U.S. Insurers Oppose Re Collateral Plans

U.S. primary and secondary insurers have come out against two proposals aimed at reducing collateral requirements for alien insurers.

In a joint letter to the insurance commissioners of New York and Washington, D.C., the American Insurance Association, Property Casualty Insurance Association of America, National Association of Mutual Insurance Companies, and National Conference of Insurance Guaranty Funds warned of the "adverse impact" the proposals would have on the insurance marketplace.

For several years, the alien insurers have proposed a so-called "white list" of approved insurers to be run by the National Association of Insurance Commissioners to allow credit-worthy companies to reduce their collateral requirements by up to 50 percent.

But the domestic industries, along with most regulators, have fought such a proposal as a threat to the solvency of the ceding companies.

The rating and pooling proposals were developed as an alternative.

Under the rating proposal, a Reinsurance Rating Organization would be formed to rate both domestic and alien reinsurers. Reinsurers would have to post collateral according to their rating on a scale of 1 through 5.

"If a reinsurer sees its ratings drop but fails to post the requisite collateral, it is the U.S. ceding insurer, not the reinsurer who is penalized," the letter states.

As for the pooling proposal, in which reinsurers would contribute mutually to a pool to back up risks, the letter expressed fears that since the assessments would be voluntary there were no guarantees it would be fully funded.

The two separate rating and pooling schemes were devised over the past couple of years by representatives of the alien insurers meeting with an ad hoc group of commissioners.

The Reinsurance Task Force is expected to receive these proposals formally at the fall quarterly meeting of the NAIC in September.