I've heard this song before

New York has a reputation for having the highest requirements for insurance companies to do business there.  So, I guess it's to be expected that it would raise a warning flag about the growth of captive reinsurance.  

Reinsurance has long been recognized as a sound policy for insurance companies, as there is no FDIC for insurers as there is for banks.  Until recently, reinsurance deals have been negotiated at arm’s length by independent companies; both sides understand the risk and agree on a fair price for covering it. The obligations drop off the original insurer’s books because the reinsurer has picked them up.  Captive reinsurance is quite different; the risk is not transferred to an independent reinsurer; it is transferred to a subsidiary of the insurer. Thus, the deal is not at arm’s length. Because the risk is transferred to a subsidiary it is difficult to know what the deal really is.

Like the structured mortgage deals that played a large role in the Great Recession, captive insurance deals are quite complex.  It took the New York regulators nearly a year to follow the paper trail, even though they had the power to subpoena documents.  And, like the structured mortgage deals, the companies say there is nothing to worry about.  

MetLife says that it “holds more than sufficient reserves to pay claims on its policies” and added that it used reinsurance subsidiaries “as a cost-effective way of addressing overly conservative reserving requirements” for certain insurance products. If it had to set aside that level of reserves more conventionally, it says, it would either have to borrow — putting its credit rating at risk — or raise the money by selling stock, dragging its returns below the level its stockholders require.  The New York regulators say, “Those practices (re structured mortgages) were used to water down capital buffers, as well as temporarily boost quarterly profits and stock prices.  And ultimately, those practices left those very same companies on the hook for hundreds of billions of dollars in losses from risks hidden in the shadows, and led to a multitrillion-dollar taxpayer bailout.”

New York contends that these deals allow the companies to describe themselves as richer and stronger than they otherwise could in their communications with regulators, stockholders, the ratings agencies and customers, who often rely on ratings to buy insurance.

Interestingly, these deals do not seem to be as enticing to mutual companies as they are to publicly traded companies.  Why do you suppose that's so?