Insurers balk as regulators weigh collateral.

With pressure tram European reinsurers and U.S. federal authorities mounting, the National Association of Insurance Commissioners is studying easing collateral requirements for nonadmitted reinsurers.

At the NAIC's Spring National Meeting in Orlando, Fla., the topic headlined several meetings, including the March 4 industry liaison session, where representatives of U.S. insurers balked at the notion.

"Why change a system that currently works well? It provides consumer protections, allows U.S. companies to expand their capital and provide catastrophe protection, and it provides stability of underwriting results," said Sonja Larkin-Thorne, vice president of government affairs for Hartford Financial Services Group Inc.

NAIC President and Maine Insurance Superintendent Alessandro Iuppa said the NAIC has reached a point where it must make a decision. The NAIC Executive Committee on March 5 approved an additional charge for its Reinsurance Task Force, which is to develop alternatives to the use of cob lateral and to consider variations in state law and regulation relative to reinsurance contracts. "Do we make a change or not? And if we make a change, what are those alternatives?" Iuppa said."This is the time to come to the table if you're an interested party, as we do our analysis."

The collateral issue has been before the NAIC for years. Most recently, the group developed a white paper that outlines the pros and cons of the current system requiring alien reinsurers to post 100% collateral for their U.S. liabilities. The white paper suggests alternatives, including creation of a collateral pooling mechanism or beginning to reduce collateral based on financial ratings companies would be assigned.

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