HOUSTON–The nation’s insurance regulators have begun action on a plan to reform reinsurance rules that leaves a collateral requirement for foreign reinsurers in place for now.

Their action came at a session of the Reinsurance Task Force of the National Association of Insurance Commissioners, which adopted a 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 and then a final plenary session. The framework allows non-U.S. reinsurers access to the U.S. market without a license if they post collateral.

With the framework adopted, Georgia Commissioner John Oxendine has said that revisions to the Credit for Reinsurance Model Law and Regulation would be proposed in 2008 and that outstanding issues can be developed during the implementation of the project.

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

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

The letter also said that outstanding issues should include a guaranty fund or joint pool mechanism to protect U.S. ceding insurers.

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

“Primary insurers would rather have full collateral protection,” according to Bill Boyd, a representative with the National Association of Mutual Insurance Companies, Indianapolis. He said that “presumably, it would offer a non-U.S. reinsurer single-state and pan-U.S. privileges.” And, he added, the question that hasn’t been answered is whether domestically domiciled reinsurers will ultimately have to post collateral even though they do not have to do so now.

The argument that this proposal “will make more reinsurance available has not been proven as far as I know,” said Mr. Boyd. But, he continued, “if there is less collateral, then some companies 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 that strong regulation of the global marketplace must treat financially strong reinsurers equally regardless of where they are domiciled.

The NAIC’s continuing struggle over the issue of collateral for foreign insurers comes as regulators in two states, New York and Florida, have announced their own plans to eliminate collateral requirements for reinsurers that are found to be in sound condition by financial rating services.