With its Tenth Amendment to 11 NYCRR 125 (Regulation 20), New York became the second U.S. state to enact a reinsurer ratings-based framework to allow ceding insurers to take full statutory financial statement credit for reinsurance ceded to certain unauthorized reinsurers without the reinsurers posting commensurate collateral. The amended regulation became effective January 1, 2011. A discussion of key provisions therein is available in a Special Focus feature on Jorden Burt’s reinsurance blog at www.ReinsuranceFocus.com.
Florida was the first state to adopt a reinsurer ratings-based framework for reinsurance collateral, applicable to property and casualty reinsurers. (New York’s regulation applies to reinsurance of risks relating to life, annuities, and accident and health, as well as property and casualty.) Florida has recently expanded the ranks of reinsurers authorized for reduced collateral; as of February 1, 2011, Florida had so authorized seven property and casualty reinsurers, indicating some success in its aim to attract additional capacity.
Other states reportedly are considering reinsurer ratings-based frameworks. Indeed, the NAI C’s latest activity in this regard appears to anticipate similar state initiatives on a widespread basis (see accompanying article regarding the NAI C’s Reinsurance Task Force recommendations). In the end, market realities may dictate the pace at which more states adopt reinsurance collateral reforms. If moves like those in New York and Florida prove to increase capacity and decrease costs of reinsurance for domestic cedents, other states may be forced to follow in order to keep “level” yet another “playing field” – that on which their own domestic insurers compete with insurers domiciled in other states.