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NAMIC Testifies Against Latest NAIC Proposal to Change Credit Rules for Alien Reinsurers’ Collateral

WASHINGTON (Sept. 28, 2007) – A seemingly “new” proposal to change and possibly reduce the amount of collateral required of alien reinsurers raises the same questions and concerns as a previous plan, according to the National Association of Mutual Insurance Companies (NAMIC). The latest idea was the subject of a meeting here yesterday by members of the National Association of Insurance Commissioners.

Both proposals raise one question: “Who in the NAIC leadership, in Congress, or in the administration says there must be less than full collateral?” asked William Boyd, NAMIC’s financial regulation manager. “This should be explained.’

Boyd testified before an NAIC task force charged with developing a plan to modernize the regulation of reinsurance.

Currently, alien and unlicensed reinsurers most produce collateral to support the credit for reinsurance on which primary insurers depend for regulatory capital. U.S.-domiciled reinsurers are not subject to collateral.

A plan considered by the task force earlier this year, the Reinsurance Evaluation Office proposal, would have established a system whereby a reinsurer’s collateral would be based on its financial strength. That proposal would have applied to all reinsurers, regardless of U.S. or foreign domicile.

The latest proposal, called the Reinsurance Supervision Review Department-Port of Entry, gives more power to each state, although the NAIC would judge the “equivalency” of alien jurisdictions’ regulatory regime and oversee any international agreements needed. Alien reinsurers in jurisdictions with “equivalent” regulatory regimes would be eligible for the U.S. market.

“However reasonable and rational it may appear to link collateral required of a reinsurer with that reinsurer’s financial strength and claims paying behavior, I believe it is unavoidable that a significant increment is added to solvency risk for U.S.-domiciled insurers ceding risk to alien reinsurers,” Boyd said.

As he explained to the panel, it cannot be said that all disputes that should be settled in favor of U.S.-domiciled cedents will be so settled – or settled at all. Also, at that crucial time when the weakening reinsurer must put up more collateral, it may not be able to do so.

“Full collateral, I believe you must admit, is pro-solvency,” Boyd said. “Our association favors maintenance of full collateral.”

For further information, contact
Nancy Grover
(202) 628-1558 Tel
(202) 628-1601 Fax

Posted: Friday, September 28, 2007 12:00:00 AM. Modified: Monday, October 01, 2007 11:06:15 AM.

317.875.5250 - Indianapolis  |  202.628.1558 - Washington, D.C.

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