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Member, Beacon International Group, Ltd.
Surplus lines were not the only insurance issue addressed in the financial regulatory reform bill that President Barack Obama is expected to sign into law this week.
The measure creates a Federal Insurance Office within the Treasury Department. The office will advise federal authorities on insurance matters, prepare reports and analysis and enjoy some limited pre-emption power over state laws that affect international insurance arrangements.
The property/casualty insurance market had been divided over how much pre-emptory power the office should wield, with some insurers fearing that the office could prove to be a significant step toward federal insurance regulation.
The Risk & Insurance Management Society Inc. considers the new FIO a “start,” said Scott Clark, RIMS director-external affairs and risk and benefits officer for Miami-Dade Public Schools in Miami. RIMS would have preferred the FIO had greater powers, but there was “not even a modicum of federal control” over insurance, so “we think it's a very effective first step,” he said.
The measure also addresses reinsurance regulation. It makes a reinsurer's state of domicile—if accredited by the National Assn. of Insurance Commissioners regarding solvency or a substantially similar solvency requirement—the sole regulator for solvency for the reinsurer. Previously the regulatory situation was unclear. It also holds that if the state of domicile of a ceding insurer is accredited by the NAIC regarding solvency, or has substantially similar solvency requirements and recognizes credit for reinsurance for the insurer's ceded risk, no other state can deny such credit for reinsurance.