Help

BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.

To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.

To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.

Login Register Subscribe

NAIC approves plan to rework reinsurer collateral

Reprints

NATIONAL HARBOR, Md.—The National Assn. of Insurance Commissioners is seeking congressional sponsors for legislation that would establish the federal Reinsurance Supervision Review Board and ease collateral requirements for reinsurers based outside the United States.

The NAIC's Government Relations Leadership Council approved the proposed measure, The Reinsurance Regulatory Modernization Act of 2009, at its fall meeting last week in National Harbor, Md.

Under current law, non-U.S. reinsurers must post collateral equal to 100% of their U.S. claims liabilities. Such reinsurers for years have lobbied for a relaxation of that rule for highly rated companies, arguing that the collateral requirement puts non-U.S. reinsurers at a disadvantage in the U.S. market.

The plan would establish two new classes of reinsurers in the United States—national reinsurers, for U.S.-based firms; and port of entry reinsurers, for non-U.S.-based companies—with a minimum capital and surplus requirement of $250 million to be eligible for either category.

To transact business in the United States, national reinsurers would be certified through their home state; port of entry reinsurers would be certified through a single port of entry state.

Under the proposal, supervising states would assign a rating, ranging from Secure-1 down to Vulnerable-5, to determine required collateral.

National reinsurers would not have to post any collateral if they are placed in the Secure-3 tier or above. Port of entry reinsurers would have to post increasing percentages of collateral from the Secure-2 tier down. Both types of reinsurers classified as Secure-1 companies would not have to post collateral.

Reinsurers also could operate under the existing regulatory approach.

The proposal would have the U.S. president appoint 15 members to the Reinsurance Supervision Review Board, 10 from state insurance regulatory authorities. The president of the NAIC would submit nominees.

Directors of the U.S. Treasury Department, Commerce Department and Trade Representative Office would account for the remaining members.

Scott Richardson, director of the South Carolina Department of Insurance and acting chair of the NAIC's reinsurance task force, said the NAIC proposal can be viewed as an extension of the Nonadmitted and Reinsurance Reform Act, which the House of Representatives passed earlier this month. It deals with the some of the same issues, he said. “We just sort of ramped it up and took it to the next step.”

Reinsurers based outside the United States welcomed the legislation.

“This is a welcome finality to a very long process,” said David Matcham, chief executive of the London-based International Underwriting Assn. The legislation “contains a number of important concepts that recognize the need for change.”

He said he would argue, however, that U.K.-based reinsurers should not have to post more collateral than similarly rated U.S.-based reinsurers, or have to apply for port of entry reinsurance status and undergo a second regulatory process. “It still doesn't create full equivalency, really,” Mr. Matcham said.

“We hope that the NAIC will move swiftly in gathering sponsors to push the reform agenda forward,” Sean McGovern, Lloyd's of London's general counsel, said in a statement.

“We're encouraged by the NAIC's movement towards a federally sanctioned approach to reinsurance regulation, and certainly look forward to working with them on this,” said Frank Nutter, president of the Washington-based Reinsurance Assn. of America.

Nick Kapatos, chair of the Risk & Insurance Management Society Inc.'s external affairs committee, said the committee will respond to the proposal when it meets Oct. 23. “RIMS understands and appreciates the NAIC's interest and efforts to craft policy on reinsurance,” Mr. Kapatos said. “Generally, as commercial insurance purchasers, we support measures which increase capacity and facilitate affordability. However, we understand there may be some lingering constitutional concerns with the NAIC proposal.”

He cited the provision of the president appointing 10 directors from state insurance regulatory authorities to the new board. Many observers hold that this presents some constitutional issues, said Mr. Kapatos, who is senior vp and enterprise risk manager for Sterling Bank in Houston.

However, Mr. Richardson said he feels the bill addresses that issue; while the NAIC would suggest board members, the president could nominate whomever he wants.

Others stressed the issue of collateral.

Bill Boyd, financial regulation manager for the Indianapolis-based National Assn. of Mutual Insurance Cos., said he welcomes streamlining the licensure of reinsurers. “The problematic part” is that it reduces the amount of collateral required by non-U.S. reinsurers to below 100%. NAMIC members prefer that full, 100% collateral be required, he said. “It is simply a matter of security.”

Will Rijksen, vp of public affairs for the Washington-based American Insurance Assn., said current reinsurer collateral rules “are helpful toward solvency, whereas this proposed bill would put those solvency standards at greater risk.”

“It would reduce collateral levels too much, too quickly,” Cliston Brown, Washington-based director of federal public affairs for the Property Casualty Insurance Assn. of America, said in a statement about the PCI's opposition to the bill.