Your SlideShare is downloading. ×
0
The Impact of an Optional Federal Charter on the Reinsurance Collateral Debate- The Latest Red Herring By Gregory S. Arnol...
<ul><li>Brief historical overview of insurance regulation in the U.S. </li></ul><ul><ul><li>Paul v. Virginia  (1868) </li>...
<ul><li>NAIC Credit for Reinsurance Model Law </li></ul><ul><li>NYS Regulation 20 </li></ul><ul><li>National Insurance Act...
<ul><li>National Insurance Consumer Protection and Regulatory Modernization Act” </li></ul><ul><li>-- forthcoming 2009 </l...
The Controversial Background of Reinsurance Collateral Requirements in the United States
NAIC Credit For Reinsurance Model Law <ul><li>NAIC MODEL LAWS, REGULATIONS AND GUIDELINES Copyright 2007 by the National A...
NAIC Credit For Reinsurance Model Law <ul><li>Purpose </li></ul><ul><li>Domestic Reinsurers </li></ul><ul><li>Licensed </l...
NAIC Credit For Reinsurance Model Law <ul><li>NAIC Model Laws, Regulations and Guidelines 785-1, § 1 </li></ul><ul><li>Sec...
NAIC Credit For Reinsurance Model Law <ul><li>Domestic Reinsurer – if (a) licensed or (b) accredited … </li></ul><ul><li>§...
NAIC Credit For Reinsurance Model Law <ul><li>U.S., Domestic Reinsurer – not licensed,  accredited or otherwise permitted…...
NAIC Credit For Reinsurance Model Law <ul><li>Non-U.S. Reinsurer – if (a) licensed or (b) accredited … </li></ul><ul><li>S...
NAIC Credit For Reinsurance Model Law <ul><li>Non-U.S. Reinsurer – not licensed,  accredited or otherwise permitted… </li>...
New York State Credit For Reinsurance Law <ul><li>New York’s collateral for reinsurance law – NY Admin. Code tit. 11 §§ 12...
Lord Red Herring
The Latest  Red Herrings : U.S. Collateral Requirements <ul><li>“ Currently in the US, alien reinsurers trading on a cross...
The Latest  Red Herrings : E.U. Reinsurance Directive <ul><li>“ The adoption of the  EU reinsurance directive  in November...
Licensing, Taxes
What Do The Critics Ignore? <ul><li>The Elephants in The Room   </li></ul><ul><li>  1.  Unlicensed, U.S. domestic </li></u...
OFC Trust Fund Requirement
Need for Reinsurance Capacity Motivates U.S. Accommodations to Non-U.S. Reinsurers <ul><li>So, why don’t the non-U.S. rein...
Latest NAIC Proposals <ul><li>Previous, non-implemented proposal – Reinsurance Evaluation Office (REO) </li></ul><ul><li>C...
Mutual Recognition Framework <ul><li>Controversial Provisions </li></ul><ul><ul><li>Recognition of Regulatory </li></ul></...
The Latest Reinsurance Regulatory Modernization Framework Proposals from The NAIC <ul><li>Collateral calibrations </li></u...
The Latest Reinsurance Regulatory Modernization Framework Proposals from  New York State <ul><li>Collateral calibrations a...
The Latest Reinsurance Regulatory Modernization Framework Proposals from  New York State  (cont’d) <ul><li>Other requireme...
The Latest Reinsurance Regulatory Modernization Framework Proposals from  New York State  (cont’d) <ul><li>Removed from th...
Legal Analysis of the Latest Reinsurance Regulatory  Modernization Framework <ul><li>The World Trade Organization and the ...
Legal Analysis of the Latest Reinsurance Regulatory  Modernization Framework <ul><li>Federal Preemption Doctrine:  World T...
Legal Analysis of the Latest Reinsurance Regulatory  Modernization Framework <ul><li>National Treatment Obligations – WTO ...
U.S. Constitutional Issues <ul><li>The Compact Clause – Art. 1, § 10, cl. 3: </li></ul><ul><ul><ul><li>“ No State shall, w...
