NAIC Reinsurance Task Force Meeting: September 8

On Tuesday, September 09, 2008, the National Association of Insurance Commissioners (“NAIC”) held a Reinsurance Task Force (“Task Force”) meeting to discuss revisions made to the Reinsurance Regulatory Modernization Framework draft proposal (“Proposal”).

To view the August 20 draft proposal showing tracked changes, click here.

The meeting was called to order by Chairman Stephen M. Goldman of New Jersey with a quorum of members in attendance.

Chairman Goldman opened the meeting by introducing key draft proposal issues and additional comments not previously provided, which included:

1. Collateral requirements for U.S. national reinsurers
2. Reciprocity issues
3. Group ratings
4. Solvency schemes
5. Life insurance industry concerns

Collateral Requirements for U.S. National Reinsurers

A representative from the Reinsurance Association of America (“RAA”) spoke against language in the current Proposal that would require U.S. licensed reinsurers rated Secure-3 and above to post collateral. The RAA representative argued that this would create an unfair bias against the U.S. regulatory system and send mixed signals to the global marketplace.

The RAA suggests that a sunset provision be included in the proposal, which would set a date on which the point of entry supervisor would have to determine, on a jurisdiction-by-jurisdiction basis, whether to continue, eliminate or modify collateral requirements for recognized non-U.S. jurisdictions. The addition of a timeframe would fulfill the goal of moving the U.S. regulatory regime towards genuine “mutual recognition.” As such, the RAA supports re-inserting Paragraph 19 into the draft proposal.

To view the RAA’s written comments, click here.

A representative from Munich Re offered support for the RAA’s position, adding that the eventual elimination of collateral is a welcomed goal. The representative from Munich Re voiced concern that requiring U.S.-licensed reinsurers to post collateral would make reinsurers with non-U.S. owned parent companies lose competitive position in the world market as well, inasmuch as those companies would have to post redundant collateral for the same risk.

Commissioners from New York, Vermont, Connecticut, Delaware and North Dakota spoke in favor of adding Paragraph 19 back to the Proposal.

A representative from Lloyd’s of London spoke against the inclusion of Paragraph 19, asserting that the deletion of the provision enhanced the global market for reinsurers based on quality instead of domicile.

To view Lloyd’s of London written comments, click here.

Reciprocity Issues

Chairman Goldman opened discussion of reciprocity this issues by stating that reciprocity always has been a strong foundation of the Proposal, but was downplayed in the previous draft because of enforcement questions raised at the last Task Force meeting in New York.

Subsequent to the New York meeting, the Committee decided to adopt a federal level enforcement mechanism, rather than State level. It was the general consensus of interested parties that the reciprocity issues had been properly addressed in the latest draft proposal version.

To view a summary of the July 23-24 New York meeting, click here.

Group Rating Issues

A representative from the American International Group (“AIG”) stressed the importance of group rating systems, saying that group supervision is a key element in many NAIC committee projects.

To view AIG’s written comments provided, click here.

A representative from Zurich Group Reinsurance North America voiced concern that pool-type ratings for companies governed under that structure should be adequate. Chairman Goldman stated that the Task Force is looking into the issue.

To view written comments provided by Zurich, click here.

Solvency Schemes

A representative from the American Insurance Association (“AIA”) expressed concern about solvency, stating that they pose a legal risk, in addition to a credit risk because countries regulate solvency differently.

To view written comments from AIA, click here.

Stating no concern with stricter limitations, a representative from the Property and Casualty Insurance Association of America cautioned the Task Force to not lose sight of the dangers posed by different solvency schemes.

Life Insurance Industry Concerns

Chairman Goldman opened discussion of life insurance industry concerns by stating that the principal concerns about a level playing field goes beyond the scope of the Task Force’s mission. Chairman Goldman suggested that, in order to address this issue, the Reinsurance Regulatory Modernization Framework’s effective date be postponed for this segment of the insurance industry until its concerns can be fully addressed.

A principal life actuary attending the meeting supported a delay, citing his concerns that:

1. Collateral reforms could create a back door for companies to work around collateral requirements, and that implementation of the Reinsurance Regulatory Modernization Framework as it affects the life insurance industry needs to be coordinated with the implementation of U.S. reserve reforms.
2. Neither change should be enacted until the U.S. reserve reforms are fully vetted.

Written comments also were received from the following parties:

• Michaela Koller, Director General, CEA Insurers of Europe
• David Johnston, Manager, London Market Insurers Team, Wholesale Firms Division, Financial Services Authority
• Katsuo Matsushita, General Manager, General Insurance Association of Japan
• D.J. Matcham, Chief Executive, International Underwriting Association of London

Chairman Goldman said the Task Force would incorporate all written comments and comments received during the meeting into the final version of the Reinsurance Regulatory Modernization Framework, to be voted on at the upcoming Fall 2008 National Meeting. It is expected to be sent to the Plenary Committee during the NAIC Winter 2008 National Meeting for final approval, and then to Congress in time for its next session.

The meeting was then adjourned.

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

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