The PCI does not support the NAIC's suggested changes to collateral requirements
According to the Property Casualty Insurers Association of America the National Association of Insurance Commissioners' (NAIC) Reinsurance Evaluation Office (REO) proposal exposes US cedingcompanies to a lower level of security than under the existing collateral requirements, contains too many provisions that are not clearly defined and should not be approved by the NAIC's Reinsurance Task Force during the December national meeting.
The Reinsurance Task Force was charged with developing alternatives to thecurrent reinsurance regulatory framework, including the requirement ofcollateral to US ceding companies. It is also considering approaches thataccount for a reinsurer's financial strength regardless of state or country.
“When has anyone ever shown that there is a need for or the benefit that wouldbe gained by moving forward with this proposal?” said Mike Koziol, assistantvice president and counsel for PCI. “While the proposal would establishcollateral requirements for fully licensed and US regulated US reinsurers,it would lower the alien requirements. However, the increase for USreinsurers would be less than the decrease for alien reinsurers, resulting in anet decrease in collateral. A net decrease is not our only concern because theREO does not assure that collateral reduction will not have adverseconsequences. That is the beauty of 100 percent collateral from aliencompanies. Under the REO, there can be ‘selective' reduction of collateralas applied to reinsurers not subject to US accounting rules and not subject tothe same enforceability of judgments as within the US. The reduced collateralexposes US ceding companies to solvency risk and greater guaranty fundassessments. Regulators must recognise the risks this proposal places upondomestics and companies doing business in their states.”