NAIC ushers in major shift for collateral requirements.

Non-admitted reinsurers would see a major shift in collateral requirements under a plan advanced by the National Association of Insurance Commissioners at the group's winter meeting in San Antonio.

After a close vote among regulators sitting on the NAIC's Reinsurance Task Force, the proposal will now move to a senior committee for final adoption by September 2007. The proposal would link the amount of collateral required to a rating assigned a reinsurer by the NAIC.

"This is a sea change," said Florida Insurance Commissioner Kevin McCarty, a member of the task force. "The message is being sent out loud and clear that this is a paradigm shift in terms of how we view alien reinsurers."

The plan will make all reinsurers subject to a Reinsurance Evaluation Office within the NAIC. The REO would work by evaluating both operating integrity and financial strength as gleaned from nationally recognized standard rating organizations. Based on the outcome of that evaluation, the REO would rate each reinsurer on a scale of REO-1 to REO-6.

The latest draft removes controversial provisions that would have placed all U.S. reinsurers under the same requirements. Ceding companies and reinsurers based in the United States opposed the provision, noting that U.S. companies are already subject to strict state-based insurance regulation. Under the current draft, there would be no collateral requirements for licensed affiliated and inter-company pooling assumptions. U.S.-licensed reinsurers with "appropriate" REO ratings would also not be subject to a collateral requirement.