NAIC Adopts Its Reinsurance Regulatory Modernization Framework: A Proposal Modifying Collateral Requirements For Foreign Reinsurers

On December 7, 2008, the plenary session of the National Association of Insurance Commissioners (NAIC) adopted its Reinsurance Regulatory Modernization Framework Proposal (the Proposal). Adoption of the Proposal marks a substantial step toward reforming U.S. statebased regulation of reinsurance collateral requirements.

Under the current reinsurance regulatory model, all non-U.S. licensed reinsurers must post collateral (in the form of cash, securities, or unconditional letters of credit) for 100 percent of the reinsurance obligations for domestic ceding companies to receive financial statement credit. In comparison, a licensed or accredited U.S.-domiciled reinsurer need not post collateral for a cedent to receive credit, regardless of the financial strength of the domestic reinsurer. The recently adopted Proposal was borne from two previously rejected Reinsurance Task Force (RTF) proposals. The prior RTF proposals were the subject of a November 2007 Bulletin provided