On a May 15 conference call, the Reinsurance Task Force of the National Association of Insurance Commissioners (NAIC) advanced model legislation on reciprocal treatment for reinsurers as between the United States, on the one hand, and the EU and the U.K., on the other.
The proposals amend the NAIC’s “credit for reinsurance” model statute and regulation, which govern the circumstances under which a U.S.-based insurer can record, as an asset on its balance sheet, reinsurance protection obtained from another carrier. The NAIC has been in the process of amending these rules to accommodate the 2017 “covered agreement” between the United States and the EU and the analogous 2018 pact between the United States and the U.K. (to apply if and when Brexit occurs). These agreements, generally, require each jurisdiction to treat a reinsurer from the other jurisdiction as such other jurisdiction would treat a reinsurer from its own jurisdiction, assuming conditions are met. In other words, the covered agreements impose uniform rules as to the availability of credit for reinsurance across these jurisdictions, and the NAIC’s model rules are being amended to conform to these important international agreements.
Under the model law amendments advanced on May 15, balance sheet credit would be available to a ceding company domiciled in the adopting U.S. state when each of the conditions set forth below is met. Such credit may be taken only for reinsurance agreements entered into or renewed on or after the date on which the assuming insurer has satisfied these requirements, and only with respect to losses incurred and reserves reported on or after the later of (i) the date on which the reinsurer (referred to in the model rules as the “assuming insurer”) has met all eligibility requirements and (ii) the effective date of the new reinsurance agreement or renewal.
All task force members voted in favor other than New York and Indiana, each of which abstained. The proposals were approved by the task force subject to technical amendments on two points, one concerning the state insurance commissioner’s published list of qualifying reinsurers and other concerning the effective date of the amendments.
Following the May 15 action, the proposed legislation and regulation will be put before the task force’s parent body, the NAIC’s Financial Condition Committee, and, if approved by that Committee, will thereupon be reported out to the NAIC’s Executive Committee and Plenary for final approval.
The conditions for credit under the proposals are all of the following:
The model statute requires the state insurance commissioner to publish a list of Reciprocal Jurisdictions and notes that a list of Reciprocal Jurisdictions is published by the NAIC. The commissioner is required also to publish a list of assuming insurers that have satisfied the conditions described above.
The model regulation as amended on May 15 provides additional guidance on when credit is available, setting out the following conditions:
These proposals have been advancing through the NAIC legislative process, which features widespread consultation with insurers, reinsurers and other stakeholders. The states have until the September 2022 effective date of the covered agreements to conform their laws to the reciprocity requirements imposed by the agreements; the NAIC model amendments are intended to enable this result.