CD laws with the goal of enabling insurers to take advantage of the statutory process to enhance their ongoing operations. The White Paper explores the value and risks of IBTs and CDs and provides recommendations for enhancing the regulatory framework to provide benefits to both insurers and policyholders. However, the White Paper does not reflect an official NAIC position regarding IBTs or CDs but instead encourages each state to make its own determination regarding these alternative mechanisms. Notably, the White Paper cautions that restructuring does not create new resources from which claims can be paid, and should not be utilized to allow insurers to escape liabilities or separate claims in a manner that could provide less capital than is needed to satisfy the insurer's obligations.

History and Regulatory Landscape

The White Paper provides historical context by examining the United Kingdom’s Part VII transfer regime under the Financial Services and Markets Act of 2000 and discussing how the Part VII transfers have impacted the development of IBTs in the United States. In addition, the White Paper provides background on the evolution of the regulatory framework in the United States for IBTs and CDs, noting that, since the NAIC's earlier white papers, a growing number of states have adopted IBT and CD laws with the goal of enabling insurers to take advantage of the statutory processes to enhance their ongoing operations. Prior to IBTs and CDs being allowed in certain states, US insurance companies wanting to restructure their liabilities had been limited to sale, reinsurance or loss portfolio transfers, and individual policy novation, but none of those, other than individual policy novation, provide the legal finality of an IBT or CD.

The White Paper surveys the current state legislative landscape in detail, noting that several states—including Oklahoma, Rhode Island, Arkansas, and Vermont—have enacted IBT statutes, while states such as Arizona, Colorado, Connecticut, Georgia, Illinois, Iowa, Michigan, and Pennsylvania have CD statutes. The White Paper also compares the similarities and differences among the various state statutes, including their approach to court approval, use of independent experts and notice requirements; it also discusses the transactions completed to date. As the White Paper explains, the differences in state legislation create difficulties in these transactions, as a restructuring mechanism in one state will not provide finality unless the decision is recognized by other US states. The White Paper analyzes in detail how states might evaluate IBT or CD decisions from other states, examining three potential bases for interstate recognition (the Full Faith and Credit Clause, the Privileges and Immunities Clause, and the doctrine of comity), while noting that the question of whether a court will honor another state's approval of a restructuring plan remains open and will likely depend on the specific circumstances of each transaction. Additionally, the White Paper addresses the open question of whether existing assumption reinsurance statutes, which require individual policyholder consent for policy novations, may implicitly prohibit an IBT or CD approved by another state's court or regulator, which is an issue that has not yet been addressed by any court but could significantly affect the viability of cross-border restructuring transactions. The White Paper also examines US court decisions addressing the effect of UK Part VII transfers, including Narragansett Electric Co. v. American Home Assurance Co. and Air & Liquid Systems Corp. v. Allianz Insurance Co., which provide early guidance on how US courts may evaluate the enforceability of foreign restructuring transactions and the role of independent expert reports in those proceedings.

Key Issues and Recommendations

The White Paper identifies a number of legal, regulatory, and consumer protection issues arising from IBT and CD mechanisms, and sets forth corresponding recommendations, including the notable ones below:

