WASHINGTON—The Federal Insurance Office will likely askcongressional permission early next to year to negotiate a uniformreinsurance collateral agreement for U.S. and European reinsurersdomiciled in qualified jurisdictions.

In comments Tuesday at an industry convention and in its 2014annual report released today, Michael McRaith, FIO director,reaffirmed that the FIO and the U.S. Trade Representative (USTR)are “working internally” to develop a process for negotiating abilateral reinsurance collateral pact with European regulators andare likely to seek congressional approval sometime after January2015 to negotiate such a deal.

In his comments at the annual convention of the NationalAssociation of Mutual Insurance Companies (NAMIC), McRaithcautioned that there will be an “open, collaborative process”involving the states before such a deal is completed, and thatCongress will be required to sign on.

In return, the U.S. should be granted mutual and permanentrecognition for U.S. insurers and reinsurers in Europe, said DavidSnyder, vice president for international policy for the PropertyCasualty Insurers Association of America.

That's because the proposed deal is very good for foreigninsurers, Snyder said, because they have been advocating for thisfor a long time, particularly European insurers.

The effort to get uniform reinsurance collateral standards hasbeen underway for more than 14 years.

The 2014 FIO annual report released today noted that non-U.S.reinsurers “play a critical role” in the U.S. reinsurance market,accounting for 60 percent or more of reinsurance premium ceded byU.S.-based insurers.

Moreover, the report said, “Europe's Solvency II insuranceregulatory regime will call for evaluation of regulatory treatmentof reinsurers in non-EU jurisdictions, including such collateralrequirements.

The report also notes that state insurance regulators supportreinsurance collateral reform, as recognized by their unanimousvote approving the new model law in November 2011.

The report released today said that 23 states have adopted somemeasures to reform the requirements relating to collateral forreinsurance. “Among those states, however, authorization to acceptless than 100 percent collateral has not been uniform in structureor implementation,” the report said. “Other concerns include thatthe Model Reinsurance Collateral Law relies heavily uponassessments of reinsurers' creditworthiness by credit ratingagencies, rather than on risk-based empirical factors.”

“These observations support Treasury's view that in the contextof international prudential matters regarding the business ofinsurance, questions concerning reinsurance collateral should beuniformly addressed on the national level,” the report said.

But Snyder — speaking on behalf of U.S. insurance companies,reinsurance companies and agents and brokers — said the U.S. shoulddrive a hard bargain. In return, the U.S. should begranted mutual and permanent recognition for U.S. insurers andreinsurers in Europe, Snyder said.

That's because the proposed deal is very good for foreigninsurers, Snyder said, because they have been advocating for thisfor a long time, particularly European insurers.

Snyder said U.S. insurers and reinsurers will also be watchingclosely to ensure that the agreement contains the principles thatare the keys to the 2011 model law.

They are that a foreign reinsurer certified by a state will berequired to post collateral in an amount that corresponds with itsassigned rating (0 percent, 10 percent, 20 percent, 50 percent, 75percent or 100 percent) in order for a U.S. ceding insurer to beallowed full credit for the reinsurance ceded.

The second is that state regulators have designated the countryof domicile of the foreign reinsurer as qualified for the flexiblecollateral requirements.

The 2011 model law replaced a model law that mandated that, inorder for U.S. ceding companies to receive reinsurance credit, thereinsurance be either ceded to U.S. licensed reinsurers or securedby collateral representing 100 percent of U.S. liabilities forwhich the credit is recorded.

McRaith talked about the issue during a panel discussionbringing together federal and state insurance regulators to discussissues important to NAMIC members Tuesday.

Those participating in the roundtable included John Huff,director of the Missouri Department of Insurance, FinancialInstitutions & Professional Registration and the regulatordesignated to be the NAIC's advisory representative to the FIO; BenNelson, NAIC CEO; and Thomas R. Sullivan, senior advisor-insurancefor the Board of Governors of the Federal Reserve System. Officialsfamiliar with the FIO process clarified McRaith's comments bysaying that actual negotiations toward a covered agreement cannotbe launched before Congress has been notified.

The pact would be based on the NAIC Credit for Reinsurance ModelLaw and Regulation, which was approved by the NAIC in November 2011after 11 years of effort.

McRaith said in his NAMIC comments that negotiating bilateraltrade agreements in concert with the USTR is part of theFIO/Treasury powers under the 2010 Dodd-Frank Act.