Any reinsurance regulatory reform must be “comprehensive” and not simply address separate issues that reflect the larger need for reform, according to Donald Preston, vice president-reinsurance with the American Council of Life Insurers, Washington.
For example, Preston notes that the Reinsurance Task Force of the National Association of Insurance Commissioners, Kansas City, Mo., has been trying to resolve a debate on the proper collateral foreign reinsurers must post when they conduct business in the United States. The issue is still being debated after years of discussion.
“At this point, we have no position on collateral reform outside of comprehensive reform,” Preston says, adding that uniformity is one reason comprehensive reform is needed.
He notes that states like Florida and New York are taking their own actions and Texas could conceivably follow suit. Even with these “good efforts” and the fact that they are big states, Preston says, “I don’t think that it is a sustainable, uniform approach and that is what we are after.”
Additionally, Preston says, reform is needed because the life reinsurance laws are almost 20 years old, and consequently, these laws are impeding product development.
As an example of how innovation is being hindered, Preston says that if a company wants to develop a traditional life insurance product with a long term care benefit, the company would be disallowed from reinsuring the LTC benefit piece separately and would have to reinsure the whole transaction.
Among the broader solutions that the ACLI says it would like to see in place is a new system of principles-based reserving that would enable commercially negotiated terms in a contract to ensure financial soundness in the absence of collateral, Preston continues.