The past year has seen a significant shift in the momentum for change to the US credit for reinsurance regime for non-US reinsurers. The issue is being treated more urgently than ever, ironically in a period when competing priorities for regulators and markets have arisen.
This fresh impetus has come from a number of directions. The US Treasury’s Blueprint1 on the question of regulatory reform in March reflected concerns that US regulatory modernisation across financial services had fallen off the agenda. Its paper was responsive to changes occurring in Europe, in international dialogue at the International Association of Insurance Supervisors (IAIS) and in the US/EU Transatlantic Economic Council.
In turn, this has produced Bills in Congress looking to implement some of the concepts in the Treasury Blueprint. H.R. 5840 from Rep. Paul Kanjorski (DPennsylvania) proposes the establishment of an Office of Insurance Information to enter negotiations with non-US regulators, as suggested in the Treasury Blueprint. Rep. Tom Feeney (R-Florida) has also proposed a bill, H.R. 6213, establishing RISSEB2, a board whose role would be to establish the equivalence of other non-US regulatory jurisdictions.
The NAIC’s3 Reinsurance Taskforce, under the leadership of NJ Commissioner Goldman, expects to present its proposal to the NAIC ‘E’ Committee in September. At a minimum, this will inform the direction of reform at federal or state level.
Meanwhile, at an individual state level, Lloyd’s has made public its support for those state regulators in New York, Florida and elsewhere, looking at avenues for reform of reinsurance collateral. New York’s proposed amendment to Regulation 20 is with the Governor’s Office of Regulatory Reform and is scheduled to come into effect on 1 January 2009. It focuses on cedant responsibility for ensuring that a non-US reinsurer meets its domestic solvency standards, is authorised and meets the specified policyholder surplus. The Florida-proposed rule was published on 1 April, with a public hearing following on 29 April. Lloyd’s submitted comments and the rule is now nearing final adoption.
If these cause the reader’s pulse to quicken, further explanation is needed. These state initiatives will not lead to a practical change in credit for reinsurance arrangements on their own. Other states require collateral for all liabilities throughout the US, not just those in that particular state. The individual state initiatives have led the way for further consideration by the Reinsurance Task Force and therefore for wider adoption.
Together, these efforts have generated the level of focus this topic merits. Does this activity alone therefore herald a breakthrough on issues such as reinsurance collateral? While it is promising, there are still a great many issues to cover. Most significantly, none of the proposals published so far are geographically agnostic, the basic principle of equal treatment for which Lloyd’s has pushed.
The main practical challenge remains in ensuring that any proposal for a reformed regulatory framework gets implemented. The question of whether to supplement or supplant existing structures is a common theme in the Treasury Blueprint, OFC4 and NRRA5 alike. The NAIC Reinsurance Taskforce appears to recognise that a mechanism to deliver uniform implementation would be a key requirement for any proposal that the NAIC produces. And NY Superintendent Eric Dinallo, speaking on behalf of the NAIC before the House Committee on Financial Services, said: “We recognise that certain fundamental improvements to state-based oversight may require federal assistance or empowerment.”
The impact of the US election injects a further dose of realism. Protectionism has featured during the Presidential primaries and it is worth restating the benefit of an open, fair market in reinsurance. Such arguments are not new. What has changed is the environment in which this subject is being discussed. Does this change translate into reform? Yes, there are grounds for confidence here simply in the surge in activity, but it remains to be seen if this confidence is well-founded.
1http://www.treas.gov/offices/doemstic-finance/regulatory-blueprint/
2 Reinsurance International Solvency Standards Evaluation Board
3 National Association of Insurance Commissioners
4 Optional Federal Charter
5 Non-Admitted Reinsurance Reform Act
