The NAIC continues to be active in the reinsurance arena, and recently exposed for comment the following items.
Regulatory Modernization—Proposed Federal Enabling Legislation: Moving forward efforts to implement the Reinsurance Regulatory Modernization Framework, the NAIC’s Reinsurance Task Force in late March exposed draft federal legislation titled the “Reinsurance Regulatory Modernization Act of 2009.” Among other things, the Act creates the Reinsurance Supervision Review Board, a nonprofit corporation owned by or affiliated with the NAIC with authority to take actions required for implementation of the Framework.
Proposed Amendment to Credit for Reinsurance Model Law: Responding to concerns that assuming insurers in run-off are unduly burdened by the current $20 million minimum trusteed surplus requirement for multiple-beneficiary trusts, the Reinsurance Task Force exposed a proposed amendment to Section 2(D)(3) of the Credit for Reinsurance Model Law. The proposed amendment authorizes the commissioner with principal regulatory oversight of the trust, after an appropriate risk assessment, to allow exceptions to the $20 million trusteed surplus requirements for assuming insurers that have permanently discontinued underwriting new business secured by the trust for at least three years. In no event, however, would the trusteed surplus be allowed to fall below 50% of the assuming insurer’s liabilities attributable to reinsurance ceded by U.S. ceding insurers.
Reinsurance Collateral Requirements: In light of the recent upheaval in the financial markets, the Reinsurance Task Force exposed a guidance memorandum on the application of authority granted to commissioners under the Credit for Reinsurance Model Law and Credit for Reinsurance Model Regulation to accept “any other form of security acceptable to the commissioner,” and to determine that a financial institution meets the criteria for a “qualified U.S. financial institution.” Among other things, the guidance memorandum cautions commissioners to exercise their authority concerning other forms of security “on a case-by-case basis only after careful and thorough evaluation of all information relevant to each situation.” In addition, the guidance underscores that the permitted security should be held in the United States for the sole benefit of the ceding insurer and subject to the exclusive control of the ceding insurer or, in the case of a trust, in a qualified U.S. financial institution. The Task Force has stated that it will consider the development of a communication mechanism among NAIC members relating to situations where “other forms” of security have been accepted.
Jorden Burt has reported on the details of the Reinsurance Regulatory Modernization Framework in previous editions of Expect Focus. In addition, you can access more information concerning the workings of the Framework, as well as the proposed Reinsurance Regulatory Modernization Act of 2009 and the other items recently exposed by the NAIC, at www.ReinsuranceFocus.com.