Reinsurance reform in the United States has been a long-developing process and the subject of great debate. An important element of reinsurance reform has been the deliberations of NAIC aimed at amending its credit for reinsurance model law and regulation. On 11 July 2011, the NAIC Reinsurance (E) Task Force conducted an interim meeting to discuss proposed amendments to the Credit for Reinsurance Model Law (#785) and the Credit for Reinsurance Model Regulation (#786). Coming out of the interim meeting, the Reinsurance (E) Task Force released for comment exposure drafts of proposed amendments to Model 785 and 786 dated 26 July 2011. The deadline to submit comments on the exposure drafts is 24 August 2011. After the conclusion of the 30-day comment period, the draft models will be voted on by the Reinsurance (E) Task Force and the Financial Condition (E) Committee at the NAIC national meeting on 31 August 2011. The NAIC Executive (EX) Committee and Plenary will consider the drafts at a future date, with a goal of adopting the amended models before the end of 2011. Under the amended NAIC models as currently drafted, a reinsurer may qualify for reduced collateral requirements on a sliding scale based upon the rating assigned to the reinsurer by a state insurance commissioner. Factors that may be considered by the commissioner in determining the ratings for a reinsurer include, among other things, the reinsurer’s financial strength ratings from acceptable rating agencies, compliance with reinsurance contractual terms and obligations, business practices in dealing with ceding companies, reputation for prompt payment of reinsurance claims and the existence of any regulatory actions against the reinsurer.
The NAIC models are not binding law in any state. However, the models are important as accreditation standards. States have to be in compliance with and conform to the NAIC models in order to maintain NAIC accreditation. Individuals states are likely to enact laws and regulations that closely track amended Models 785 and 786 upon their adoption by the NAIC. Several states, including Florida, Indiana, New Jersey and New York, have already revised their credit for reinsurance statutes and regulations along the lines of the draft amendments to the NAIC models. Additional states have such reforms currently pending. Please see the article and chart below: States That Have Enacted Or Are Considering Reduced Collateral Requirements For Credit For Reinsurance. In addition, as a result of the Nonadmitted and Reinsurance Reform Act of 2010 (see separate article), states that have not adopted such reforms are nonetheless required to recognize the credit for reinsurance allowed by states that have enacted such reforms with respect to ceding insurers domiciled in those latter states.