RAA Preparing Response On N.Y. Collateral Rule

The head of a U.S. reinsurers' organization, reacting to New York's proposed regulation easing the collateral requirement for foreign reinsurers, said today the group is against state-by-state reinsurance regulation.

Frank Nutter, president of the Reinsurance Association of America, said RAA is currently analyzing the proposal from New York Insurance Superintendent Eric Dinallo and plans to respond with a letter next week.

"We have it under study. We would prefer a more comprehensive rather than a state-by-state approach," he said.

The New York proposal would require firms that do not have to post collateral to have a top-tier financial strength evaluation from rating firms. Lesser-rated firms would have to post some collateral.

Other points include requirements that unaccredited reinsurers would have to post 100 percent collateral if the primary insurer who ceded them business went into rehabilitation, liquidation or conservation. They would also have to maintain a policyholder's surplus or equivalent in excess of $250 million.

Mr. Nutter said the 30 companies that make up the RAA have been asked to provide input to the organization concerning the New York proposal by Friday at the latest. "For some period of time, we felt the current system," which requires a foreign reinsurer to post collateral equal to 100 percent of its share of policyholder claims, "is a pro-competitive one."

Most recently, RAA has taken the approach, he said, that it would be better off to have a more comprehensive reform for reinsurers, either through an optional federal charter, or having the National Association Insurance Commissioners serve as a port of entry for reinsurers that want to do business in the United States, with a system of mutual recognition between U.S. regulators and the foreign reinsurer's regulator.

Once that was done, Mr. Nutter said, the collateral requirement could be eliminated.

Robert P. Hartwig, president of the Insurance Information Institute, said the opposition to ending collateral requirements "is couched in terms of being [fiscally] conservative, and the other side says it's protectionist pressure."

U.S. reinsurers argue it would be far more difficult to collect from a foreign source, while overseas an institution such as Lloyd's sees itself as a proven institution with a 300-year history that would be able to function more effectively and provide more coverage to the U.S. marketplace without the requirement.

Mr. Hartwig said that Mr. Dinallo is trying to increase the flow of capital into the New York market and has tried to address solvency issues, "but this does not assuage the fears of companies that are opposed to this."