Ft. Lauderdale, Fla.–The president of the National Association of Insurance Commissioners told state lawmakers meeting here that this is the year to decide the controversial issue of collateral requirements for alien reinsurance firms.
NAIC President Alessandro Iuppa, speaking at the meeting of the National Conference of Insurance Legislators, said: "We have talked about it long enough. It is now time to do something about it."
He told the Executive Committee at the NCOIL meeting last week that he hoped this round of NAIC debate would be free of rhetoric and repetitive sniping.
But that appears to be wishful thinking as opposing sides of the collateral requirement who spoke at Friday's session revealed a continuing deep divide.
"This falls under the category of 'sorry I brought it up,'" said NCOIL President Frank Wald, after an impromptu debate arose in the middle of what was supposed to a brief information session.
Three years ago the issue of whether nondomiciled reinsurers must continue to put up 100 percent collateral for losses was debated extensively by state lawmakers and regulators.
The domestic insurers and reinsurers generally contend that any reduction of collateral requirements could pose solvency threats if insured losses could not be collected.
Alien insurers' representatives contend that the vast majority of alien reinsurers come from well-regulated entities, particularly now that the European Union has issued its own directive providing a kind of standardization missing in the 50 states.
Mr. Iuppa said that at the commissioners' retreat earlier this month, regulators from the United Kingdom, Germany and Switzerland made the case the time for action is now and he hinted that his own position of opposing such a move was evolving.
Mr. Iuppa said how the ratings agencies react to any collateral reduction in terms of the ceding companies will play an important role in the decision process.
NCOIL gave preliminary approval to the so-called "white list" of approved regulators that could allow collateral reductions. That measure has languished in the Executive Committee for more than three years. "We are very patient with the NAIC," said one NCOIL official.
Lloyd's Chairman Peter Levene in a speech to the World Insurance Forum in Bermuda last week said U.S. regulators were playing "protectionist games" with the collateral requirement
But, NCOIL lawmakers were not about to move on the issue before the NAIC because the regulators will be the ones who have to enforce any new regulatory regime.
Two issues raised by opponents of changing the collateral requirement are enforceability of judgments in foreign jurisdictions and differing accounting standards that will make transparency challenging to regulators.
In addition to the "white list" concept regulators will have a number of compromises to look at including so-called geographically agnostic oversight.
While Mr. Iuppa claims the current issue is one of solvency and not trade, it remains unclear just how long that can last.
Paul Donohue, NCOIL's Washington representative, said it may not be too long before the interest of federal lawmakers is felt in the renewed debate over the collateral issue. He said key members of Congress he talks with have lately shown a great deal of interest in the question.
Marsha Cohen of the Reinsurers Association of American gave a hint as to the tenor of the debate in the coming months. "What you have here are 13 states regulating on an extraterritorial basis looking at this issue, meaning you as a group basically don't trust each other," she said.
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