U.S. and European officials are having good conversations about reinsurance regulation.
Mark Sobel, deputy assistant secretary for international monetary and financial policy at the U.S. Treasury Department, described the conversations Friday in Washington at a meeting of the European American Business Council, Washington.
Sobel briefed members of the council, which includes many U.S. and European accounting and industrial firms but no banks or insurance companies, on the U.S.-European Union Financial Market Regulatory Dialogue, which was created in 2002.
“Our dialogue is not a negotiation,” Sobel said, according to a written version of his remarks posted on the Treasury Department’s Web site. “The independence of regulators must be respected.”
In addition, regulators must develop regulations through established rulemaking processes and cannot be negotiated, Sobel observed.
But the dialogue can promote understanding, and one focus of the dialogue has been reinsurance, Sobel said.
“The U.S. reinsurance market is dominated by foreign entities,” Sobel said. “U.S. insurance regulation is delegated by law to the states, and for an unlicensed non-U.S. reinsurer to operate in a state, it must post collateral of 100% of its obligations to assure regulators it can meet its obligations if it becomes insolvent.”
European Union reinsurers have complained about the high cost of meeting the collateral obligations, and the European Union itself is implementing a new Reinsurance Directive that will end intra-E.U. collateral requirements by 2009, Sobel said.
“Many Europeans see this development as a precursor to abolishing or modifying U.S. collateral requirements,” Sobel said.
Sobel pointed to efforts by the Reinsurance Task Force of the National Association of Insurance Commissioners, Kansas City, Mo., to develop alternatives to the current framework on reinsurance collateral.
“The NAIC and EU regulators are consulting closely” on the rules for reinsurance collateral alternatives, Sobel said.
A copy of Sobel’s speech is on the Web at Document Link