HOUSTON--The nation's insurance regulators have begun action ona plan to reform reinsurance rules that leaves a collateralrequirement for foreign reinsurers in place for now.

Their action came at a session of the Reinsurance Task Force ofthe National Association of Insurance Commissioners, which adopteda new framework for reinsurance regulation.

That scheme will now go before the NAIC's Financial Condition"E" Committee before proceeding to the NAIC executive committee andthen a final plenary session. The framework allows non-U.S.reinsurers access to the U.S. market without a license if they postcollateral.

With the framework adopted, Georgia Commissioner John Oxendinehas said that revisions to the Credit for Reinsurance Model Law andRegulation would be proposed in 2008 and that outstanding issuescan be developed during the implementation of the project.

The framework would allow a non-U.S. insurer to become certifiedthrough a port-of-entry state.

U.S. insurers have expressed reservations about the proposal. Ina Nov. 28 letter, Steven Bennett, a representative with theAmerican Insurance Association, Washington, cited concern over thepotential reduction of collateral requirements for alien reinsurerswho choose not to be licensed in the United States.

The letter also said that outstanding issues should include aguaranty fund or joint pool mechanism to protect U.S. cedinginsurers.

The proposal does not provide ceding insurers adequateprotection as it does for companies with collateral requirements,Michael Koziol, a representative with the Property CasualtyInsurers Association of America, Des Plaines, Ill., wrote in a Nov.27 letter. The letter added that PCI does not support the idea of asingle regulator for reinsurance, which the NAIC is proposing.

"Primary insurers would rather have full collateral protection,"according to Bill Boyd, a representative with the NationalAssociation of Mutual Insurance Companies, Indianapolis. He saidthat "presumably, it would offer a non-U.S. reinsurer single-stateand pan-U.S. privileges." And, he added, the question that hasn'tbeen answered is whether domestically domiciled reinsurers willultimately have to post collateral even though they do not have todo so now.

The argument that this proposal "will make more reinsuranceavailable has not been proven as far as I know," said Mr. Boyd.But, he continued, "if there is less collateral, then somecompanies may not be able to meet policy demands."

Non-U.S. reinsurers including Hannover Re, Hannover, Germany,urged the Task Force to finalize its work. And Lloyd's argued thatstrong regulation of the global marketplace must treat financiallystrong reinsurers equally regardless of where they aredomiciled.

The NAIC's continuing struggle over the issue of collateral forforeign insurers comes as regulators in two states, New York andFlorida, have announced their own plans to eliminate collateralrequirements for reinsurers that are found to be in sound conditionby financial rating services.