The Property Casualty Insurers Association of America said that it is “strongly opposed to the recent proposal by the New York State Insurance Department that would reduce collateral requirements for that state (See IJ web site Oct. 18, 19).
“The current financial requirements help protect the solvency of U.S. primary insurers by ensuring that non-U.S. regulated reinsurers fulfill their promise to pay,” stated PCI assistant vice president and counsel Mike Koziol. “The New York proposal, as outlined in their recent news release, contains a number of significant concerns. The proposal exposes U.S. ceding companies to a lower level of security than under the existing collateral requirements, it contains too many provisions that appear not to be clearly defined and it should not be adopted.”
Currently, any U.S. or non-U.S. reinsurance company that is not authorized or accredited to operate in New York must post collateral equal to 100 percent of its share of policyholder claims with the state. This is the case even if the non-New York company has a top credit rating and is financially strong. This requirement reduces the amount of reinsurance a reinsurer can offer. It also imposes the cost of posting the collateral. Companies authorized in New York, even if they are financially weaker, have no such requirement.
Under the new regulation proposed by Insurance Superintendent Eric Dinallo, well-capitalized reinsurance companies with the highest credit rating (triple A) that are not authorized or accredited to do business in New York will be treated the same as authorized companies: They will no longer have to post any collateral. Companies that are not as strong will have to post collateral on a sliding scale from 10 percent to 100 percent. This would apply to both U.S. and non-U.S. reinsurers not authorized or accredited in New York.
PCI’s Koziol questioned the claim that the proposal would increase capacity, indicating that there “is no proof that ending collateral requirements will increase capacity and there were no reinsurers on record saying they would reduce rates as a result.”
Koziol called the New York proposals “premature” in light of the activity on this issue by the National Association of Insurance Commissioners’ Reinsurance Task Force. However, he also noted that the “PCI has previously opposed NAIC efforts such as the Reinsurance Evaluation Office (REO) proposal and its regulatory framework for reinsurance. The New York proposal contains all of the same questions and concerns we had with other NAIC Reinsurance Task Force proposals.”
Source : PCI – www.pciaa.net
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