• Financial Standards Developed by Subgroup: The White Paper discusses how states with relevant restructuring statutes evaluate proposed transactions with no standard set of criteria by which to judge the financial underpinnings of the IBT or CD plan. To remedy this, the Working Group recommended developing a standard set of financial principles and guidelines for reviewing IBT and CD transactions. To that end, a subgroup of the Working Group has been charged with developing best practices to be used in considering the approval of proposed restructuring transactions, including the expected level of reserves and capital after the transfer, adequacy of long-term liquidity needs, and best practices for post-transaction monitoring. Members of the subgroup have studied the UK Part VII procedures and concluded that they set forth robust processes and that similar guidelines should be established for IBTs and CDs in the United States. Once completed, these best practices are intended to be recommended to the NAIC’s Financial Regulation Standards and Accreditation (F) Committee for consideration as a basis for accreditation standards and will be appended to the White Paper.
• Guaranty Association Issues: According to the White Paper, one of the most significant policyholder concerns in restructuring transactions is the potential loss of guaranty association coverage. In the event of the restructured insurer’s insolvency, it is possible that coverage could be reduced, eliminated or changed without protections in place. For property and casualty insurance, the NAIC Property & Casualty Insurance Guaranty Association Model Act (Model 540) was updated in 2023 to address continued coverage, though individual states must adopt the updated language for it to take effect. For life and health insurance, restructuring statutes or regulators should clearly provide that assuming or resulting insurers must be licensed in all states where the transferring insurer was licensed, or had ever been licensed, with respect to the policies being transferred. The Working Group strongly advises regulators to carefully consider how restructuring plans address guaranty association coverage to ensure consumers are not harmed.
• Proposals for Minimum Requirements: Stakeholders made a number of suggestions as to provisions that should be required in IBT and CD statutes. These include: (1) a requirement of court approval for all restructuring mechanisms (currently, IBT statutes except Vermont require court approval, but CD statutes generally do not); (2) a requirement that an independent expert be engaged to assist the state in both IBT and CD transactions, even though none of the states currently require independent expert assistance for a CD; and (3) a requirement of notice to stakeholders, a public hearing, a robust and transparent regulatory process, and an opportunity to submit written comments for all stakeholders, including policyholders, reinsurers, and guaranty associations. Each of these recommendations is designed to address possible impairment of the financial position of policyholders. In considering the recommendations, the White Paper also notes that engaging with a state insurance department that has a deep understanding of the insurer may provide more protection for a consumer.
• Licensing: The White Paper also addresses the impact of licensing statutes on newly formed insurers created to effectuate restructuring transactions, noting that while such entities may provide value in efficiently managing run-off liabilities, they often face difficulties obtaining licenses in various states due to "seasoning" issues or states' reluctance to license companies not writing ongoing business. Because the approving state does not have the authority to compel other states to grant a license, two outcomes may result: either beneficial restructurings fail to proceed, or transferee companies operate unlicensed, creating gaps in guaranty association coverage and regulatory oversight that could harm consumers. The Working Group therefore recommended that the National Treatment and Coordination (E) Working Group consider whether changes should be made to the licensure process for companies resulting from restructuring transactions of run-off blocks, suggesting that a streamlined process ensuring appropriate regulatory oversight and preserving guaranty association coverage may be appropriate in limited circumstances, while maintaining robust and rigorous licensing standards to ensure policyholders of new entities retain comparable regulatory and solvency protections. The White Paper acknowledges that care must be taken to ensure that the licensing process is robust and rigorous enough for entities emerging from restructuring transactions, to ensure policyholders retain a comparable level of regulatory and solvency oversight.
• Impact on Other NAIC Models and Groups: The Working Group has tentatively decided to consider changes to the NAIC Protected Cell Model Act (#290). Before doing so, the White Paper recommends that the Statutory Accounting Principles (E) Working Group first determine the appropriate accounting for an IBT or CD that utilizes a protected cell, including confirmation that financial reporting and risk-based capital should be calculated for each protected cell or segregated account, for the legal entity on a stand-alone basis, and for the legal entity on a consolidated basis. The Working Group also received comments that the risk-based capital ("RBC") formulas may not adequately reflect the risk profile of insurers in run-off or those with significant run-off portfolios, and made referrals regarding the definition of run-off to the RBC Working Groups; however, there was not sufficient regulatory support for adjusting the formulas to address the variety of run-off situations.
• Long-Term Care Insurance: The White Paper strongly discourages states from entertaining the use of an IBT or CD involving long-term care insurance, noting the traditional inability of insurers to properly estimate future liabilities in this line of business, the particular vulnerability of aging and disabled LTC policyholders in asserting their rights in a court proceeding, and the risk that creating monoline LTC entities through restructuring mechanisms may result in significant long-term solvency risk. The Working Group recommends that any such transactions should generally only be utilized to the extent the NAIC develops a national solution for such transactions.

Conclusion

Overall, this White Paper represents a significant effort by the Working Group to catalog and analyze the growing patchwork of state-level insurance restructuring mechanisms in the United States. While the White Paper does not necessarily endorse a uniform approach for restructuring mechanisms across the United States, it underscores the need for standardized financial review, consumer protections (particularly regarding guaranty association coverage) and transparent regulatory processes.

Mayer Brown associate Ingrid Angulo also contributed to this white paper. 

To view additional updates from the US NAIC Spring 2026 National Meeting, visit our meeting highlights page.