The Reinsurance (E) Task Force has proposed amendments to the NAIC’s Credit for Reinsurance Model Law and the Credit for Reinsurance Model Regulation (together, the CFR Model Laws) to implement reinsurance collateral reforms for reinsurers that meet certain conditions, as required in connection with the Bilateral Agreement Between the European Union and the United States of America on Prudential Measures Regarding Insurance and Reinsurance (Covered Agreement), which was signed by the U.S. and the EU in September 2017.
The Covered Agreement prohibits a U.S. territory (i.e., state) from imposing any reinsurance collateral requirements upon a qualifying EU assuming reinsurer that would result in the EU reinsurer receiving less favorable treatment than assuming reinsurers domiciled in the state. The Task Force has proposed amendments to the CFR Model Laws to: (a) eliminate reinsurance collateral requirements for EU-based reinsurers meeting the conditions of the Covered Agreement; (b) extend similar treatment to reinsurers from other jurisdictions covered by potential future covered agreements; and (c) extend similar treatment to reinsurers domiciled in “reciprocal jurisdictions” that are not necessarily parties to existing or future covered agreements. In their current stage of development, the amendments to the CFR Model Laws would allow a U.S. ceding insurer to take 100% credit for reinsurance for transactions with non-U.S. reinsurers that meet all of the following requirements (in relevant part):
- The assuming reinsurer has its head office, or is domiciled, in a “reciprocal jurisdiction.” A “reciprocal jurisdiction” includes: (i) any non-U.S. jurisdiction that has entered into a treaty or international agreement with the U.S. regarding credit for reinsurance; and (ii) any “qualified jurisdiction” (for certified reinsurer purposes) that is not a party to such an agreement with the U.S. and that satisfies certain requirements with respect to the treatment of U.S. reinsurers operating in such jurisdiction.
- The assuming reinsurer maintains minimum capital and surplus (or its equivalent) of not less than $250 million.
- The assuming reinsurer maintains a prescribed minimum solvency or capital ratio.
- The assuming reinsurer agrees to be subject to U.S. jurisdiction for certain limited purposes and to make certain informational filings with state insurance departments.
In the 16 comment letters that were submitted in response to the exposed amendments to the CFR Model Laws, a number of common issues were raised by interested parties, including: (i) concerns regarding the degree of commissioner discretion (including with respect to the ability to request additional information not required under the Covered Agreement) and resulting disparate treatment of non-EU jurisdictions, (ii) the need for greater conformity to the language in the Covered Agreement, and (iii) the need for recognition of qualified jurisdictions as reciprocal jurisdictions and the manner in which such jurisdictions will indicate acceptance of the U.S. state-based system. The Task Force will further revise the proposed amendments to the CFR Model Laws and re-expose the amendments for comment prior to the NAIC’s Fall 2018 National Meeting. The Task Force intends to adopt the amendments to the CFR Model Laws by the end of this year.