The National Association of Insurance Commissioners will “morethan likely” reexamine the issue of continuing collateralrequirements for alien reinsurers, the group's president saidyesterday.

Maine Superintendent of Insurance Alessandro Iuppa said theissue was thoroughly discussed at the annual commissioners' retreatearlier this month, where a number of European regulators were alsopresent.

No final charge has been given to the Reinsurance Task Force,but regulators last December approved an NAIC white paper thatoutlined the issues involved in a possible debate, which would seemto leave the way clear for a fruitful discussion, Mr. Iuppasaid.

Lowering collateral requirements for reinsurers not domiciled inthe U.S. was debated at the NAIC in the early part of the decade.U.S. regulators and industry representatives claimed such a movecould have severe solvency ramifications, while alien reinsurerrepresentatives said it was a matter of fairness as well as helpingto provide a more stable market.

The parties suspended debate for a couple of years whileattempts were made to reach a compromise. When that provedfruitless, a so-called ad hoc group of regulators presented aseries of compromise proposals that could serve as the basis ofthis year's debates, if they should come about.

Supporters of the status quo raise concerns about the difficultyof enforcing judgments in foreign courts and differing accountingstandards making transparency of the financial strength of foreignconcerns difficult.

With the issue again on the forefront, Standard & Poor's hasissued a frequently asked questions report that, while not takingany outright stand, does raise a number of issues.

“Collateral can provide a false sense of security by removing anincentive for ceding companies to make thoughtful decisions aboutselecting reinsurers,” said the report.

In addition, the fact that collateral is only required after aclaim is recognized could mean that it would be too late at thatstage to see the funds of a troubled insurer.

“History has shown that the best protection againstuncollectible reinsurance is to select a diverse group of stable,reliable reinsurance providers in the first place, not to rely onbackstops like collateral,” the report said.

The report added that relaxing collateral requirements wouldprovide challenges to risk-averse regulators. “In addition,changing the rules would affect capital requirements for cedinginsurers and funding needs for reinsurers, and would shuffle marketdynamics as well,” the report said.