INDIANAPOLIS (Dec. 10, 2007) – The National Association of Mutual Insurance Companies (NAMIC) today submitted comments opposing a Florida draft rule to allow a reduction in the amount of collateral required of alien reinsurers. The comments were sent to the Florida Office of Insurance Regulation regarding OIR rule draft 690-144.007, Ratings Based Collateral Requirements.
“The proposed rule could lead to a weakened solvency position for U.S. primary insurers,” wrote Liz Reynolds, NAMIC’s Southeast state affairs manager. “The current full-collateral system for credit for reinsurance is simple and has served the industry well, providing security for U.S.-based companies to know funds are available to pay claims.”
NAMIC’s members underwrite approximately 31 percent of the Florida property/casualty insurance market.
The OIR has said the intent of the rule is to increase catastrophe reinsurance capacity in Florida and stabilize or reduce rates. But as Reynolds explained, it would not mean more reinsurers would be willing to participate in the Florida market and would not translate to more reinsurers willing to assume catastrophe risk in any form.
NAMIC suggested that no alien reinsurers would be willing to make specific and concrete representations about price, capacity, or the nature of risks that will be assumed – despite the amount of collateral required.
“It is critical to note that any weaknesses in a relaxed collateral regime will be revealed only in the wake of catastrophes or events leading to large number of claims,” Reynolds said. “We cannot rule out additional situations involving slow- or no-pay reinsurers downstream of serious weather or other events. That would only worsen the already strained marketplace in Florida, and it is not reasonable to expect the guaranty fund system to step up when such a situation can be avoided by continuing to require 100 percent collateral.”
Reynolds urged the OIR to withdraw the draft rule and focus attention on protecting insurer solvency rather than impairing it. “Absent a compelling demonstration that departure from the current full-collateral regime is of utility to Florida primary reinsurers, we find little reason to espouse the concepts that are fundamental to what is proposed,” Reynolds wrote. “In any event, Florida should not develop a plan separate from what may become uniform for states via development of a National Association of Insurance Commissioners’ model.”
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