NAIC Adopts Reinsurance Regulatory Modernization Framework

During its Winter 2008 National Meeting, the National Association of Insurance Commissioners (“NAIC”) adopted its Reinsurance Regulatory Modernization Framework Proposal, which modernizes U.S. state-based regulation of reinsurance. 

The proposal creates the following:

• Two new classes of reinsurers in the United States: U.S.-domiciled national reinsurers and non-U.S.-based port of entry reinsurers, and introduces modified collateral requirements for eligible reinsurers
• A new framework for state-based reinsurance regulation based on the concepts of supervisory recognition, single-state licensure for U.S. reinsurers and single-state certification for non-U.S. reinsurers from approved jurisdictions
• The NAIC Reinsurance Supervision Review Department, which will evaluate the reinsurance supervisory regimes of other countries and establish standards for a state to be certified to regulate reinsurance on a cross-border basis

The NAIC press release and a related article from National Underwriter on-line magazine are reprinted below for your review.

 

Should you have any questions or comments, please do not hesitate to contact Colodny Fass.

 

Reinsurance Reform Moves Ahead

Modernization Proposal Adopted; Guiding Principles Ratified

GRAPEVINE, Texas (Dec. 7, 2008) – The National Association of Insurance Commissioners (NAIC) has adopted its Reinsurance Regulatory Modernization Framework Proposal, which modernizes U.S. state-based regulation of reinsurance.

“This proposal sets forth a conceptual framework only,” said New Jersey Banking and Insurance Commissioner Steven M. Goldman, chair of the NAIC Reinsurance Task Force, which drafted the proposal. “Now, we must focus on developing the specifics of this new regulatory regime and taking the appropriate legislative steps to make the proposal a reality.”

The proposal creates two new classes of reinsurers in the United States: U.S.-domiciled national reinsurers and non-U.S.-based port of entry (POE) reinsurers, and introduces modified collateral requirements for eligible reinsurers. The proposal also establishes a new framework for state-based reinsurance regulation based on the concepts of supervisory recognition, single-state licensure for U.S. reinsurers and single-state certification for non-U.S. reinsurers from approved jurisdictions.

The proposal creates the NAIC Reinsurance Supervision Review Department (RSRD), which will evaluate the reinsurance supervisory regimes of other countries and establish standards for a state to be certified to regulate reinsurance on a cross-border basis. In order to be certified as a POE reinsurer, a reinsurer must be licensed by a non-U.S. jurisdiction recommended as eligible for recognition by the RSRD.

The following “Principles for the Creation of the RSRD” will be used to guide the Task Force as the implementation process proceeds.

• The RSRD should be created as a transparent, publicly accountable entity (contemplated to be part of the NAIC), with a governing board composed of state or district insurance regulators, and with director eligibility open to all state or district insurance commissioners, directors and superintendents.
• RSRD criteria relating to ceded premium volume will not unfairly discriminate against otherwise qualified small jurisdictions from approval as a home state or POE state supervisor.

The current NAIC Credit for Reinsurance Model Act remains in place for reinsurers that do not choose to become either national or POE reinsurers. For more information, visit www.naic.org/committees_e_reinsurance.htm.

 

From the National Underwriter:

NAIC Approves ‘Framework’ To Revise Reinsurance Collateral

BY JIM CONNOLLY
NU Online News Service, Dec. 8, 10:50 a.m. EST

GRAPEVINE, TEXAS-Final details remain to be put in place, but the nation’s insurance regulators, after nearly a decade of study, have adopted a “conceptual framework” to modify the 100 percent collateral requirements for foreign reinsurers.

After the action by the National Association of Insurance Commissioners, at its winter meeting here, one insurers’ trade group vowed to fight against implementation at state and federal levels.

“This proposal sets forth a conceptual framework only,” said a statement from New Jersey Banking and Insurance Commissioner Steven M. Goldman, chair of the NAIC Reinsurance Task Force, which drafted the proposal.

“Now, we must focus on developing the specifics of this new regulatory regime and taking the appropriate legislative steps to make the proposal a reality,” he said.

The proposal creates two new classes of reinsurers in the United States: U.S.-domiciled national reinsurers and non-U.S.-based port of entry (POE) reinsurers, and introduces modified collateral requirements for eligible reinsurers.

A companion proposal that was approved establishes a new framework for state-based reinsurance regulation based on the concepts of supervisory recognition, single-state licensure for U.S. reinsurers and single-state certification for non-U.S. reinsurers from approved jurisdictions.

The proposal creates the NAIC Reinsurance Supervision Review Department (RSRD), which will evaluate the reinsurance supervisory regimes of other countries and establish standards for a state to be certified to regulate reinsurance on a cross-border basis.

In order to be certified as a POE federal enabling legislation would be required to give a state the authority to be the domicile state for a port of entry reinsurer.

A POE reinsurer must also be licensed by a non-U.S. jurisdiction recommended as eligible for recognition by the RSRD.

The companion proposal, developed by Vermont, includes the following principles:

• The RSRD should be created as a transparent, publicly accountable entity (contemplated to be part of the NAIC), with a governing board composed of state or district insurance regulators, and with director eligibility open to all state or district insurance commissioners, directors and superintendents.
• RSRD criteria relating to ceded premium volume will not unfairly discriminate against otherwise qualified small jurisdictions regarding approval as a home state or POE state supervisor.

Kentucky Commissioner Sharon Clark said that although she voted against the proposal, the principles in the companion proposal made her feel more comfortable with the proposal. Four other states voted against the proposal: Indiana, Ohio, Utah and Wisconsin.

Throughout its development, the proposal generated concern among trade groups including the American Insurance Association, Washington; the National Association of Mutual Insurance Companies, Indianapolis; and the Property Casualty Insurers Association of America (PCI), Des Plaines, Ill.

“We’re disappointed but not surprised,” said Steve Broadie, vice president of financial legislation and regulation with the PCI. But he says that there are points in the proposal that still need to be fleshed out, such as federal preemption.

Dave Snyder, AIA’s vice president and assistant general counsel, said, “Against a backdrop of financial stresses in the economic system, it is impossible to justify shipping billions of dollars of security out of the U.S. without obtaining at least equal concessions that would benefit U.S. companies overseas.”

“We will fight this in the states and certainly at the federal level because we believe that this is not in the interests of the U.S,” he promised.

The American Council of Life Insurers, Washington, has favored more “comprehensive” reinsurance reform, it said in a May 31 letter, while the Reinsurance Association of America, Washington, has “commended” the NAIC for acknowledging the need for a different framework and recommended embracing federal legislation to accomplish this goal, according to an RAA statement quoting RAA President Frank Nutter.

And the National Conference of Insurance Legislators, Troy, N.Y., through its president, New York State Sen. James Seward, R-Oneonta, expressed concern over the NAIC proposal in a Dec. 3 letter.

The letter agreed with Vermont and other states that support more corporate governance on the RSRD, including Maine, Nebraska, District of Columbia and Ohio. Sen. Seward expressed concern that seeking a “federal hand in reinsurance” for the POE “could lead states down the path to an undesirable federal regulator or to a national overseer in the form of the NAIC.”

The current NAIC Credit for Reinsurance Model Act remains in place for reinsurers that do not choose to become either national or POE reinsurers. For more information, visit www.naic.org/committees_e_reinsurance.htm.

 

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