The NAIC Reinsurance Task Force debated a proposal to reduce the 100 percent collateralization requirements for the U.S. liabilities of alien reinsurers.

Under the proposal, an NAIC white list would be created of approved reinsurers who would have to fund only 50 percent of their liabilities for unaffiliated risks and 30 percent for affiliates.

The proposal is the brainchild of the International Underwriting Association of London and the Comit? Europ?en des Assurances, based in Paris.

The Task Force agreed to create a new working group to review the proposal, and its members acknowledged that they need to learn more about alien reinsurers.

IUA chairman Stephen Cane, who is also the chief executive officer of Alea London, told National Underwriter he would "love to think" the collateralization issue is purely a security and solvency issue that opponents of liberalization are concerned about, but "I suspect there's an element of competition fear."

Mr. Crane said the Philadelphia hearings were the regulators' first public acknowledgement that trade, including in the area of reinsurance, is headed toward liberalization and globalization.

It also indicated an awareness this is an issue they should take more seriously, he said.

As explained by Mr. Cane, currently a non-U.S. reinsurer must establish a trust fund in the U.S. that is funded at 100 percent of its gross reinsurance liabilities, "plus an extra buffer" of $20 million.

Alternatively, the alien reinsurer must collateralize the liability by a letter of credit for each individual cedant, Mr. Cane continued. By and large, there are no similar barriers for U.S. companies in the United Kingdom or in European Union countries, he said.

He said that the problem with setting up 100 percent trust funds is that "a significant amount of money" that cannot be touched is tied up and removed from a reinsurer's "everyday operations."

At the same time, "reinsurance relies on spread, with the premiums collected from one company used to pay claims to another company, Mr. Cane said.

He noted that the IUA and CEA have long argued that competition is not an issue. This is because U.S. ceding companies tend to purposely devise reinsurance programs that place part of the reinsurance in domestic markets and the rest in foreign markets.

Because the risk is "fairly evenly spread" between the U.S. and the global markets, Mr. Cane does not think that alien reinsurers will stampede to the United States just because of a concession in the collateralization requirements.

"Frankly, if everyone operated on the U.S. system it would gum up the works eventually in that no one would get reinsurance," Mr. Cane said.