U.S. Regulators Recommend Key Change in Regulation of Reinsurers

December 14, 2006

Insurance regulators from across the county voted to recommend major changes in the way reinsurers are regulated.

The Financial Condition Committee of the National Association of Insurance Commissioners this week adopted a proposal from its Reinsurance Task Force, which recommends that the current regulatory framework for the supervision of reinsurance be amended to focus on broad-based risk and credit criteria, and not solely on U.S. licensure status.

To make the amendment possible, the Task Force further recommended that, for purposes of collateral recalibration, a proposal for a Reinsurance Evaluation Office (REO) serve as the foundation for a risk-based evaluation process, which is expected to be refined by the Committee no later than September 2007.

The task force also recommended that the committee consider commercially reasonable means for implementing the new regime.

As conceived, the REO proposal would establish an organization to evaluate financial strength, operating integrity, business operations, claims-paying history, management expertise and overall performance in assigning ratings to each reinsurer.

“We believe the adoption of this proposal expresses the sentiment that U.S. insurance regulators recognize the need to move from the current system of reinsurance regulation,” said Alessandro Iuppa, NAIC president and Maine insurance superintendent. “The system now is too simplistic, has arbitrary barriers that impugn valuable consumer protections, and ignores differences within and outside the United States.”

“The reinsurance agreements we have just entered into can have a financial impact on the counterparties for many years, and the oversight should be based upon market realities,” he said.

Source: NAIC
www.naic.org

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