NAIC Gives Congress Language For A U.S. Reinsurance Bill

NU Online News Service, Sept. 23, 3:57 p.m. EDT

NATIONAL HARBOR, MD–The nation's insurance regulators announced today that they are proposing their own draft measure to Congress modernizing state reinsurance regulation.

The move by the National Association of Insurance Commissioners comes 15 days after the U.S. House of Representatives approved legislation on the same topic.

NAIC said its Government Relations Leadership Council (GRLC) has approved for submission to Congress language for a federal Reinsurance Regulatory Modernization Act of 2009.

"The NAIC has endorsed the proposed federal legislation to facilitate cross-border reinsurance transactions and enhance competition within the U.S. market, while ensuring that U.S. insurers and policyholders are adequately protected against the risk of insolvency," said Roger Sevigny, NAIC President, New Hampshire Insurance Commissioner and chair of GRLC.

Scott Richardson, director of the South Carolina Department of Insurance and Acting Chair of the Reinsurance Task Force, said, "We are supporting this federal legislation in order to preserve and improve state-based regulation of reinsurance, ensure timely and uniform implementation of this legislation throughout all states, and as a more comprehensive alternative to the reinsurance provisions of the recently passed Nonadmitted and Reinsurance Reform Act," approved Sept. 9.

The legislation would create two new classes of reinsurers in the United States: National Reinsurers (U.S.) and Port of Entry Reinsurers (non-U.S.). In order to transact reinsurance business National Reinsurers would be licensed through a single Home State while Port of Entry reinsurers would be certified through a single Port of Entry State.

Reinsurers under the NAIC measure would continue to have the option of operating under the existing regulatory approach. The legislation also provides for the establishment of the Reinsurance Supervision Review Board as a federal entity responsible for evaluating states and non-U.S. jurisdictions.

Language in the proposed bill would make state insurance supervisors responsible for evaluating their respective National and Port of Entry Reinsurers and establishing appropriate collateral requirements for reinsurance agreements. State laws with credit for reinsurance requirements different from the federal legislation would be preempted as to National and Port of Entry Reinsurers.

The measure passed by the House, and now pending in the Senate, would assign primary responsibility for the regulation of a reinsurance transaction to the insured's home state and application of other state laws would be prohibited. As a result, it would bar state insurance regulators from interfering in reinsurance agreements of ceding insurers domiciled in other states.

As it now stands, the House legislation takes a home-state regulatory approach, while under the NAIC proposal the NAIC would approve which states regulate reinsurance transactions.