Under the proposed concept, a reinsurer could be on an approved list and fund its outstanding liability collateralization requirement for less than 100 percent, subject to meeting certain regulatory and reporting criteria, said David Matcham, director of operations for the International Underwriting Association in London, which is pushing for the changes in the collateralization rules.

"Alien reinsurers would have to submit themselves to quite a bit of additional regulation to get on that list. It's not an easy process," Mr. Matcham said. "In return of course, they'd be able to fund at a lower level and therefore the costs of the product would reduce to the clients--to the cedents and the U.S. consumers," he said.

The proposals are aimed "at the highest, strongest, biggest, most secure reinsurers, so it could be no more than 10-12 companies," he said.

"I think most people agree that, if we're going to do something, it should be pinpointed and targeted on a company-by-company basis," Mr. Oxendine told National Underwriter.

Doing detailed reviews of individual companies to determine that it's appropriate to reduce the requirement from 100 percent gross funding "is a better way to go, instead of just doing something across the board [for all alien reinsurers]," he said.

However, Mr. Oxendine, who chairs the reinsurance task force of the NAIC, emphasized there are still a lot of unanswered questions and a lot of things that need to be worked on before any changes are made.

He said he wants to get the process moving, but there isn't a set deadline. "We've got to get everybody comfortable with it. We're all charged with making sure insurance companies stay solvent, and it's something we have to take very seriously and make sure we do it right."

He noted that the regulators are currently "going through the process of trying to understand in detail how different European countries go about their licensing and regulation." (The collateralization requirement was discussed at the recent NAIC meeting in March).

The Reinsurance Association of America in Washington, D.C., has opposed relaxation of the rules, saying there aren't common accounting standards, U.S. court judgments can't be enforced overseas and there's not a common reinsurance regulatory system in Europe.

"We still believe, as do many of the U.S. ceding companies, that the current requirements enhance competition and protect against solvency risk," said Frank Nutter, president of the RAA.

"In light of the recent rating agency actions regarding reinsurers, it seems to be the wrong time to reduce solvency requirements," he said.

Mr. Matcham said these objections could be overcome through regulation. "An applicant would have to satisfy the regulator that their home state regulation is sophisticated, that you can enforce judgments and that you can understand the balance sheet," he said.

Mr. Matcham said there was a substantive debate on the application of the proposal during the March NAIC meeting because some regulators were concerned about retroactive funding reductions when contracts were bought on the basis of 100 percent collateral.

"The regulators agreed that they would continue their discussions on this proposal if [the proposal] was on a prospective basis only, although they recognized that an individual cedent could agree to retrospective funding," he said. "That was a compromise we were happy with."

Mr. Matcham said U.S. brokers have indicated that overseas reinsurers are very conscious of this regulation and it affects their decisions to offer capacity. "If the regulation is onerous and costly, it's going to restrict the capacity and products available to U.S. consumers," he said.

Mr. Oxendine said he has heard people argue that capacity is being restricted by the regulation, but he's not sure how true that is. "I haven't had anybody come to me and say, ? We're not writing in the United States, but we would be if we didn't have to collateralize.' I've heard those comments [about capacity being restricted] and I guess my response is, ?If that's true, where are these people? Who are these people?'" he said.