U.S. Insurers Oppose Re Collateral Plans

U.S. primary and secondary insurers have come out against twoproposals aimed at reducing collateral requirements for alieninsurers.

In a joint letter to the insurance commissioners of New York andWashington, D.C., the American Insurance Association, PropertyCasualty Insurance Association of America, National Association ofMutual Insurance Companies, and National Conference of InsuranceGuaranty Funds warned of the "adverse impact" the proposals wouldhave on the insurance marketplace.

For several years, the alien insurers have proposed a so-called"white list" of approved insurers to be run by the NationalAssociation of Insurance Commissioners to allow credit-worthycompanies to reduce their collateral requirements by up to 50percent.

But the domestic industries, along with most regulators, havefought such a proposal as a threat to the solvency of the cedingcompanies.

The rating and pooling proposals were developed as analternative.

Under the rating proposal, a Reinsurance Rating Organizationwould be formed to rate both domestic and alien reinsurers.Reinsurers would have to post collateral according to their ratingon a scale of 1 through 5.

"If a reinsurer sees its ratings drop but fails to post therequisite collateral, it is the U.S. ceding insurer, not thereinsurer who is penalized," the letter states.

As for the pooling proposal, in which reinsurers wouldcontribute mutually to a pool to back up risks, the letterexpressed fears that since the assessments would be voluntary therewere no guarantees it would be fully funded.

The two separate rating and pooling schemes were devised overthe past couple of years by representatives of the alien insurersmeeting with an ad hoc group of commissioners.

The Reinsurance Task Force is expected to receive theseproposals formally at the fall quarterly meeting of the NAIC inSeptember.