Reinsurance Collateral Proposals Evolve. The NAIC continues to develop its Reinsurance Regulatory Modernization Framework proposal, which aims to eliminate the dichotomy between U.S. and non-U.S. reinsurers as the controlling factor in determining collateral requirements for business ceded by U.S. insurers. The latest NAIC proposal contemplates the establishment in the NAIC of a Reinsurance Supervision Review Department that would, among other things, establish uniform standards for the single-state regulation of “national” (U.S.- domiciled) reinsurers and “port of entry” (non-U.S.) reinsurers. The NAIC proposal calls for each such reinsurer to be assigned one of five specified ratings – from “Secure-1” to “Vulnerable-5” – based upon the reinsurer’s financial strength ratings from rating agencies and other factors. The rating assigned by the reinsurer’s U.S. supervising jurisdiction would determine the amount of reinsurance collateral required on a sliding scale, with no collateral being required for reinsurers rated “Secure-1” to 100% collateral being required for a “Vulnerable-5” rating.
New York and Florida have developed their own proposals relating to reinsurance collateral requirements and related matters, with Florida’s proposal being limited to property and casualty insurance given the state’s paramount concern with increasing reinsurance capacity in the property insurance market. These proposals are similar to that of the NAIC in that they base collateral requirements on a reinsurer’s agency ratings, although each state introduces its own variations and requirements.
Jorden Burt has been monitoring developments in this area. For a more detailed summary of the NAIC, New York, and Florida proposals, please see the article posted on our reinsurance blog at http://www.reinsurancefocus.com/.
State Regulation of Captives. Regulators continue to refine state captive regulations in an effort to capture a larger segment of the U.S. alternative insurance market. Delaware has proposed amended regulations that would overhaul the financial and reporting requirements of state-domiciled captive insurers. Regulators in South Carolina recently issued a bulletin addressing requirements for managers of captive insurers, and legislators proposed a bill relating to the capitalization and free surplus requirements of captive insurers.