Instead of posting 100% collateral, the alien reinsurers will be able to post much-lower levels. As signed by Gov. Chris Christie, A. 2670 will allow the commissioner of banking and insurance to allow credit for reinsurance if the reinsurance is ceded to an assuming insurer meeting certain financial and regulatory criteria. The New Jersey legislation is "bare bones," but establishes a framework to be filled with appropriate regulation, said Matthew Wulf, vice president, state relations and assistant general counsel for the Reinsurance Association of America.
"We think it's in keeping with the global nature of reinsurance," Wulf said.
Under a New York regulation that took effect Jan. 1, approved non-U.S. reinsurers are permitted to post just 20% of their loss reserves for nonlife reinsurance business. That followed a similar shift in Florida, which adopted legislation in 2007 allowing regulators to establish lower collateral requirements for non-U.S. reinsurers. In Florida, regulators drafted rules allowing non-U.S. reinsurers to qualify for the lower collateral requirements as long as they are financially sound and rated highly by at least two financial rating agencies. Before this, non-U.S. reinsurance companies generally were required to post 100% collateral, while domestic insurers posted no collateral.
The collateral changes make some domestic primary insurers nervous that their business will not be fully protected in the event of a financial disaster.
"Full, 100% collateral is the most secure position for primary insurers and policyholders," said Paul Tetrault, Northeast state affairs manager for the National Association of Mutual Insurance Companies. "We hope it's not a continuing trend."
The National Association of Insurance Commissioners' Reinsurance Task Force is considering a model law and model regulation on credit for reinsurance. The models will be discussed March 26 at the NAIC's spring national meeting.
The NAIC adopted a reinsurance framework in 2009 that sought to provide a national solution. It called for two new classes of reinsurers in the United States: national reinsurers (U.S.) and port-of-entry reinsurers (non-U.S.). National reinsurers would be licensed through a single home state, while port-of-entry reinsurers would be certified through a single port-of-entry state. The NAIC also sought federal enabling legislation to establish a Reinsurance Supervision Review Board as a federal entity responsible for evaluating states and non-U.S. jurisdictions. However, such legislation did not find a place in the Dodd-Frank financial reform act nor life as a stand-alone bill.