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You are here: Home / Archives for Reinsurance Regulation

Reinsurance Regulation

NAIC Publishes Exposure Drafts of Proposed Revisions to Credit for Reinsurance Models to Implement the Covered Agreement

July 16, 2018 by Rob DiUbaldo

The NAIC has published proposed revisions to the Credit for Reinsurance Model Law and the Credit for Reinsurance Model Regulation that are intended to facilitate compliance by the states with the provisions of the Covered Agreement with the European Union, and avoid the federal preemption of state credit for reinsurance laws. These exposure drafts further the implementation of the Covered Agreement discussed at the NAIC’s February 20, 2018 public hearing. The draft revisions add new sections to both the Model Act and the Model Regulation allowing a ceding insurer to take financial statement credit for reinsurance if the assuming insurer has its headquarters or domicile in what the state insurance commissioner determines is a “Reciprocal Jurisdiction,” as that term is defined in the revised Models. The proposed revisions do not change or delete any of the existing provisions of the Models, which would remain in force and effect along with the new provisions.

The proposed revised Model Regulation adds detailed requirements to the more general provisions of the Model Act, including provisions clearly intended to implement the provisions of Articles 3 – 5 of the Covered Agreement and extend the benefits of the reinsurance collateral provisions of the Covered Agreement to non-E.U. jurisdictions that have group governance, capital, supervision, solvency, and other requirements that are in compliance with those found in the Covered Agreement. For example, Section 9 of the proposed revised Model Regulation states that to be recognized by a state as a Reciprocal Jurisdiction, a non-U.S. jurisdiction must either: (1) be recognized by the state insurance commissioner as a Reciprocal Jurisdiction and be party to a treaty or international agreement with the United States regarding credit for reinsurance, such as a Dodd-Frank Act Covered Agreement; or (2) be recognized by the state insurance commissioner as a qualified jurisdiction and a Reciprocal Jurisdiction, meeting stated requirements concerning the equal treatment of insurers domiciled in the U.S. and the foreign jurisdiction, a lack of a “local presence” requirement, certain worldwide group governance, solvency, capital, and supervision requirements, and required information exchange and sharing between insurance supervisors. The proposed revisions impose requirements for credit for reinsurance in such jurisdictions that are not only consistent with but quoted from the Covered Agreement, effectively offering the terms of the Covered Agreement to countries outside the E.U. on an equal footing with the Covered Agreement’s terms for E.U. member nations. Section 9.B.(2)(d) of the proposed revisions to the Model Regulation notes that “a memorandum of understanding or similar document between the commissioner and such qualified jurisdiction” will be needed to implement the provisions concerning the exchange of information between the regulators of different jurisdictions.

The proposed revisions to the Models resolve two issues which were undecided at the February 2018 public hearing: (1) whether the reinsurance collateral reform contemplated by the Covered Agreement would be limited to U.S.-E.U. relationships, or be applicable to reinsurance arrangements with foreign reinsurers domiciled elsewhere; and (2) whether non-E.U. domiciled reinsurers would have to be subject to the group supervision, solvency, capital, and information exchange provisions of the Covered Agreement to receive the benefits of reinsurance collateral reform. The proposed revisions to the Models make the reinsurance collateral reform provisions available with respect to any reinsurer domiciled in what the state insurance commissioner determines is a Reciprocal Jurisdiction, not limiting such treatment to E.U. nations, but conditions a determination that a jurisdiction is a Reciprocal Jurisdiction on that jurisdiction having laws or regulations in place that are consistent with the group supervision, solvency, capital, and information exchange provisions of the Covered Agreement. Thus, the Covered Agreement potentially becomes a model for the worldwide reinsurance market for U.S. ceding insurers.

There is a short public comment period for these drafts open until July 23, 2018. The consideration of these proposed revisions presumably will continue on the schedule published by the NAIC earlier this year, with consideration by the Financial Condition (E) Committee at the NAIC’s August meeting and by the NAIC plenary at the November meeting.

This post written by Rollie Goss.
See our disclaimer.

Filed Under: Reinsurance Regulation, Week's Best Posts

Texas Department of Insurance Proposes Regulations Implementing Reduced Collateral Credit for Reinsurance Law Passed by Texas Legislature in 2017

July 11, 2018 by Michael Wolgin

We previously reported on the Texas Legislature’s passage in 2017 of Senate Bill 1070, which reduced collateral requirements for foreign reinsurers in order for domestic insurers to receive credit for the reinsurance on their financial statements. The provisions of that bill took effect on January 1, 2018.

