Any changes to state reinsurance collateralization rules for non-U.S. reinsurers should be judged on whether they produce savings that can be passed along to consumers, in the view of one influential state regulator.
“My bottom line… [is] what will be the bottom line impact for the consumers?” New York Superintendent of Insurance Howard Mills tells Insurance Journal is a recent exclusive interview. “In other words, if the collateralization rule is dropped, will there be a cost savings passed on to the consumers of reinsurance, and ultimately the primary insurance consumers?”
Mills offers his views on reinsurance and other issues in a video interview, one in a series of 15 interviews with state regulators titled “The Commissioners.” The 15 interviews are now available for viewing in the video feature section on Insurance Journal web site at www.insurancejournal.com.
Representatives of non-U.S. reinsurers, including Lloyd’s of London, are seeking a reduction in reinsurance collateralization requirements required by the states, claiming the requirements amount to an unfair trade barrier. The National Association of Insurance Commissioners recently signaled a willingness to change the rules so that any collateralization would be based on an insurers’ financial ratings.
Some within the U.S. industry, led by the American Insurance Association, have balked at the proposed changes, arguing that exisiting financial requirements help protect the solvency of U.S. primary insurers by ensuring that non-U.S. regulated reinsurers fulfill their promise to pay.
Mills acknowledges that issue is “contentious” with good arguments on both sides.
“There are those who feel that this is not the time to change the collateralization rule. The primary concern, of course, is that some of these entities, these-non U.S. companies, are in different regulatory climates and this is not a time or an era, given all the problems we’ve seen, that we should be moving away from less regulation,” Mills explains.
The NAIC appears to favor moving away from using domicile as the criterion for any financial requirement and towards using a credit rating-based system. Under this proposal, reinsurers with high credit ratings might not have to post any collateral at all with U.S. regulators.
“The rating proposal is geographically agnostic, meaning that it really doesn’t concern itself with the country of domicile; it really focuses on the solvency of the companies in question,” Mills notes.
The NAIC is expected to take up the issue again at its December meeting.
For the complete interview with Mills, see www.insurancejournal.com.
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