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Collateral issue packs global impact.

Article Excerpt
Byline: Meg Fletcher

The pressure is on for U.S. state insurance regulators to finish laying the groundwork to evaluate a critical regulatory issue: Should they change collateral requirements for reinsurers?

That pressure intensified recently when, after years of discussion and months drafting a 64-page white paper on the issue, a controversy erupted over the validity of some of the statistical information the National Assn. of Insurance Commissioners' paper contains.

Regulators and industry representatives, however, expect to meet with A.M. Best Co. Inc. and other financial data experts to resolve the questions by early March, when the NAIC is expected to formally adopt the white paper at its quarterly meeting.

State insurance regulators and industry representatives say that the white paper is unusually important because of the complexity of the topic and its global implications. NAIC President Alessandro Iuppa has called it "a baseline for discussion'' and considers it a key to "meaningful dialogue.''

The pressure to change collateral requirements stems from the dual approach to reinsurance regulation in the United States. As is explained in the paper, the U.S. system regulates reinsurance "through both a direct and indirect approach.'' U.S.-based reinsurers are regulated directly through solvency supervision similar to the regulation of primary insurers. Reinsurance is also regulated indirectly through rules determining "how U.S. primary companies...