Uniformity in regulation

The protracted nature of trying to unify changes across the state-based regulatory system in the US means a more uniform approach would be beneficial to all, as Frank Nutter explains.

In November 2011, the National Association of Insurance Commissioners (NAIC) unanimously approved changes to its credit for reinsurance model law and regulation. When adopted by the states, these changes grant discretion to the state insurance commissioner to allow insurers to take credit for reinsurance purchased from reinsurers that the commissioner has determined meet certain eligibility criteria, without posting 100 percent collateral as previously required.

These provisions provide incentives to financially sound reinsurers to do business in the US and enhance international regulatory cooperation. The legislation is viewed as critical to the US states’ role in the insurance regulatory modernisation debate both at the federal level and internationally.

In the two years since NAIC adoption, 18 states have passed revisions to their credit for reinsurance laws and/or regulations: Alabama, California, Connecticut, Delaware, Florida, Georgia, Indiana, Iowa, Louisiana, Maine, Maryland, Missouri, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Virginia. However, only a handful of these states have implemented the reinsurer certification process fully. 

Additionally, although the 18 states represent more than 50 percent of the US insurance premium, two large states have not yet passed these reforms due to primary insurer opposition: Illinois and Texas. With the Texas legislature meeting only every other year, the 2015 legislative session is the earliest the changes could be passed in that state. 

At the current rate of five to 10 states passing the revisions per year, it will take at least an additional four to five years to achieve collateral reduction across the entire US. Even when fully implemented by the states, variations in timing and certification requirements could still prove burdensome for reinsurers. 

For many reinsurers, the real benefit of certification and collateral reduction ability will be realised only when such certification applies uniformly to their cedants nationwide. 

The state-based system of insurance regulation is a tested and effective regulatory system in many respects, but the need for a uniform solution in the area of collateral reduction argues for exploring a state-federal partnership.

The Federal Insurance Office has a role, in consultation with the states and other federal offices, in creating covered agreements, which are bilateral or multilateral agreements regarding prudential measures with respect to the business of re/insurance that are between the US and one or more foreign regulatory entities. 

These agreements could mutually recognise the strength of various, and often different, regulatory regimes, and form the basis upon which non-US reinsurers from our major trading partners would participate in the US market, and US reinsurers would participate in those markets. These covered agreements would be uniformly respected throughout the states and create a uniform, state-based regulatory regime.

Frank Nutter is president of the Reinsurance Association of America (RAA), a position he has held since 1991. Nutter also served on the advisory board for the RAND Corporation Institute for Civil Justice and serves on its Board on Victim Compensation; the board of the International Hurricane Center; the advisory board of the Center for Health and the Global Environment, an adjunct to the Harvard University Medical School; and the board of the University Center for Atmospheric Research.

Intelligent Insurer, Frank Nutter, US, Regulation, National Association of Insurance Commissioners

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