On March 15, 2018, the Texas Department of Insurance proposed to amend the Texas Administrative Code to implement the changes made by SB 1070. The amendments to §§ 7.601-7.612 and 7.614 implement amendments to existing reinsurance processes, including trust accounts and letters of credit that may affect certified assuming insurers, and clarify filing requirements and reduce the administrative burden and cost of submissions. Several of the amendments adopt revised versions of the NAIC Model Credit for Reinsurance Regulation, although the amendments do not adopt all of the Model Regulations. 28 TAC §§7.601-7.612, 7.614, and 7.621-7.627 (amended June 15, 2018).

This post written by Benjamin E. Stearns.

See our disclaimer.

Filed Under: Reinsurance Regulation

New Federal Law Aims To Increase Transparency Of International Insurance Standard-Setting Bodies

July 9, 2018 by Michael Wolgin

President Trump signed the Economic Growth, Regulatory Relief, and Consumer Protection Act into law on May 24, 2018. Section 211 of the law requires the Secretary of the Treasury, Board of Governors of the Federal Reserve System, and Director of the Federal Insurance Office (“federal regulators”) to support “increasing transparency at any global insurance or international standard-setting regulatory or supervisory forum in which they participate.” The law requires the federal regulators to achieve consensus positions with State insurance regulators through the NAIC when the federal regulators “take a position or reasonably intend to take a position with respect to an insurance proposal by a global insurance regulatory or supervisory forum.”

The law creates the Insurance Policy Advisory Committee on International Capital Standards and Other Insurance Issues at the Board of Governors of the Federal Reserve System. The Committee must comprise of not more than 21 members representing a “diverse set of expert perspectives from the various sectors of the United States insurance industry.”

The law requires the Secretary of the Treasury and the Chairman of the Board of Governors of the Federal Reserve System to submit an annual report and provide annual testimony on their efforts with the NAIC with respect to global insurance regulatory or supervisory forums. The reports must address (i) issues under discussion at international standard-setting bodies, including the Financial Stability Board (FSB) and the International Association of Insurance Supervisors (IAIS); (ii) the effects that proposals discussed at the international bodies could have on consumer and insurance markets in the United States; (iii) any position taken by the federal regulators in international insurance discussions; and (iv) efforts by the federal regulators to increase transparency at the FSB and the IAIS. The law also permits the NAIC to provide congressional testimony.

The law requires the federal regulators, in consultation with the NAIC, to complete a study and report to Congress on the impact of any final international insurance capital standard on consumers and markets in the United States before supporting or consenting to the adoption of the standard. The law provides for public notice and an opportunity for public comment with respect to the report. The federal regulators are required to submit to the Comptroller General of the United States the report for his or her review.

Finally, not later than 180 days after the date of enactment of this law (November 20, 2018), the Chairman of the Board of Governors of the Federal Reserve System and the Secretary of the Treasury, or their designees, shall submit to Congress a report and provide testimony to Congress on the efforts of the Chairman and the Secretary to increase transparency at meetings of the IAIS. S. 2155, 115th Cong. § 211 (2018).

This post written by Benjamin E. Stearns.

See our disclaimer.

Filed Under: Reinsurance Regulation, Week's Best Posts

Texas Department Of Insurance Seeks Comments on Reorganized Surplus Lines Insurance Chapter

July 6, 2018 by John Pitblado

The Texas Department of Insurance has proposed to reorganize its Surplus Lines Insurance Chapter 15 in the Texas Administrative Code. The proposed new Chapter 15 can be found here. Comments on the proposal are due to the Texas Department of Insurance by July 23, 2018 and the Texas Commissioner will also consider written or oral comments on the proposal in a public hearing on July 19, 2018 in Room 100 of the William P. Hobby Jr. State Office Building.

This post written by Jeanne Kohler.

See our disclaimer.

Filed Under: Reinsurance Regulation

Idaho, South Carolina, and Tennessee Update Credit for Reinsurance Laws

June 21, 2018 by Michael Wolgin

South Carolina and Tennessee updated their respective credit for reinsurance statutes consistent with NAIC Credit for Reinsurance Model Law 785. Idaho and Tennessee adopted the NAIC Credit for Reinsurance Model Regulation 786. Among other changes, the updated model law and regulation set incremental collateral requirements for reinsurance ceded to alien reinsurers in order for a cedent to recognize a reduction in its liabilities for the amount ceded. Previously, the reinsurance ceded to alien reinsurers was required to be secured by 100% collateral. Idaho Credit for Reinsurance Rules no. 18-01-75 issued Mar. 28, 2018 (rules) (redline of proposed rules); South Carolina H.B. 4656 eff. May 3, 2018 (bill) (redline); Tennessee H.B. 1808 eff. Jan. 1, 2019 (bill) (summary); Tennessee Regs. Chapter 0780-01-63 eff. May 31, 2018 (regulation and redline).

This post written by Michael Wolgin.
See our disclaimer.

Filed Under: Reinsurance Regulation

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