Associations Balk at Proposed Calif. Reinsurance Regulations

New reinsurance regulations proposed by the California Department of Insurance (CDI) are “unnecessary, burdensome and anti-market competition,” according to comments filed by insurance trade associations at CDI hearings in Los Angeles yesterday.

“In light of the new financial responsibilities imposed on insurance carriers as a result of the Terrorism Risk Insurance Extension Act of 2005 (TRIA) and the widespread natural disaster claims that the insurance industry has had to deal with this past year, it is imprudent to impose new regulations that could limit an insurance carrier’s reinsurance options,” said Christian John Rataj, National Association of Mutual Insurance Companies (NAMIC) state affairs manager for the western United States.

NAMIC and its domestic member state advocacy partner, the Pacific Association of Domestic Insurance Companies (PADIC) argued that the proposed regulations are problematic for the following reasons:

*The regulations are not necessary and offer no appreciable benefit to the insurance consumer;

*The regulations, if implemented, have the potential to limit availability of reinsurance to small, domestic insurance companies (those that need it the most);

*There is a high probability that the regulations, as proposed, will raise the cost of reinsurance products for insurance carriers, which could ultimately increase premium rates for policyholders; and

*The regulations could adversely impact insurance carriers’ ability to secure reinsurance to handle natural disaster and terrorism related claims.

The American Insurance Association (AIA) agreed that the reinsurance oversight regulations would decrease the availability of reinsurance and put the state at odds with other jurisdictions.

“We appreciate the Insurance Department’s willingness to address some of our concerns, but more changes are needed to make these regulations workable,” said Steve Suchil, AIA assistant vice president, Western Region. “These regulations are a solution in search of a problem. The Insurance Department’s reasons for the regulations are not substantiated in the Initial Statement of Reasons section of the proposal, and the burdens they create will harm insurers.”

“Historically, regulations are created and adopted to resolve a particular problem within the insurance industry or to deal with a potential problem. Yet there does not appear to be any evidence that insurance company insolvencies are on the increase, or at least to the extent that would warrant the adoption of these regulations,” said PADIC’s Executive Director, Milo Pearson.

“The CDI’s reinsurance regulations would impose significant administrative and accounting procedures on reinsurance companies,” stated William Boyd, NAMIC financial regulation manager. “These restrictions exceed without justification the National Association of Insurance Commissioners’ (NAIC) Credit For Reinsurance Model Law and the related Credit For Reinsurance Model Regulation, which set forth a comprehensive plan for regulating reinsurance.”

“The proposed regulations depart from National Association of Insurance Commissioner’s uniform accounting standards and business practices that are used by insurers throughout the nation,” Suchil added. “Domestic insurers will struggle to meet these unique requirements while continuing to comply with regulations and laws in the rest of the country. The regulations create unnecessary obstacles that will cause trouble for domestic insurers in obtaining reinsurance. National insurers will be forced to set up totally separate financial statements just for California while complying with a different system for the rest of the country,” explained Suchil. “This will increase administrative costs that will ultimately be borne by California consumers.”

Rataj also asserted that “the professional relationship between the insurance industry and reinsurance industry must be vibrant with competition in order to afford consumers the insurance protection they need to address these ever growing insurance realities.”

“Any regulation that does not demonstrate that it is necessary, appropriate and beneficial to the insurance consumer should be opposed as being an unreasonable impediment to market competition in the reinsurance industry,” he said.

“These regulations create unprecedented sweeping changes for insurers while providing no additional improvements or protections for consumers,” Suchil said. “We hope the Insurance Department will go back to the drawing board on these proposed regulations.

“NAMIC will continue to work with its state advocacy partners, PADIC and PIFC, and the rest of the insurance industry in protecting insurance consumers from having to pay the price of needless insurance regulations,” Rataj added.

To view NAMIC’s and PADIC’s comments, visit http://www.namic.org/pdf/060123CalifReinsurRegComments.pdf

To view NAMIC’s and PADIC’s questions, visit http://www.namic.org/newsreleases06/060124nr1a.asp