OIR Proposed Rule Hearing: Credit for Reinsurance From Eligible Reinsurers

The Florida Office of Insurance Regulation (“OIR”) held a hearing on April 29, 2008, to discuss Proposed Rule 69O-144.007 regarding Credit for Reinsurance from Eligible Reinsurers.

To view a copy of the hearing notice and Proposed Rule text, click here.

The Proposed Rule would allow Florida Insurance Commissioner Kevin McCarty the discretion to enable unaccredited reinsurers to conduct business in Florida without having to post 100 percent collateral for their obligations under reinsurance contracts with Florida insurers. 

Several insurance trade associations attended the hearing to present various comments and perspectives regarding this Proposed Rule.

Speaking in favor of the Proposed Rule were representatives for Lloyds America (“Lloyds”) and the Association of Bermuda Insurers and Reinsurers (“ABIR”). Presenting the opposing views were representatives from the Property Casualty Insurers Association of America (“PCI”), the National Association of Mutual Insurance Companies (“NAMIC”) and the Reinsurance Association of America (“RAA”).

A representative from State Farm offered two neutral suggestions to improve the draft language in the Proposed Rule.

A representative from Colodny Fass (“CFTKA”) attended on behalf of PCI, as well as to relay comments offered by certain members of the Florida Property and Casualty Association (“FPCA”) on a preliminary basis.

Specifically, CFTKA relayed the following concerns from certain members of the FPCA regarding the Proposed Rule:

• there will be no real savings to reinsurers or, if there are, these savings will not be passed along to Florida domestic insurers or Florida policyholders
• the Proposed Rule will have a serious impact after a wind or other catastrophic event
• the Proposed Rule, if passed, may increase reinsurance costs or eliminate certain reinsurance markets if Florida domestic insurers are forced to negotiate letters of credit on an ad hoc basis
• the Proposed Rule would place additional burdens on ceding carriers and would make it more difficult for a ceding insurer to track changes to a reinsurer’s financial condition that would necessitate an increase to a ceding insurer’s letter of credit
• having to post collateral provides better protection for Florida insurers and their policyholders

CFTKA also spoke in opposition to the Proposed Rule on behalf of PCI.  PCI indicated that, among other considerations, posting 100 percent collateral is in the best interests of Florida domestic insurers and Florida policyholders; the language in the Proposed Rule provides all of the benefits to foreign reinsurers and places all of the administrative and regulatory burdens on the ceding carriers; and the Proposed Rule, if passed, would require Florida domestic insurers to seek additional collateral from foreign reinsurers at times when foreign reinsurers are in financial distress and least likely to be able, or willing, to provide additional collateral to Florida domestic insurers.

NAMIC is opposed to the Proposed Rule due to solvency risks and a concern that collateral cannot be posted by an alien reinsurer within a reasonable amount of time.

The RAA offered its opinion that it is an odd time to move forward on this type of Rule, given the global credit crisis and market reports indicating that there is no capacity shortage in Florida. The RAA also indicated that it may file additional comments at a later date.

Speaking in favor of the Proposed Rule, Lloyds requested that the OIR consider:

• additional revisions to the Proposed Rule regarding the $100 million capital requirement for eligible reinsurers, which would allow certain Lloyds’ accounts to be considered acceptable proof of capital
• an exception to Florida’s Sunshine Law or some other Florida statute that would alleviate the concerns of the Financial Services Authority in London regarding the information sharing and confidentiality restrictions of the Proposed Rule
• a more reinsurer-friendly approach to this Proposed Rule, along the lines of a similar proposal being considered by New York insurance regulators. 

A representative of Hannover Re spoke in favor of revisions regarding the types of accounts that would be eligible for inclusion in the $100 million capital requirement.  The Hannover Re representative also requested that the OIR consider allowing multi-beneficiary reinsurance trusts as acceptable proof of capital.

Also speaking in favor of the Proposed Rule was a representative for the ABIR who requested, among other items, that the OIR consider accepting financial statements from alien reinsurers that are prepared in accordance with accounting practices of their domiciliary jurisdictions and that the one-year deferral of funding for short tail business be extended to two years.

The State Farm representative suggested that if reciprocal language is adopted by regulators in New York or other states, the OIR may want to provide for the acceptance of the determination of another state as relevant to an alien reinsurer’s status.  The State Farm representative offered that the OIR should consider a reciprocity provision that would relieve some of the regulatory burden, possibly on a discretionary rather than mandatory basis.  The State Farm representative also suggested that the OIR may want to include language that would allow it to withdraw such a determination.

CFTKA will continue to monitor this matter and provide information on any developments regarding this Proposed Rule.

Should you have any questions or comments, please do not hesitate to contact this office.

 

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