Dinallo Seeks Discussion Of His Collateral Rule

New York Insurance Superintendent Eric Dinallo believes his new proposed rule on collateral requirements–his second bold regulatory initiative in a month–is good for regulators and the insurance industry.

“Sometimes it's good for one state to put a stake in the ground and take a position and say, 'let's discuss this,'” he said.

Mr. Dinallo was interviewed after his announcement Thursday that he planned to do away with collateral requirements for foreign reinsurers with good financial ratings.

Under the proposed regulation–which would go into effect on July 1, 2008–the highest-rated U.S. and non-U.S. reinsurance companies not authorized or accredited to do business in New York will be treated the same as New York-domiciled reinsurance companies.

A variety of safeguards would be included, such as a sliding collateral requirement for lesser-rated firms.

U.S. insurance organizations criticized the proposal as harmful to the national insurance marketplace. Lloyd's of London–a major proponent for years of lowering, altering or eliminating the requirements, established in a model law set by the National Association of Insurance Commissioners–reacted positively.

“We commend Superintendent Dinallo for providing leadership in trying toaddress the U.S. collateral issue,” said Lloyd's General Counsel Sean McGovern. “We will study the proposal in detail, butit appears to be a significant step forward towards US and non-USreinsurers being treated equally. This must continue to be the goal.”

Mr. Dinallo said he had put the regulation proposal out seeking comment just as he had on Oct. 4, when he announced a proposed regulation to require that insurers set up special reserve funds for catastrophes to avoid rate surges after big losses, regardless of the immediate federal tax implications.

Before putting out his latest proposal, Mr. Dinallo said he had alerted NAIC President Walter Bell, who is also Alabama insurance commissioner, as well as Georgia Insurance Commissioner John Oxendine, who chairs the NAIC's Reinsurance Task Force.

He said he had given them “a heads up,” and was glad that they were both in Florida for a regulators' meeting so they could discuss it.

Mr. Bell put out a public statement saying: “We applaud the New York Department for its leadership and innovation in this first initiative of reinsurance modernization. We look forward to working with them in the ongoing national dialogue to modernize U.S reinsurance regulation.”

Insurance trade groups generally criticized the proposal as failing to provide proper guarantees of solvency, and questioned the reliability of financial ratings.

Mr. Dinallo said the current requirements for 100 percent collateral are “making everyone carry an umbrella,” when in fact case of insolvency involve 1 percent of insurance companies.

On the issue of rating agencies, Mr. Dinallo noted that when the NAIC evaluates assets of a primary insurer, they are given 100 percent credit for Triple-A-rated securities from a reinsurer, but the same reinsurance company has “zero credit as a reinsurer.”

Mr. Dinallo noted that he had put out the regulation for comment without formally scheduling action, adding that “it's not going on the State Register.”