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Collateral rule change a modernizing move


The decision of the National Assn. of Insurance Commissioners to move ahead with a rating-based approach for the regulation of reinsurers should, on balance, be welcomed by risk managers.

When U.S. regulators earlier this month agreed to move toward a system that would change the requirements that make non-U.S. reinsurers post 100% collateral to back the risks they assume in the United States, they took a step in a direction that more fully reflects the nature of the global insurance market.

While we understand, and have some sympathy with, the argument that policyholders that use insurers that buy reinsurance from non-U.S. reinsurers would be best protected if that coverage is fully collateralized, we think the issue is wider than that.

Those collateral rules are not as onerous as they might appear at face value. Non-U.S. companies can use letters of credit as tools to post collateral, but the rules still put up a barrier to many well-capitalized and well-regulated reinsurers seeking to do business in the United States.

And, although the attraction of tapping the largest insurance market in the world is likely sufficient to make many reinsurers jump through regulatory hoops, making them perform those financial acrobatics should no longer be necessary when sophisticated rating tools are readily available to regulators and policyholders.