The National Association of Insurance Commissioners (NAIC) Reinsurance (E) Task Force has issued updated proposed revisions to the Credit for Reinsurance Model Law and the Credit for Reinsurance Model Regulation (Credit for Reinsurance Models) to address the reinsurance collateral provisions of the covered agreement between the United States (US) and the European Union (EU) (and more recently, the covered agreement between the US and the United Kingdom (UK)). The proposed revisions have been exposed for a 25-day comment period, ending April 1, 2019. For background on the EU/UK covered agreements, their reinsurance collateral provisions and their genesis, see this Eversheds Sutherland Legal Alert.
Revisions to the Credit for Reinsurance Models were expected to be adopted by the NAIC Executive Committee and Plenary in December 2018, but adoption was deferred so that the NAIC could make further changes to address concerns raised by the US Department of the Treasury (Treasury). Treasury’s concerns relate to some inconsistencies between revisions to the Credit for Reinsurance Models that were initially proposed and the EU/UK covered agreements, including provisions that granted state insurance regulators discretion that could result in reinsurance collateral requirements that were inconsistent with the EU/UK covered agreements or similar agreements that might be negotiated in the future.
The updated proposed revisions include the following key changes (in addition to certain technical changes):
State insurance regulators would no longer have discretion to determine whether non-US jurisdictions that have entered into a qualified covered agreement with the US should be recognized as “Reciprocal Jurisdictions,” or whether those jurisdictions are in compliance with their covered agreement.
US jurisdictions that meet the requirements for NAIC accreditation would be recognized as Reciprocal Jurisdictions.
State insurance regulators would be permitted to impose additional requirements on a qualified reinsurer only if such requirements do not conflict with an applicable covered agreement.
A supervising court would no longer be required to direct qualified reinsurers to post 100% security in the event of a ceding insurer’s rehabilitation, liquidation or conservation, but would be permitted to do so if deemed appropriate following a request from the ceding insurer or its representatives.
State insurance regulators no longer need to determine that a qualified reinsurer is eligible before credit can be taken on the basis of the new Credit for Reinsurance Model provisions. Credit may be taken with respect to losses incurred and reserves reported on or after the later of (i) the date on which the qualified reinsurer has met all eligibility requirements under the applicable provision, or (ii) the effective date of the new reinsurance agreement, amendment or renewal.
The proposed revisions to the Credit for Reinsurance Models are expected to be adopted by the NAIC by early May (after the NAIC Spring National Meeting), but they will likely garner significant attention in Orlando.