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TO THE EDITOR: The 2006 National Assn. of Insurance Commissioners Winter National Meeting was a significant milestone in the longstanding discussion of reinsurance collateral requirements in the United States.
The reinsurance regulatory reform, based upon the proposed Reinsurance Evaluation Office, will bring significant changes to the current reinsurance regulatory system in the United States. More importantly, in the discussion, several commissioners addressed the necessity of globalization of U.S. insurance regulation.
Unfortunately, the protective position also stood out. The phrase "licensing value" raised doubts about the current strategic position of the U.S. insurance industry on trade liberalization. Indeed, to obtain an "entrance ticket" to markets is quite hard work. High costs and possibly a lot of time are needed to enter to new markets. In this way, a license might have great value.
However, as prescribed in the General Agreement on Trade in Services "Understanding on Commitments in Financial Services," reinsurance cross-border transactions should be basically free.
From the viewpoint of real reinsurance business transactions, U.S. reinsurers make a large profit from cross-border reinsurance transactions.
In transactions between the United States and Japan, insurers in the United States "sold" $2.35 billion in reinsurance premiums but "purchased" only $311 million from Japan.
This way, U.S. reinsurers enjoy benefits from other countries with no financial restriction such as collateralization. In addition, they require some countries to open up reinsurance markets.
The ongoing discussion is a step toward the realization of reform. A number of new commissioners will engage in the discussion and they have to maintain the momentum of regulatory change, so I hope there will be notable results from the next NAIC National Meeting starting March 10.
General Insurance Assn.