SAN FRANCISCO–Insurance regulators meeting here approved continuing efforts to develop a Reinsurance Evaluation Office, but raised new questions of how the project would fit into an overall reform of secondary insurance regulation.
At the summer meeting of the National Association of Insurance Commissioners Saturday, members of the Reinsurance Task Force struggled with the question of whether to focus on developing a new system to replace current 100 percent collateral requirements for foreign reinsurers.
Later, the group turned to overall reinsurance regulation, or putting the two projects on a parallel track.
In the end, both efforts will entail amending or creating from scratch a new model act concerning credit for reinsurance.
Chairman John Oxendine, the Georgia insurance commissioner, said a group of regulators will meet this summer to refine elements of the proposed Reinsurance Revaluation Office first proposed last year to create a system of regulation for insurance companies not based on country of domicile.
Representatives of the domestic primary insurance industry made it clear Saturday they still do not feel the proposals meet their concerns about the threat to solvency posed if non-U.S. reinsurers no longer have to post 100 percent collateral but instead have a percentage determined by this new agency.
CNA Financial representative Jeff Alton suggested one possible modification to the proposed REO structure would be if reinsurers create some sort of guaranty fund, which as a new concept was not greeted with any immediate reaction from either side of the controversy.
Attorney Bill Marcoux, representing the non-U.S. reinsurers, said in fleshing out the REO structure, regulators have to decide if it is going to be a rating agency, such as the NAIC's Securities Valuation Office.
In addition, they must also consider the impact the REO will have on the deliberations of rating agencies such as A.M. Best and Standard & Poor's.
American International Group representative Martin Carus said the domestic insurance industry has left the negotiations that resulted in the proposed REO office with nothing to show for it.
"You are usually not happy if you go away with nothing," he said.
"That is because you already have everything," shot back New York regulator Michael Moriarity.
He went on to say that regulators could not go on managing the credit risk of the domestic ceding companies and that the collateral requirement currently has nearly $500 million of alien assets tied up for no productive purpose.
As for the need for overall reform, Mr. Oxendine said creating uniformity among the states will be a critical aim.
"We don't want any more of this extraterritorial stuff," he said.
He was referring to the practice of an estimated dozen states to require some companies to go through special procedures outside the credit for reinsurance model to obtain such credit. New York and California are among the commonly cited states.
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.