Under the leadership of New Jersey Commissioner, Stephen Goldman, the National Association of Insurance Commissioners (NAIC) Reinsurance Task Force (RTF)
recently produced a detailed proposal. The RTF and its parent committee, the
Financial Condition (E) Committee, approved the proposal at the NAIC Fall 2008
meeting in late September. The NAIC’s aim is for the proposal to be passed by its
Executive Committee and NAIC Plenary session at the NAIC Winter 2008 meeting in Texas in early December.
Implementation: Next avenue is Congress?
Even once adopted by the NAIC plenary session, the proposal will have quite some distance to travel before changes in collateral become a reality. The precise
mechanism used to ensure uniform implementation across all US states is not
dealt with in detail in the current NAIC proposals. However, rather than rely on its
adoption as an NAIC model rule, the proposal states that:
“…federal legislation would provide appropriate authority to the RSRD…A federal approach would facilitate incorporation of the concepts of mutual recognition and reciprocity into the framework…”.
Such a position, looking to federal implementation, is certainly a new departure for
the NAIC. Seasoned observers will note that this point has been reached before,
but might this signal a new determination to address this issue?
The success of the NAIC proposal rests on two factors beyond the NAIC adoption.
First, its acceptance and sponsorship within Congress. Despite a large Democrat
House majority, a degree of bipartisan support will be necessary to prevent
filibustering in Senate. Equally, the issue of reform is not one on which the House
Democrats are united, both elements serve to complicate the political picture.
However, the signs are promising: Washington DC has been examining US
regulatory arrangements for most of 2008 and the signs are that this will continue
in some form in 2009.
Second, a determination to make the practical realities of a balance between state
and federal government work. Again, there are grounds for some optimism here.
Bills such as those implemented to establish an Office of Insurance Information
under the US Treasury, while preserving the remit of state regulation; offer a means to implement such a proposal nationally. They also offer the opportunity for the US
to deal internationally with insurance regulatory matters such as Solvency II.
While this momentum is heartening, the current climate of uncertainty in financial
markets might spill over into developments such as these, stymieing regulatory
modernisation. Add to this the change in direction an incoming Obama
Administration’s may wish to see, and an uncertain dynamic in Congress. Despite
elements of continuity, the overall picture could look quite different in 2009. Lloyd’s
is firmly advocating that times like these call for fresh thinking and is looking to
make that message resonate at state and federal level.
Please contact Giles Taylor: giles.taylor@lloyds.com if you would like further
information.
The NAIC Proposal in Brief
- The Proposal establishes a “Reinsurance Supervision Review Department”
- responsible for evaluating reinsurance regulatory regimes both in US and non-US jurisdictions.
- International reinsurers domiciled in an RSRD-approved jurisdiction would be eligible to participate in the framework.
- The proposal envisages a single US state ‘port of entry’ system, whereby both US domestics and alien reinsurers have the option of selecting a single state to have sole responsibility for supervising their US reinsurance business.
- Reinsurers would be assigned a RSRD security rating which would be dependent on their rating and a number of other factors.
- The Proposal does not therefore offer equal treatment for the majority of US and non-US reinsurers, but seeks to soften the effect of this by committing to a review of the system two years after implementation.
The Proposal is a considerable improvement on the current law but falls short of
the goal of full mutual recognition of equivalent non-US regulators.
