NAIC is the National Association of Insurance Commissioners – a membership-based organization. It also has become a “regulator” of the insurance industry with ambition for expanding that role – as noted in the comments in the article that follows.
Final details remain to be put in place, but the nation’s insurance regulators, after nearly a decade of study, have adopted a “conceptual framework” to modify the 100 percent collateral requirements for foreign reinsurers.
After the action by the National Association of Insurance Commissioners, at its winter meeting here, one insurers’ trade group vowed to fight against implementation at state and federal levels.
“This proposal sets forth a conceptual framework only,” said a statement from New Jersey Banking and Insurance Commissioner Steven M. Goldman, chair of the NAIC Reinsurance Task Force, which drafted the proposal.
“Now, we must focus on developing the specifics of this new regulatory regime and taking the appropriate legislative steps to make the proposal a reality,” he said.
The proposal creates two new classes of reinsurers in the United States: U.S.-domiciled national reinsurers and non-U.S.-based port of entry (POE) reinsurers, and introduces modified collateral requirements for eligible reinsurers.
A companion proposal that was approved establishes a new framework for state-based reinsurance regulation based on the concepts of supervisory recognition, single-state licensure for U.S. reinsurers and single-state certification for non-U.S. reinsurers from approved jurisdictions.
The proposal creates the NAIC Reinsurance Supervision Review Department (RSRD), which will evaluate the reinsurance supervisory regimes of other countries and establish standards for a state to be certified to regulate reinsurance on a cross-border basis.
In order to be certified as a POE federal enabling legislation would be required to give a state the authority to be the domicile state for a port of entry reinsurer.
A POE reinsurer must also be licensed by a non-U.S. jurisdiction recommended as eligible for recognition by the RSRD.
The companion proposal, developed by Vermont, includes the following principles:
• The RSRD should be created as a transparent, publicly accountable entity (contemplated to be part of the NAIC), with a governing board composed of state or district insurance regulators, and with director eligibility open to all state or district insurance commissioners, directors and superintendents.
• RSRD criteria relating to ceded premium volume will not unfairly discriminate against otherwise qualified small jurisdictions regarding approval as a home state or POE state supervisor.
Kentucky Commissioner Sharon Clark said that although she voted against the proposal, the principles in the companion proposal made her feel more comfortable with the proposal. Four other states voted against the proposal: Indiana, Ohio, Utah and Wisconsin.
Throughout its development, the proposal generated concern among trade groups including the American Insurance Association, Washington; the National Association of Mutual Insurance Companies, Indianapolis; and the Property Casualty Insurers Association of America (PCI), Des Plaines, Ill.
Aha! I’m not alone in having concerns; but admittedly don’t know the extent that I might agree with the position of others.
“We’re disappointed but not surprised,” said Steve Broadie, vice president of financial legislation and regulation with the PCI. But he says that there are points in the proposal that still need to be fleshed out, such as federal preemption.
Dave Snyder, AIA’s vice president and assistant general counsel, said, “Against a backdrop of financial stresses in the economic system, it is impossible to justify shipping billions of dollars of security out of the U.S. without obtaining at least equal concessions that would benefit U.S. companies overseas.”
“We will fight this in the states and certainly at the federal level because we believe that this is not in the interests of the U.S,” he promised.
The American Council of Life Insurers, Washington, has favored more “comprehensive” reinsurance reform, it said in a May 31 letter, while the Reinsurance Association of America, Washington, has “commended” the NAIC for acknowledging the need for a different framework and recommended embracing federal legislation to accomplish this goal, according to an RAA statement quoting RAA President Frank Nutter.
And the National Conference of Insurance Legislators, Troy, N.Y., through its president, New York State Sen. James Seward, R-Oneonta, expressed concern over the NAIC proposal in a Dec. 3 letter.
The letter agreed with Vermont and other states that support more corporate governance on the RSRD, including Maine, Nebraska, District of Columbia and Ohio. Sen. Seward expressed concern that seeking a “federal hand in reinsurance” for the POE “could lead states down the path to an undesirable federal regulator or to a national overseer in the form of the NAIC.”
The current NAIC Credit for Reinsurance Model Act remains in place for reinsurers that do not choose to become either national or POE reinsurers.