NAIC Reinsurance Moves Draw Groups' Support

The American Insurance Association and the Reinsurance Association of America are both commending state regulators for deciding to undertake a broad-based evaluation of the U.S. reinsurance system.

Their comments came in advance of the quarterly meeting of the National Association of Insurance Commissioners, which begins tomorrow in New York.

AIA officials said they were "encouraged" that the NAIC's Financial Condition (E) Committee has referred key components of the current proposal back to the Reinsurance Task Force for additional work.

Among the issues being considered are changes in the current requirement for foreign reinsurers to post 100 percent collateral.

In general, RAA and AIA officials said, the NAIC has decided to focus on broad-based risk and credit criteria.

According to the trade groups, the NAIC Financial Condition Committee has now agreed that the critical issues that must be examined include the appropriate risk-based capital charge for reinsurance; a single home regulator for U.S.-licensed reinsurers; credit and insolvency risk for cedents; and regulatory reliance on risk management systems for cedants and assuming reinsurers.

NAIC is also studying coordination among regulatory authorities within the U.S. and in cross-border transactions, according to the RAA.

Franklin Nutter, president of the RAA, "applauded" the NAIC for examining key aspects of reinsurance regulation beyond the issue of collateral, which has dominated NAIC discussions in recent years.

"Reinsurance is a critical component of financial solvency for U.S. insurers," Mr. Nutter said.

He explained that the reinsurance industry operates on a global capital business model. "Regulation must reflect the evolving nature of capital management, international regulatory and accounting developments, and more contemporary credit criteria," he noted.

For its part, Phillip Carson, AIA assistant general counsel, explained that the AIA supports a broad-based evaluation of the U.S. reinsurance regulatory system, not the Reinsurance Evaluation Office (REO) proposal that state insurance regulators had earlier said would be discussed during the meeting.

Mr. Carson explained, "There are critical issues that have not been addressed amid the discussion of an REO approach."

In praising the NAIC committee action, Mr. Nutter said, "The NAIC recognizes that change in reinsurance regulation is warranted but must be pursued broadly, yet with careful attention to the impact on cedents and reinsurers."