At a later session devoted exclusively to regulatory issues, Brad Kading, president and executive director of the Association of Bermuda Insurance and Reinsurers, asked Mr. Dreyer for his views on the subject.

What would be the ratings impact on ceding companies if the United States abolished collateral requirements in 2006? Mr. Kading asked.

Capital charges within S&P's ratings formula would go up for cedents--and those using the most creditworthy reinsurers would suffer the worst near-term impact, said Mr. Dreyer, referring to a proposal that would have collateral requirements gauged to financial strength of reinsurers.

Under the current system, where liabilities are 100 percent collateralized, there is no capital charge in S&P's ratings model, he explained. "For the U.S. ceding companies, in our analysis of capital, we're providing full credit for collateral that's in place," he said.

"So if the collateral goes away, the immediate impact will be increased capital requirements for the ceding companies."

For example, he said that if an insurer is currently buying reinsurance from a single "B"-rated reinsurer, there's no capital charge to the ceding company.

He noted that the National Association of Insurance Commissioners may be headed toward a risk-based collateral standard--where less collateral would be required to be put up for stronger reinsurers, and none for the strongest.

"That makes a lot of sense to us from a philosophical standpoint," Mr. Dreyer said.

"But, ironically, the adjustment period would be harshest on those companies that use the strongest reinsurers," he said, noting that since collateral would disappear, S&P would subject the uncollateralized portion of recoverables--as it does currently--to risk-based charges in its capital model.

Mr. Dreyer said he believed that over the longer term, the proposed approach would be "healthier than the head-in-the sand-approach" that doesn't worry about the financial strength of reinsurers at all, and instead just has regulators requiring that letters of credit or trust funds be in place to back up reinsurance obligations of alien reinsurers.

"That's a nice world to live in," he said, referring to the current system, "but as reinsurance needs grow, the financial markets are going to be more challenged to provide letters of credit and other forms of collateral at economic terms."