A National Association of Insurance Commissioners panel has moved to break the logjam over the question of 100% collateral requirements for alien reinsurers, focusing efforts on an effort to rate all companies in the same manner regardless of nation of domicile.
The Reinsurance Task Force’s move stunned and angered domestic primary and reinsurance industry representatives who feel solvency protection has been sacrificed for foreign interests.
The vote came at the behest of Maine Commissioner and NAIC President Al Iuppa, who felt the time was ripe to break through the rhetoric that has been echoing through regulatory forums for the past several years on the matter.
For the last few months, a large group of industry representatives from both sides of the issue failed to reach any consensus on an alternative to the 100% collateral rule, which foreign reinsurers feel puts an undue burden on them and represents an unfair trade barrier.
“From my perspective, I was having a sense we were beginning to fall back into the same kind of rhetoric we were hearing for the past several years,” Iuppa said. “So I thought it was time we throw a fastball instead of a slider and move the discussion forward.”
As for where he thinks they are now in the overall process, “I would say we are at second base in the bottom of the fifth.”
However, to primary industry representatives such as David Snyder, an assistant vice president at the American Insurance Association, Washington, the move was a sellout of the U.S. consumer for no apparent reason. “When you sell someone down the river, you should at least get something in return,” he said.
An interested parties group now will work to flesh out and revise the proposed new rating system in time for final task force action in December–and ultimately full NAIC approval not long after that.
The proposal now in play will create some yet-to-be-determined mechanism to rate all reinsurers–alien or domestic–to determine what percentage of collateral they must post to operate in this country.
The proposal came from a so-called ad hoc group of commissioners formed several years ago to come up with collateral alternatives after the initial three years of debate failed to reach any consensus.
Mike Koziol, assistant vice president of the Property Casualty Insurers Association of America, Des Plaines, Ill., said the rating proposal could in theory offer the same solvency protection as the current system, but it was currently so amorphous as to be almost meaningless.
Iuppa said regulators would work with interested parties to “resolve any questions as to exactly what we are looking for in the next couple of weeks”–but emphasized he would make every effort “to make sure the rhetoric does not escalate to where it was before.”
Many in the domestic industry have resisted changes to the collateral rule, arguing there was no reason to “reform” the rules since the present system was working fine.
“This action is inexplicable in that it harms U.S. consumers, insurance companies and benefits only selected foreign reinsurers,” Snyder said. “The winners are influential economic interests outside the U.S.”