Battle lines are drawn in collateral proposals

The NAIC Reinsurance Task Force’s proposals for a new system of reinsurance collateral based on financial strength, circulated in November, have inevitably created a stir. US reinsurers are facing the prospect of collateral requirements for the first time and while “alien” reinsurers welcome the proposals, they say more can be done to eliminate collateral requirements altogether for the financially strongest firms.

US regulators steamed ahead with plans for an alternative to US collateral requirements on foreign reinsurers during the first few weeks of November. The National Association of Insurance Commissioners’ (NAIC) Reinsurance Task Force issued a crucial draft proposal at the end of October outlining its plans to replace the current 100% collateral system with a graded system based on reinsurers’ financial strength. Significantly, the proposal removes the different treatment of foreign and domestic reinsurers and under the new system, should it go ahead, reinsurers will be subject to the same collateral rules regardless of domicile.