National Assn. of Insurance Commissioners OKs new reinsurance collateral model law

NATIONAL HARBOR, Md.—The National Assn. of Insurance Commissioners gave its approval Sunday to a revised model law that would reduce the reinsurance collateral requirements for non-U.S. reinsurers.

Under the current NAIC Credit for Reinsurance Model Law & Regulation, in order for U.S. ceding companies to receive reinsurance credit, the reinsurance must either be ceded to U.S. licensed reinsurers or secured by collateral representing 100% of U.S. liabilities for which the credit is recorded.

The revisions, approved unanimously on Sunday during the NAIC's fall meeting at National Harbor, Md., would reduce these reinsurance collateral requirements for non-U.S. licensed reinsurers domiciled in qualified jurisdictions.

Among other things, under the model law, a state would evaluate a reinsurer that applies for certification and would assign a rating based on the evaluation. A certified reinsurer would be required to post collateral in an amount that corresponds with its assigned rating—0%, 10%, 20%, 50%, 75% or 100%—in order for a U.S. ceding insurer to be allowed full credit for the reinsurance ceded. Each state would have the authority to certify reinsurers, or a commissioner would have the authority to recognize the certification issued by another NAIC-accredited state. The NAIC would publish a list of qualified non-U.S. jurisdictions.

The Washington-based Reinsurance Assn. of America welcomed the changes, which had been discussed by the Kansas City, Mo.-based NAIC for years.

“The RAA commends the NAIC for unanimously passing the credit for reinsurance model law changes,” said RAA President Frank Nutter in a statement. “Modernization of reinsurance regulation, including collateral reform, is necessary, and we applaud the NAIC for taking this important step. We look forward to working with the NAIC as they implement these changes and continue to review other areas for possible improvements.”