Members of the Financial Condition Committee at the National Association of Insurance Commissioners have voted to advance a reinsurance modernization and collateral proposal.
The executive committee of the NAIC, Kansas City, Mo., and the plenary, a body that includes all voting members of the NAIC, expect to consider the proposal in Grapevine, Texas, in December, at the NAIC’s winter meeting.
Members of the Financial Condition Committee’s Reinsurance Task Force approved the measure earlier this week.
The plan would link collateral posted by a foreign reinsurer to a financial strength rating from a rating agency approved by the U.S. Securities and Exchange Commission and to the discretion of a port-of-entry or home state supervisor.
Based on a 5-tier system, collateral would range from no collateral for tiers 3 and above, 75% collateral for tier 4 (secure) and 100% collateral for tier 5 (vulnerable.)
The American Council of Life Insurers, Washington, says it supports the goal of modernizing existing U.S. life reinsurance regulation but cannot not support the current NAIC collateral proposal because it wants to see broader regulatory reform.
The NAIC proposal offers a “narrow” focus, the ACLI says.
Trade groups that have expressed opposition to the reinsurance collateral proposal include the American Insurance Association, Washington; the National Association of Mutual Insurance Companies, Indianapolis; and the Property Casualty Insurers Association of America, Des Plaines, Ill.
During discussions at the Reinsurance Task Force session, several speakers noted that American International Group Inc., New York, was highly rated just before it arranged for an $85 billion credit line from the Federal Reserve Bank of New York.
“The current news reinforces that this is a mistake to reduce collateral,” said Steven Bennett, AIA assistant general counsel. “Collateral exists to make sure that insurers are paid.”
Steven Goldman, the New Jersey commissioner and chair of the Reinsurance Task Force, spoke in favor of the collateral proposal.
“Clearly, this is not business as usual, but, at some point, we have to move forward,” Goldman said.
If a reinsurer is a domestic, then it would not be required to post collateral, Goldman said.
Goldman asked whether domestic reinsurers should be made to post 100% collateral if they provide security of payment. In such a case, he said, “all reinsurers should post 100% collateral and then there would never be a problem.”
Michael Moriarty, a New York regulator, acknowledged that “this might not be the best time to review this issue, but it is not the regulator’s job to eliminate credit risk, and that is what 100% collateral does.”
Moriarty said the reinsurance collateral proposal is prospective, meaning that it would apply to new business, and that it would be introduced over time.