California Gets into the Act--Dodd Frank's Credit for Reinsurance

·     Align existing California insurance law related to credit for reinsurance to that of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) in its Nonadmitted and Reinsurance Reform Act (NRRA) portion. 

The Dodd-Frank Act was effective in July 2011, and the NRRA preempts the extraterritorial application of state credit for reinsurance law and would permit states to proceed forward with reinsurance collateral reforms on an individual basis if they are NAIC-accredited. The NAIC passed the reinsurance model law in November 2011 at its Fall national meeting.

One difference in the bill from the model law is an expanded review time for some filings due to California’s larger market and a cost recovery provision.

A key provision of the NAIC changes relates to the certification of a non-admitted reinsurer. Under the revised NAIC Models, each state has the authority to certify a reinsurer or to recognize the certification issued by another NAIC-accredited state. As part of the certification process, a rating system provides for certified non-U.S.-based reinsurers to reduce collateral under specified conditions, notes the California Insurance Department. 

The certification process is pivotal to permit a California domiciled ceding insurer to qualify for a credit on its financial statement under these new conditions.