Give Us An Optional Fed Charter, Reinsurers Say

NEW YORK--Three reinsurance company executives want to be regulated, but not by 50 U.S. state regulators, they said at a conference here Tuesday.

The executives gave their views in response to questions at the 2007 Standard & Poor's Insurance Conference.

They were asked how proposed changes being reviewed by the National Association of Insurance Commissioners to modify the 100 percent collateral rule for alien reinsurers would impact their companies. The proposed rule would replace the current collateral requirement with charges based on standards administered by a new Reinsurance Evaluation Office.

Nikolaus von Bomhard, chief executive officer of Munich Re, said, "We think, at Munich Re, that we should solve the problem on a higher level," explaining that the optional federal charter idea for insurers that has been periodically introduced in the U.S. Senate "is the path we should take."

Mr. von Bomhard said giving insurers the option to elect federal regulation would be a first step toward introducing global "mutual recognition" regulatory standards and a "leading supervisor concept" from one country for global insurers or reinsurers.

It may be a smarter route to solve many more problems beyond the fairness of collateral requirements to get an optional federal charter, he said, predicting that it would be more likely to achieve this in the reinsurance industry in the United States than in the primary insurance industry.

"Reinsurance could be like a Trojan horse--a test case for getting that," he said.

Joseph Brandon, CEO of General Re Corp., said he is "supportive of comprehensive reform of the way reinsurers are regulated."

"I think it would be a mistake to pick out one element of current regulation and spend a lot of effort on what is both an economic and emotional issue in the industry," he said, referring to the collateral requirement.

"I think we should attack the real problem, which is that reinsurance is a global industry today being regulated by 50 states in the United States," he said, calling this a "fundamental mismatch."

"This is not a plea for less regulation but an increase in the effectiveness of regulation that's out there," said Mr. Brandon.

Patrick Thiele, CEO of Bermuda-based PartnerRe, agreed. "There is need to have some kind of coherent regulation that recognizes the global nature of this industry," he said.

In getting there, he said, "it's incumbent on reinsurance companies to find ways to be more transparent" so they can assure all the regulatory bodies throughout the world that "we know what we're doing in terms of risk assumption, that we're transparent about where the risks lie on the balance sheet."

Mr. Brandon said he's more optimistic about the prospect of getting comprehensive reform than changing individual components of the way reinsurance is regulated.

Addressing the broader question of whether an optional federal charter is in the cards for the entire industry, not just reinsurers, Wall Street analysts at an earlier session suggested that prospects are dim.

Matthew Heimermann, vice president of J.P. Morgan, said, "I don't think I'll see it in my lifetime," adding that reforming regulation for the whole industry at once is preferable to a piecemeal approach, like the one that is currently moving toward reforms for surplus lines and reinsurance first.

With such baby steps, he worries about questions such as whether the lines between excess and surplus lines and admitted companies would go away. "But thankfully, I don't think I really have to worry about that at all," he said, predicting, however, that once the first practical implementation steps in any sector are in place, "things will move very quickly."

Dan Johnson, senior insurance analyst of Citadel Investment Group, said there are a lot of vested interests to keep things the way they are.

Seventy-seven percent of conference attendees polled by S&P say they favor an optional federal charter. Attendees included insurance executives and industry analysts.