NAIC Adopts Ratings-Based Framework For Reinsurance Collateral

Don’t get me started on ratings.  “Arrested Development” was cancelled due to poor ratings, yet “Two-and-a-Half Men”–one of the worst shows ever–gets great ratings.  I will never be OK with that.

But I’m actually OK with this:  The NAIC’s Financial Condition (E) Committee has adopted revisions to the NAIC’s Credit for Reinsurance Model Law (#785) and Credit for Reinsurance Model Regulation (#786).  At the heart of the revisions is the addition of a ratings-based framework allowing a ceding insurer to take full statutory credit for reinsurance ceded to a “certified” reinsurer, without the reinsurer posting full collateral.  This adoption would reduce 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.

Under the revisions, a reinsurer can apply for certification by a state’s insurance regulator, with the state assigning the reinsurer one of six possible ratings upon certification.  The assigned rating determines the minimum level of collateral required to be posted by the certified reinsurer for the ceding insurer to take full statutory credit.

The new provisions address the longstanding complaint of non-U.S. reinsurers that collateral requirements in the U.S. make for an uneven playing field, but do not preclude any of the previously established means for reinsurance credit.  (See our related post here.)

We’ll continue to follow developments in this area and provide reports from the November NAIC meeting in D.C.

About Brian Jones

I represent clients in all aspects of business litigation, but focus my practice on complex litigation and arbitration matters concerning insurance and reinsurance, antitrust, class actions, securities, real estate disputes, and contract matters. I am the co-chair of the Bose McKinney & Evans Insurance Group. I was listed in the 2017 and 2016 "Best Lawyers in America" for Insurance Coverage and named a "Rising Star" in Insurance Coverage by Super Lawyers in Indiana in 2014. I was also named a "Rising Star" in Business Litigation by Super Lawyers in Indiana in 2013 and 2012, and a 2010 “Rising Star” in Business Litigation in Texas. I am a member of the State Bars of Indiana and Texas, the Defense Research Institute, a former member of the Pro Bono College of the State Bar of Texas, and I am licensed to practice before all state courts in Indiana and Texas, as well as all federal courts in Indiana, the Northern, Western, and Southern Districts of Texas, the Northern District of Illinois, and the United States Courts of Appeals for the Fifth, Seventh, and Eleventh Circuits. I received my bachelor’s degree, cum laude, in political science and my master’s degree in teaching from Trinity University, where I was elected to Phi Beta Kappa. I received my doctor of jurisprudence degree from the University of Texas School of Law, where I was the Director of Communications for the Legal Research Board and a member of the Phi Delta Phi Honor Society. Before attending law school, I taught high school geography, government and economics in San Antonio, Texas.
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