NAIC reinsurance group looking beyond collateral

KANSAS CITY, Mo.--A key subgroup of the National Assn. of Insurance Commissioners is ignoring New York's recent proposal to reduce collateral for non-U.S. reinsurers doing business in the state, concentrating instead on resolving new questions about reciprocity, affiliate transactions and the need for uniform port of entry rules.

The NAIC's Reinsurance Task Force, which is drafting model law amendments to modernize the nation's regulation of reinsurance, is now shining the spotlight on non-U.S. jurisdictions, especially the United Kingdom and the European Common Market countries, and the practical application of their current and proposed rules on U.S. reinsurers doing business in those countries.

"I have some serious questions and concerns about reciprocity," said John Oxendine, the Georgia insurance commissioner and task force chairman, during a Thursday conference call. "I'll be honest. I'm not convinced that the E.U. is as open as some people may imply."

The topic will be discussed in detail Nov. 7-8 when the task force is scheduled to meet in Atlanta.

During the call, Hildegard Stuke, associate director of the Germany-based reinsurer Hannover Reinsurance Co., mentioned the New York proposal in a comment. Mr. Oxendine quickly responded that the New York proposal "is not being discussed. That has nothing to do with the Reinsurance Task Force."

New York plans to adopt such changes administratively, while most U.S. states would have to seek legislative approval for major changes to their laws regulating how U.S. cedents can take credit on their balance sheets for risks they transfer via reinsurance.

The U.S. regulatory system's complex approach to credit for reinsurance could limit the practical impact of New York's plan to intrastate transactions involving New York parties. If parties were located in other states, the regulators of those states have authority to conduct independent solvency examinations that could be "burdensome," Mr. Oxendine said last week. He recommends a collaborative approach to reinsurance modernization to avoid "patchwork" regulation, he added.

The debate, which has been running for several years, centers on requirements for non-U.S. reinsurers to post collateral that matches their exposures for U.S. risks. Many U.S. insurers and reinsurers have opposed any relaxation, citing financial security concerns, while overseas companies--most notably in London--have pushed for a relaxation arguing that they offer security that is comparable to or better than many of their U.S. competitors.