SPECIAL SECTION: Dodd Frank Financial Reform Legislation &
State Insurance Regulation
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Dodd-Frank Financial Services Regulatory Reform: NAIC Initiatives
Non-admitted and Reinsurance Reform Act of 2010 (NRRA):
Through its Reinsurance (E) Task Force, the NAIC is addressing reinsurance provisions contained within the Nonadmitted and Reinsurance Reform Act (NRRA), included in The Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203). Effective in July, 2011 the act prohibits a state from denying credit for reinsurance if the domiciliary state of the ceding insurer recognizes such credit and is an NAIC-accredited state. The NRRA preempts the extraterritorial application of state credit for reinsurance law, and would permit states to proceed forward with reinsurance collateral reforms on an individual basis if they are accredited.
Under the current Credit for Reinsurance Model Law & Regulation, in order for U.S. ceding companies to receive reinsurance credit, the reinsurance must either be ceded to U.S. licensed reinsurers or secured by collateral representing 100% of U.S. liabilities for which the credit is recorded. These collateral requirements for non-U.S. licensed reinsurers have been a frequent subject of debate over the last few years among regulators.
The NAIC adopted the Reinsurance Regulatory Modernization Framework Proposal at its Winter 2008 National Meeting, which would reduce the collateral requirements for reinsurers meeting certain requirements for financial strength and business practices that are domiciled in jurisdictions that have been approved based on the effectiveness of their reinsurance supervision. The Government Relations Leadership Council adopted the Reinsurance Regulatory Modernization Act of 2009 (RRMA) on September 23, 2009, which was intended to implement the Reinsurance Framework, but the NAIC has been unable to find a sponsor for this proposed federal legislation in Congress.
- Extraterritoriality. Up until this time we have been working under the premise that we would need complete uniformity among the states in order to effectively reduce reinsurance collateral, because many states apply their credit for reinsurance laws on an extraterritorial basis. This is why our previous efforts in implementing our Reinsurance Framework Proposal focused on federal legislation that would preempt any non-uniform state laws.
- Accreditation Recommendations. In December the NAIC Plenary approved Recommendations Regarding Key Elements of the Reinsurance Framework for Accreditation Purposes. The Task Force also intends to amend the Credit for Reinsurance models to bring them into consistency with the Framework, and will have proposed revisions posted for public comment shortly. To clarify, the Recommendations are not a change to the current NAIC accreditation standards regarding reinsurance collateral. However, it will be guidance to the F Committee which may be used when reviewing any individual state reforms to reduce reinsurance collateral.
- Amendments of Models. On February 22, 2011, the Reinsurance Task Force released exposure drafts of revisions to the Credit for Reinsurance Model Law (# 785) and Regulation (# 786) for a 30-day comment period. It is intended that the Task Force and interested parties will discuss these drafts during the March 26 meeting, but the Task Force does not intend to consider these exposure drafts for adoption during the March 26 meeting. Some of the major proposed changes to the models include:
- Instead of using the terms Port of Entry Reinsurer and National Reinsurer, the term "Certified Reinsurer" was substituted, which can mean either non-U.S. reinsurers or non-licensed reinsurers from NAIC accredited states.
- "Recognition of Certified Reinsurers" under which a state may recognize Certified Reinsurers that have been certified by other NAIC accredited states.
- The commissioner may defer to a list of Qualified Jurisdictions that has been approved by the NAIC.
- Changes to the multibeneficiary trust provisions.