Regulators Consider New Rating Approach To Reinsurance Collateral Requirements

After years of discussion, the National Association of Insurance Commissioners (NAIC) has moved one step closer to a substantial revision of collateral requirements for reinsurers. In a move that caught many by surprise, regulators at the NAIC Summer Meeting took measures to advance a new, rating-based proposal designed to ease collateral requirements for non-U.S. reinsurers. Unlike existing collateral rules, the NAIC proposal calls for collateral obligations to be tied to a reinsurer’s financial strength and would apply to all reinsurers, regardless of their licensing or accreditation status.

Current reinsurer collateral requirements are imposed under state credit for reinsurance regulations. Generally speaking, thes regulations require U.S. insurers to obtain acceptable forms of collateral from non-licensed or non-accredited reinsurers in order to take financial statement credit for reinsurance ceded to these reinsurers. In these situations,