Chicago–The National Association of Insurance Commissioners has laid the groundwork for revising collateral requirements for non-U.S. reinsurers, but has left open when that could happen.
At the NAIC's winter meeting here the group's Reinsurance Task Force approved a white paper on the collateralization issue that sets the terms for the debate over whether foreign reinsurers should have to post collateral for the full amount of any liabilities that may be incurred in this country.
Representatives of both sides in the dispute–the domestic and alien reinsurers–have said the white paper was a fair representation of the issues involved and will serve as a good starting point for the debate.
The task force also accepted without comment proposals for alternatives to the current 100 percent collateral requirements that have been developed over the past two years while the two sides attempted to reach some compromise.
Incoming president and Maine Commissioner Al Iuppa said that whether or not to open the issue again this year after a three-year break will be a top agenda item at the commissioners' retreat in February.
Commissioners have come under increasing pressure in recent years to ease the requirements for alien reinsurers to operate in this country as the entire insurance industry becomes more globalized, and events such as 9/11 and the record catastrophe losses of 2005 underscore the need for a more robust reinsurance market.
"I think there is a growing recognition that the current system is not the best and most efficient way of operating," said Bill Marcoux, the London-based attorney who represents the International Underwriting Association.
But an equally vocal group supporting the status quo, that includes for the most part the entire U.S. secondary and primary insurance industry, feels that any revision to current policy could pose unnecessary threats to solvency and ultimately policyholder claim payments.
"Why change something that is working just fine?" asked Frank Nutter, president of the Reinsurers Association of America.
Other industry representatives, such as Mike Koziol, assistant general counsel for the Property Casualty Insurers Association of America, believe some change is inevitable, but not for several years.
Current efforts to globalize accounting and capital adequacy standards must bear more fruit before any serious revision to the collateralization requirements should be considered, Mr. Koziol said.
At the Saturday meeting, an ad hoc group of regulators presented proposals for an alternative rating system and a pooling program to meet regulators' solvency concerns.
The new rating system would in essence grade all reinsurers regardless of country of domicile for solvency risk and collateral requirements, and is a variant of the so-called NAIC "white list" of approved alien reinsurers that could be eligible for reduced collateral that has been proposed for several years now by the foreign companies.
"I think it would undermine the current credit for reinsurance model act," Mr. Nutter said.
Mr. Marcoux countered that the rating proposal had the greater probability for gaining regulator acceptance.
"I think there is a lot of merit there in that it applies to all companies across the board," he said.
Susan Nolan, executive director of the National Conference of Insurance Legislators, told the panel that NCOIL has already given preliminary approval to the "white list" proposal but is waiting on the NAIC for final action, which she would like to see take place at the state lawmakers' summer meeting.
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