The NAIC has scheduled an Executive Committee meeting on June 25, 2019 to consider finalizing proposed revisions to the NAIC Credit for Reinsurance Model Law and Regulation (Models). It is anticipated that the Executive Committee will adopt the revised Models during this meeting.
State insurance regulators took a significant step forward in unanimously adopting these revisions during a Financial Condition (E) Committee conference call held on May 28. The Committee resolved a last question from interested parties in clarifying language as to the reinsurance agreements eligible for the elimination of collateral. The adopted revisions incorporate provisions of a bilateral Covered Agreement between the U.S. and the European Union (EU) and a similar Covered Agreement between the U.S. and the United Kingdom.
The Covered Agreement includes requirements for group capital, group supervision and reinsurance. Specifically regarding reinsurance, the Covered Agreement eliminates collateral for certain financially strong reinsurers domiciled in:
- An EU or non-U.S. jurisdiction subject to a covered agreement;
- An accredited U.S. jurisdiction;
- A non-U.S. jurisdiction recognized as a qualified jurisdiction meeting similar conditions as defined in a Covered Agreement.
In return U.S. reinsurers that maintain certain capital and surplus and risk-based capital (RBC) levels are not required to maintain a physical local presence in the EU.
State regulators do not anticipate the group capital or group supervision provisions of the Covered Agreement to require changes to NAIC Model Laws or state legislation. However, states must address laws and regulations regarding reinsurance collateral within 60 months from September 22, 2017, or face preemption of state law by the Federal Insurance Office (FIO).