The nation's insurance regulators have adopted a new framework for reinsurance regulation that leaves a 100 percent collateral requirement for foreign reinsurers in place for now.
The framework, approved at a session of the Reinsurance Task Force of the National Association of Insurance Commissioners, will next go before the NAIC's Financial Condition "E" Committee, before proceeding to the NAIC executive committee and then a final plenary session.
The NAIC's continuing struggle over whether to modify the suggested uniform mandate for foreign reinsurers comes as regulators in two states–New York and Florida–have announced their own plans to unilaterally alter collateral requirements for carriers found to be in sound condition by financial rating services.
The framework–which allows non-U.S. reinsurers access to the U.S. market without a license if they post "appropriate" collateral levels from zero to 100 percent, depending on an assessment of their financial status–would permit a non-U.S. insurer to become certified through a port-of-entry state.
Currently, foreign reinsurers must post collateral equaling 100 percent of their liabilities regardless of their financial status or claims-paying history.
With the framework adopted, Georgia Commissioner John Oxendine said that revisions to the Credit for Reinsurance Model Law and Regulation would be proposed in 2008, and that outstanding issues can be developed during the implementation of the project.
U.S. insurers have expressed reservations about the proposal. In a Nov. 28 letter, Steven Bennett, a representative with the American Insurance Association, cited concern over the potential reduction of collateral requirements for alien reinsurers not licensed in the United States. The letter also said that outstanding issues should include a guaranty fund or joint pool mechanism to protect U.S. ceding insurers.
The proposal does not provide ceding insurers with adequate protection as it does for companies with collateral requirements, Michael Koziol, a representative with the Property Casualty Insurers Association of America, wrote in a Nov. 27 letter. The letter added that PCI does not support the idea of a single regulator for reinsurance, which the NAIC is proposing.
"Primary insurers would rather have full collateral protection," according to Bill Boyd, a representative with the National Association of Mutual Insurance Companies. He said that "presumably, it would offer a non-U.S. reinsurer single-state and pan-U.S. privileges."
He said one question that hasn't been answered is whether domestically domiciled reinsurers will ultimately have to post collateral even though they do not have to do so now.
The argument that this proposal "will make more reinsurance available has not been proven, as far as I know," said Mr. Boyd. However, he continued, "if there is less collateral, then some companies may not be able to meet policy demands."
Non-U.S. reinsurers, including Germany's Hannover Re, urged the Task Force to finalize its work. Lloyd's of London argued that regulators in a global marketplace must treat financially strong reinsurers equally regardless of where they are domiciled.
© Arc, 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.