New Jersey Law Authorizes Credit for Reinsurance
Apr 2, 2011
A newly enacted New Jersey law will authorize regulators to reduce the amount of collateral non-U.S. reinsurers will be required to post. To view a copy of the law, click here.
Rather than posting 100 percent collateral, Assembly Bill 2670, titled the “Reinsurance and Surplus Lines Stimulus and Enhancement Act” and signed into law by Governor Chris Christie, authorizes the New Jersey Commissioner of Banking and Insurance to permit credit for reinsurance if the insurance is ceded to an assuming insurer meeting certain financial and regulatory criteria.
This new law will give the Commissioner more discretion in determining collateral requirements, as long as the reinsurer maintains a surplus or its equivalent in excess of $250 million and if the reinsurance is negotiated at least in part by a reinsurance intermediary or representative of the reinsurer acting in New Jersey.
Several factors are listed for the Commissioner to consider when determining whether credit should be allowed, including whether the reinsurer has a secure financial rating from at least two nationally recognized statistical rating organizations, whether the domiciliary regulator is willing to cooperate with U.S. regulators and the state insurance commissioner, and any other matters deemed relevant to the Commissioner.
The New Jersey law is similar to the statutory and regulatory initiatives undertaken in New York and Florida. In New York, a regulation which became effective January 1, permits the Superintendent to reduce the amount of collateral unauthorized and unaccredited reinsurers must post for domestic cedents to receive credit for reinsurance ceded for property, casualty, life, annuity, and accident and health risks. Similarly, under a Florida regulation adopted pursuant to a change in the law in 2007, regulators are now authorized to establish lower collateral requirements for non-U.S. reinsurers. The non-U.S. reinsurers may qualify for the lower collateral requirements provided they are financially sound and rated highly by at least two financial rating agencies.
Effective the 90th day after March 22, 2011 (“Effective Date”), unless the Commissioner takes anticipatory administrative action beforehand, the provisions of the New Jersey law shall apply to reinsurance contracts entered into or renewed on or after the Effective Date of the law. However, the provisions applicable to life reinsurance contracts shall not become effective until a later date.
Should you have any questions or comments, please contact Colodny Fass.
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