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NAIC Approves Reinsurance Collateral Model Law

The National Association of Insurance Commissioners (NAIC) voted to adopt an amended version of the proposed Credit for Reinsurance Model Law in a unanimous voice vote, marking the culmination of an issue that has been before the NAIC for the past decade
November 9, 2011

The National Association of Insurance Commissioners (NAIC) voted to adopt an amended version of the proposed Credit for Reinsurance Model Law in a unanimous voice vote, marking the culmination of an issue that has been before the NAIC for the past decade. The model law addresses how state insurance commissioners should go about approving reinsurance companies based outside the United States for posting lower collateral than the 100 percent currently required by most states.

The amendments involved two key questions: which foreign jurisdictions should be considered “qualified” by the NAIC, and whether it should provide “advisory support and assistance” to states in the reinsurance collateral reduction evaluation. The amended model law requires the NAIC to publish a list of qualified jurisdictions. If a commissioner approves a reinsurer from a jurisdiction that is not on that list, he or she must provide a detailed report on how that jurisdiction meets certain regulator requirements. On November 4, former Federal Deposit Insurance Corporation Chairwoman Sheila Bair cautioned state insurance regulators about the risks that may arise if they do not remain vigilant when lowering collateral requirements. Florida Insurance Commissioner Kevin McCarty told Best’s News Service he agreed with Bair’s assessment of the risks posed by lowering collateral requirements.