On December 24, 2008, the New York State Insurance Department (“NYSID”) released a draft of its proposed amendments (the “Proposal”) to New York’s insurance regulations that authorize admitted insurers to receive credit for reinsurance ceded to unauthorized insurers. We previously reported on the NYSID’s plan to relax the collateral requirements on unauthorized insurers for ceding insurers to receive credit for reinsurance here and here. Under current New York law, unauthorized insurers are required to post collateral in an amount equal to 100% of their share of policyholder claims before a New York admitted insurer may receive credit for reinsurance.
The Proposal allows unauthorized insurers to reduce the amount of collateral it is required to post based on a sliding scale using at least two ratings agencies, such as Standard & Poor’s or A.M. Nest Company. An unauthorized insurer with the highest ratings would be granted 100% credit (while one with lower ratings would be eligible for 90%, 80%, 25% or 0% credit and be required to post the difference) provided that the unauthorized insurer:
- meets the standards of solvency, including standards for capital adequacy, established by its domiciliary regulator;
- is authorized in its domiciliary jurisdiction to assume the kind or kinds of reinsurance ceded by the ceding insurer; and
- maintains a policyholders’ surplus or equivalent in excess of $250,000,000, which is calculated on a U.S. GAAP or U.S. Statutory Accounting Principles.
Additionally, the unauthorized alien insurer must be domiciled in a nation with which the NYSID has entered into a Memorandum of Understanding (“MoU”), and the nation must allow U.S. reinsurers access to its market “on terms and conditions that are at least as favorable as those provided in New York.” As we previously reported here, the NYSID has entered into MoUs with regulators in France, Germany, Taiwan and the United Kingdom and with the Bermuda Monetary Authority.
The Proposal also requires the admitted insurer to maintain audited financial statements, prepared in accordance with GAAP or SAP or reconcilable to GAAP or SAP, of the unauthorized insurer and sets out various contract requirements including insolvency and choice of law provisions. Additionally, it states that the assuming alien insurer must submit to jurisdiction in the United States either in New York or in the domiciliary state of the cedent. The NYSID will accept comments on the Proposal until February 6, 2009.