While final details remain to be put in place, the nation's state insurance regulators–after nearly a decade of study and debate–have adopted a "conceptual framework" to modify the 100 percent collateral requirement for foreign reinsurers.
After the action by the National Association of Insurance Commissioners last week here at its winter meeting, at least one insurer group–the American Insurance Association–vowed to fight against implementation at the state and federal level.
"This proposal sets forth a conceptual framework only," said New Jersey Banking and Insurance Commissioner Steven Goldman, chair of the NAIC Reinsurance Task Force–which drafted the proposal. "Now, we must focus on developing the specifics of this new regulatory regime and taking the appropriate legislative steps to make the proposal a reality."
The proposal creates two new classes of reinsurers in the United States–U.S.-domiciled national reinsurers and non-U.S.-based port-of-entry (POE) reinsurers–while introducing modified collateral requirements for eligible reinsurers.
A companion proposal that was approved establishes a new framework for state-based reinsurance regulation founded on the concepts of supervisory recognition, single-state licensure for U.S. reinsurers and single-state certification for non-U.S. reinsurers from approved jurisdictions.
The proposal creates an NAIC Reinsurance Supervision Review Department (RSRD), which will evaluate the reinsurance supervisory regimes of other countries and establish standards for a state to be certified to regulate reinsurance on a cross-border basis.
In order to be certified as a POE, enabling legislation from Congress would be required to give a state the authority to be the domicile for a port-of-entry reinsurer.
A POE reinsurer must also be licensed by a non-U.S. jurisdiction recommended as eligible for recognition by the RSRD.
The companion proposal, developed by Vermont, includes the following principles:
o The RSRD should be created as a transparent, publicly accountable entity (contemplated to be part of the NAIC), with a governing board composed of state or district insurance regulators, and with director eligibility open to all state or district insurance commissioners, directors and superintendents.
o RSRD criteria relating to ceded premium volume will not unfairly discriminate against otherwise qualified small jurisdictions regarding approval as a home state or POE state supervisor.
The current NAIC Credit for Reinsurance Model Act remains in place for reinsurers that do not choose to become either national or POE reinsurers.
Kentucky Commissioner Sharon Clark said that although she voted against the proposal, the principles in the companion initiative made her feel more comfortable with the overall plan. Four other states voted against the proposal–Indiana, Ohio, Utah and Wisconsin.
Throughout its development, the proposal generated concern among insurer groups–including the American Insurance Association, the National Association of Mutual Insurance Companies and the Property Casualty Insurers Association of America.
"We're disappointed, but not surprised," said Steve Broadie, PCI's vice president of financial legislation and regulation. However, he added that there are points in the proposal that still need to be fleshed out, such as federal preemption.
The AIA was more agitated about the plan. "Against a backdrop of financial stresses in the economic system, it is impossible to justify shipping billions of dollars of security out of the U.S. without obtaining at least equal concessions that would benefit U.S. companies overseas," said Dave Snyder, AIA's vice president and assistant general counsel.
He promised that AIA "will fight this in the states and certainly at the federal level because we believe that this is not in the interests of the U.S."
A Reinsurance Association of America statement noted that "much progress has been made."
"The use of federal-enabling legislation to implement the [NAIC] proposal will be crucial to achieving the necessary uniformity," according to RAA President Frank Nutter. "With the important role mutual recognition plays in the proposal, as well as the streamlined nature of regulation in the U.S., the NAIC's action might actually result in more companies seeking licensure in the U.S. We look forward to working with the NAIC as they implement the proposal."
The National Conference of Insurance Legislators–through its president, New York State Sen. James Seward, R-Oneonta–expressed concern over the NAIC proposal in a Dec. 3 letter.
The letter agreed with Vermont and other jurisdictions–including Maine, Nebraska, the District of Columbia and Ohio–that support more corporate governance on the RSRD. Sen. Seward cited concern that seeking a "federal hand in reinsurance" for the POE "could lead states down the path to an undesirable federal regulator or to a national overseer in the form of the NAIC."
The Risk and Insurance Management Society said it was "encouraged" by the NAIC's move, and that the corporate buyer organization is "hopeful that this modified regulatory framework, when fully implemented, will result in additional capacity and the equitable and efficient regulation of the reinsurance industry in a manner that meets the needs of commercial policyholders."
The American Council of Life Insurers has favored more "comprehensive" reinsurance reform, the group said in a May 31 letter.
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