Reinsurance Collateral Change Proposed in NY

According to regulation proposed on Thursday by the New York Insurance Department, highly rated reinsurers would no longer post collateral when conducting business in New York, regardless of where they are domiciled.

Published on October 19, 2007

The proposed regulation would eliminate an existing requirement that reinsurers that are not authorized or accredited to conduct business in the state need to post collateral equal to 100% of their share of insured claims. That regulation applies to U.S. and non-U.S. reinsurers.

All financially strong reinsurers would be placed on equal footing with New York-domiciled reinsurers under the proposed regulation. There would be no requirement to post any collateral, while those that are not as strong would be allowed to post an amount based on a sliding scale from 10% to 100%.

According to the Insurance Department, its proposed regulation would attract more reinsurance capital to New York, which should help lower costs for businesses purchasing insurance. The regulation would take effect July 1, 2008 if approved.

“We will study the proposal in detail, but it appears to be a significant step forward towards U.S. and non-U.S. reinsurers being treated equally,” Lloyd’s of London General Counsel Sean McGovern said in a statement. “This must continue to be the goal.”

The National Association of Insurance Commissioners (NAIC) in the meantime debuted a separate proposal that would amend the existing regulatory framework for reinsurance by allowing single-state licensing of U.S. reinsurers. See NAIC press release here in DAILY NEWSFLASH regarding thee association's proposal.

That proposal also calls for establishing a Reinsurance Supervision Review Department to evaluate foreign reinsurance domiciles to determine whether they provide oversight that is “functionally equivalent” to U.S. regulation.