SAN ANTONIO--After years of discussion and debate, a subgroup of the National Assn. of Insurance Commissioners voted Monday to change the current collateral requirements for reinsurers doing business in the United States.

At the NAIC's winter meeting in San Antonio, members of the association's Reinsurance Task Force voted 15-5 to adopt the latest draft of a proposal that would introduce a system under which reinsurers' collateral requirements would be determined individually.

Under the current system, reinsurers licensed in the United States do not face a collateral requirement, while other reinsurers must post collateral equal to 100% of their U.S. liabilities before a ceding company can take full credit for the reinsurance.

According to the proposal, state insurance regulators, through a new entity called the Reinsurance Evaluation Office, would analyze reinsurers doing business in the United States--regardless of where they are domiciled--in terms of several factors, including financial strength and operating integrity. Based on the outcome of the evaluation, the REO would assign one of six ratings to each reinsurer. Collateral requirements, if any, would then be based on the rating and range from zero to 100% in 20% increments.

The task force moved the proposal on to its parent committee--the Financial Condition Committee--for further refinement, but only through September 2007.

"This is the most contentious issue the NAIC has dealt with regarding reinsurance in recent years," said Debra J. Hall, vp and regulatory counsel for Swiss Re America Holding Corp. based in Armonk, N.Y., who is co-chair of the task force's interested persons group.

Outgoing NAIC President Alessandro Iuppa, who is Maine's superintendent of insurance, said he had enough faith in the U.S. system of oversight that it was appropriate to discard the status quo and "move into the 21st century."

Dave Matcham, London-based chief executive of the International Underwriting Assn., said, "It's a significant step forward--a breakthrough after many years of debate."

Among the opponents of the measure were ceding company representatives including Michael Koziol, assistant vp and counsel for the Des Plaines, Ill.-based Property Casualty Insurers Assn. of America. "We oppose the reduction of collateral in any way, shape or form. It is a solvency issue and will ultimately affect the ceding companies," he said.

In other action at the meeting, the NAIC elected as officers for 2007: Walter Bell of Alabama, president; Sandy Praeger of Kansas, president-elect; Roger Sevigny of New Hampshire, vp; and Jane Cline of West Virginia, secretary/treasurer.