Risk Retention Group (E) Task Force
Meeting Date
The Risk Retention Group (E) Task Force met on Saturday, September 29, 2007.
During this meeting, the Task Force:
Continued discussions on the tenth Part A standard regarding reinsurance ceded. This standard requires adoption of the Credit for Reinsurance Model Law and Regulation or substantially similar language.
Seven significant elements of the Model Law are required for accreditation. These elements indicate that an insurer may take credit for reinsurance in four different situations: (a) when the business is ceded to a licensed insurer; (b) when the business is ceded to an accredited insurer that meets specific requirements set forth in the Model Law; (c) when the business is ceded to an insurer domiciled in a state which employs substantially similar standards for credit for reinsurance and maintains capital and surplus of at least $20 million; and (d) when the business is ceded to an insurer who maintains a trust fund meeting various requirements.
The Task Force held two conference calls since its Summer National Meeting. As part of these calls, the District of Columbia provided draft proposed reinsurance guidelines that were initially exposed for comment by the Task Force until Aug. 22, 2007, and then subsequently re-exposed for comment until Oct. 15, 2007. The draft guidelines indicate that credit for reinsurance may be allowed when not meeting items (a) through (d) above and without posting collateral if (1) the reinsurer maintains an A- or higher A.M. Best rating and maintains minimum policyholder surplus in an amount acceptable to the Commissioner or (2) if the reinsurer satisfies various requirements, including filing audited financial statements, maintaining a premiums written to surplus ratio of not more than 3 to 1, and submitting to the examination authority of the Commissioner. The guidelines also indicate that the Commissioner may waive one but not all of the reinsurance requirements in circumstances where the risk retention group (RRG) licensed as a captive insurer or reinsurer can demonstrate to the satisfaction of the Commissioner that the reinsurer is sufficiently capitalized as based on review of the most recent audited financial report, and the proposed reinsurance agreement adequately protects the RRG licensed as a captive insurer and its policyholders. The Task Force is currently discussing whether this guideline should be an additional significant element within the Part A accreditation standards applicable to only RRGs licensed as captives. If the guideline is adopted, a state may have a law that includes an allowance for credit for reinsurance as discussed above, but states would not be required to have such a law.
One comment letter has been received during this latest exposure period and was discussed by the Task Force at its meeting today; however, because the exposure period remains open, the Task Force is anticipating holding at least one conference call prior to its Winter National Meeting to discuss any further comment letters that may be received.
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