The American Insurance Association and the ReinsuranceAssociation of America are both commending state regulators fordeciding to undertake a broad-based evaluation of the U.S.reinsurance system.

Their comments came in advance of the quarterly meeting of theNational Association of Insurance Commissioners, which beginstomorrow in New York.

AIA officials said they were "encouraged" that the NAIC'sFinancial Condition (E) Committee has referred key components ofthe current proposal back to the Reinsurance Task Force foradditional work.

Among the issues being considered are changes in the currentrequirement for foreign reinsurers to post 100 percentcollateral.

In general, RAA and AIA officials said, the NAIC has decided tofocus on broad-based risk and credit criteria.

According to the trade groups, the NAIC Financial ConditionCommittee has now agreed that the critical issues that must beexamined include the appropriate risk-based capital charge forreinsurance; a single home regulator for U.S.-licensed reinsurers;credit and insolvency risk for cedents; and regulatory reliance onrisk management systems for cedants and assuming reinsurers.

NAIC is also studying coordination among regulatory authoritieswithin the U.S. and in cross-border transactions, according to theRAA.

Franklin Nutter, president of the RAA, "applauded" the NAIC forexamining key aspects of reinsurance regulation beyond the issue ofcollateral, which has dominated NAIC discussions in recentyears.

"Reinsurance is a critical component of financial solvency forU.S. insurers," Mr. Nutter said.

He explained that the reinsurance industry operates on a globalcapital business model. "Regulation must reflect the evolvingnature of capital management, international regulatory andaccounting developments, and more contemporary credit criteria," henoted.

For its part, Phillip Carson, AIA assistant general counsel,explained that the AIA supports a broad-based evaluation of theU.S. reinsurance regulatory system, not the Reinsurance EvaluationOffice (REO) proposal that state insurance regulators had earliersaid would be discussed during the meeting.

Mr. Carson explained, "There are critical issues that have notbeen addressed amid the discussion of an REO approach."

In praising the NAIC committee action, Mr. Nutter said, "TheNAIC recognizes that change in reinsurance regulation is warrantedbut must be pursued broadly, yet with careful attention to theimpact on cedents and reinsurers."