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Reinsurance Regulation

CREDIT FOR REINSURANCE ISSUES TAKING NEW TURNS?

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We have posted many times on the slowly developing changes in the area of credit for reinsurance and reinsurance collateral requirements. The recent report on insurance regulation from the Federal Insurance Office contained a recommendation in this area: “To afford nationally uniform treatment of reinsurers, FIO recommends that Treasury and the United States Trade Representative (USTR) pursue a covered agreement for reinsurance collateral requirements based on the National Association of Insurance Commissioners Credit for Reinsurance Model Law and Regulation.” FIO Report, page 37. Such an agreement likely would be an international agreement which, pursuant to the Dodd-Frank Act, would preempt and supersede state laws in this area.

At the same time, the NAIC has been monitoring the adoption by the states of the Credit for Reinsurance Model, and has pursued a process of certifying foreign jurisdictions as “qualified jurisdictions” for purposes of of permitting reinsurers licensed or domiciled in such jurisdictions to seek certification by states for reduced collateral requirements under the Credit for Reinsurance Model. The NAIC has announced the addition of four international supervisory authorities as Conditional Qualified Jurisdictions: the Bermuda Monetary Authority; the German Federal Financial Supervisory Authority; the Swiss Financial Market Supervisory Authority; and the United Kingdom Prudential Regulation Authority of the Bank of England. According to the NAIC article, this approval permits states to begin certifying reinsurers licensed or domiciled in those jurisdictions for collateral reduction purposes, with the full review of these four jurisdictions by the NAIC continuing during 2014. Individual states have the authority to approve jurisdictions not on the NAIC’s list of qualified jurisdictions. Since the NAIC/Model approach depends upon action by individual states, this route is unlikely to achieve the uniformity advocated by the FIO Report, at least in the short term.

This post written by Rollie Goss.

See our disclaimer.

AFFORDABLE CARE ACT IMPLEMENTATION THAT WILL AFFECT REINSURERS

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The Department of Health and Human Services (“HHS”) has published a Notice of Proposed Rulemaking proposing the reinsurance payment parameters and uniform contribution rate for the 2015 benefit year and certain oversight/audit provisions for the transitional reinsurance programs required to be established in each state pursuant to the Patient Protection and Affordable Care Act to help pay the cost of treating high-cost enrollees in the individual market from 2014 through 2016. In addition to explaining both the operation of the HHS’s Affordable Care Act Health Insurance Model for estimating market enrollment and expenditure distributions, as well as the composition of the uniform contribution rate formula (which includes an annually decreasing reinsurance payment pool, contributions to the U.S. Treasury, administrative expenses, and an estimation of enrollees in plans required to make reinsurance contributions), the Notice also proposes for the 2015 benefit year (1) a uniform reinsurance contribution rate of $44 annually per enrollee in plans required to make required reinsurance contributions (versus $63 in 2014), (2) a $70,000 attachment point (versus $60,000 in 2014), (3) a $250,000 reinsurance cap (same as in 2014), and (4) a 50% coinsurance rate (versus 80% in 2014). Moreover, the Notice proposes to decrease the attachment point for 2014 from $60,000 to $45,000 to account for the HHS’s prior overestimation of the total covered claims costs of individuals enrolled in reinsurance-eligible plans in 2014. Lastly, the HHS proposes that if reinsurance contributions collected for a benefit year exceed the requests for reinsurance payments for the benefit year, the HHS would increase the coinsurance rate on its reinsurance payments, ensuring that all of the contributions collected for a benefit year are expended for claims for that benefit year.

This post written by Kyle Whitehead.

See our disclaimer.

THE EFFECT AND FATE OF THE ACA’S TRANSITIONAL REINSURANCE PROGRAM IS UNCLEAR

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On November 19, Senator Thune of South Dakota introduced S. 1724, the “Union Tax Fairness Act,” which proposes to provide that the reinsurance fee to be paid by health insurers and third-party administrators (on behalf of group plans) under the transitional reinsurance program of the Patient Protection and Affordable Care Act (“ACA”) be applied equally to all such issuers and administrators so that no special exemptions are available. This requirement would not be waivable. The bill (which can be read here) has been referred to the Committee on Health, Education, Labor, and Pensions. A companion house bill, H.R. 3755, was introduced by Congressman Perry of Pennsylvania on December 12 and has been referred to the House Committee on Energy and Commerce.

In other ACA reinsurance-related legislative activity, Congressman Tiberi of Ohio introduced on November 13 H.R. 3489, a bill to amend Section 1341 of the ACA to repeal entirely the funding mechanism for the transitional reinsurance program. The bill (which can be read here) reminds that the transitional reinsurance program was established to stabilize risk in the individual health insurance market during the first three years of the health insurance exchanges established by the ACA, but it then emphasizes (1) that the reinsurance fees to be paid to the U.S. Treasury serve as a disincentive for employers to continue offering coverage to all employees and (2) that employers do not receive any benefits of the program. That bill has been referred to the House Subcommittee on Health.

This post written by Kyle Whitehead.

See our disclaimer.

FIO FINALLY ISSUES INSURANCE REGULATION REPORT

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The Federal Insurance Office has finally issued the report required by the Dodd-Frank Act assessing the regulation of insurance in the United States. The report includes recommendations for the federal government to consider a limited role in helping to make the regulation of insurance more uniform. With respect to reinsurance, the report contains the following recommendations:

· States should develop a uniform and transparent solvency oversight regime for the transfer of risk to reinsurance captives (see page 32 of the report); and

· To afford nationally uniform treatment of reinsurers, FIO recommends that Treasury and the United States Trade Representative pursue a covered agreement for reinsurance collateral requirements based on the National Association of Insurance Commissioners Credit for Reinsurance Model Law and Regulation (see page 37 of the report). This would apparently be an international level agreement to introduce uniformity throughout the states, which under Dodd-Frank would pre-empt state laws.

This post written by Rollie Goss.

See our disclaimer.