National Harbor, Md.

Insurance regulators are proposing their own draft measure to Congress modernizing state oversight of reinsurance.

The move by the National Association of Insurance Commissioners came 15 days after the U.S. House of Representatives approved legislation on the same topic.

The NAIC said its Government Relations Leadership Council has approved for submission to Congress language for a federal Reinsurance Regulatory Modernization Act of 2009.

"The NAIC has endorsed this newly proposed federal legislation to facilitate cross-border reinsurance transactions and enhance competition within the U.S. market, while ensuring that U.S. insurers and policyholders are adequately protected against the risk of insolvency," said NAIC President Roger Sevigny, New Hampshire's insurance commissioner, who chairs GRLC.

Scott Richardson, director of the South Carolina Insurance Department and acting chair of the NAIC's Reinsurance Task Force, said "we are supporting this federal legislation in order to preserve and improve state-based regulation of reinsurance, ensure timely and uniform implementation of this legislation throughout all states, and as a more comprehensive alternative to the reinsurance provisions of the recently passed Nonadmitted and Reinsurance Reform Act."

The NAIC's legislation would:

o Create two new classes of reinsurers in the United States–National Reinsurers (U.S.) and Port of Entry Reinsurers (non-U.S.).

o To transact reinsurance business, National Reinsurers would be licensed through a single Home State, while Port of Entry reinsurers would be certified through a single Port of Entry State.

o Reinsurers under the NAIC measure would continue to have the option of operating under the existing regulatory approach.

o The proposed legislation also provides for the establishment of a Reinsurance Supervision Review Board as a federal entity responsible for evaluating states and non-U.S. jurisdictions.

Language in the proposed bill would make state insurance supervisors responsible for evaluating their respective National and Port of Entry Reinsurers, as well as establishing appropriate collateral requirements for reinsurance agreements.

State laws with credit-for-reinsurance requirements different from the federal legislation would be preempted as to National and Port of Entry Reinsurers.

The measure passed by the House, and now pending in the Senate, would assign primary responsibility for the regulation of a reinsurance transaction to the insured's home state–while application of other state laws would be prohibited.

As a result, it would bar state insurance regulators from interfering in reinsurance agreements of ceding insurers domiciled in other states.

As it now stands, the House legislation–co-sponsored by Reps. Dennis Moore, D-Kan., and Scott Garrett, R-N.J.–takes a home-state regulatory approach, while under the NAIC proposal the NAIC would approve which states regulate reinsurance transactions.

In response, Reinsurance Association of America President Frank Nutter told National Underwriter in an e-mail that "given the increasingly global nature of the reinsurance marketplace, the RAA is encouraged the NAIC recognizes the need for a regulatory framework that would facilitate cross-border transactions and enhance competition in the U.S. market, and at the same time streamline the current 50-state regulatory system for domestic reinsurers."

He added that "embracing federal legislation to accomplish this is a positive step, and the RAA looks forward to working with the NAIC and Congress to create a reinsurance regulatory system that is uniform and equitable for U.S. and foreign reinsurers alike."

However, RAA earlier had lauded the passage of the House legislation, H.R. 2571, stating that it "seeks to eliminate extraterritorial application of state laws and promote more efficient solvency regulation of reinsurers by providing for a single regulator (domicile state) for financial solvency."

In the RAA's earlier statement, Mr. Nutter said the House bill is "a notable acknowledgement that reinsurance regulation needs to be streamlined and modernized."

The RAA statement noted that the group "continues to support federal legislation that ensures a single regulator for all purposes for reinsurers and for uniformity of regulation for reinsurance at all levels of government."

Special Reports /

NAIC Proposes Federal Countermeasure To Reform U.S. Reinsurance Regulation

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