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.