<ul><ul><li>Whether Mutual Recognition Agreements Requires Congressional Consent </li></ul></ul><ul><ul><li>Virginia v. Te...
<ul><ul><li>Whether Mutual Recognition Agreements Enlarge State Power and Encroach Upon Federal Sovereignty </li></ul></ul...
<ul><li>Whether There is Implied Congressional Consent for States to Enter into Mutual Recognition Agreements </li></ul><u...
<ul><li>Doctrine of Dormant Foreign Affairs Preemption </li></ul><ul><ul><li>Expansive, often asserted where there is no c...
<ul><li>Dormant Federal Foreign Commerce Clause – Article 1, § 8 </li></ul><ul><li>States should not discriminate against ...
EU – Insurance Mediation Directive <ul><li>The EU Member States will eliminate collateral demands upon one another, but, u...
Countries Outside Europe That Have Collateral Requirements for Third Countries <ul><li>Australia requires collateral secur...
Conclusions and Recommendations <ul><li>Reconsider the wisdom of the current system, including the benefits of the NAIC Cr...
Interplay Between U.S. and E.U. Reinsurance Regulatory Reform
Preliminary Basics <ul><li>Institutions of the </li></ul><ul><li>European Union </li></ul><ul><li>Council </li></ul><ul><l...
Prudential / Supervisory Rules for The Conduct of Reinsurance Business EU and U.S.
Sources of Reinsurance Supervision Rules EU Federal-Like  Supervision US State Supervision
Sources of Reinsurance Supervisory Rules EU European Parliament and The Council Reinsurance Directive  (RID) 2005/68/EC Ad...
Reinsurance Directive 2005/68/EC Institutional Arrangements – Third Countries <ul><li>TITLE III </li></ul><ul><li>CONDITIO...
Article 26 Cooperation Agreements with Third Countries <ul><li>Member States may conclude  cooperation agreements  providi...
Article 49 Principle and Conditions for Conducting Reinsurance Business A Member State shall not apply to reinsurance unde...
Article 50 Agreements With Third Countries <ul><li>1. The Commission may submit proposals to the Council for </li></ul><ul...
Article 50, Cont’d <ul><li>2. The agreements referred to in paragraph 1 shall in particular seek to ensure </li></ul><ul><...
Insurance Mediation Directive, IMD <ul><li>Directive 2002/92/EC of the European Parliament and of the Council of 9 Decembe...
RID Highlights <ul><li>The Reinsurance Directive gives reinsurers not based in an EU Member state the opportunity to condu...
RID Highlights (Cont’d) <ul><li>Art. 50:  “…negotiation of agreements with…third countries regarding means of supervision ...
Implementation Into National Law UK Sources of Foreign Reinsurance Supervision EU European Parliament and The Council Rein...
Implementation Into National Law UK Financial Services and Markets Act  2000 The RID came into force Dec. 10, 2005 and was...
Financial Services and Markets Act 2000 2006 Implementations (cont’d) On 31 December 2006 the FSA introduced prudential ch...
Financial Services and Markets Act 2000 2006 Implementations (cont’d) <ul><li>The FSA’s proposed new measurers are discuss...
FSA’s 2006 Measures (Cont’d) <ul><li>Removing restrictions on the assets held by reinsurers; </li></ul><ul><li>Changed the...
FSA’s 2006 Measures (cont’d) <ul><li>Removing restrictions on the assets held by reinsurers; </li></ul><ul><li>Changing th...
FSA’s 2007 Measures Dec. 31, 2007 <ul><li>Financial Services and Markets Act 2000 (Reinsurance Directive) Regulation 2007 ...
FSA’s 2007 Measures Dec. 31, 2007 <ul><li>Financial Services and Markets Act 2000 (Reinsurance Directive) Regulation 2007 ...
FSA’s 2007 Measures Dec. 31, 2007 <ul><li>Financial Services and Markets Act 2000 (Reinsurance Directive) Regulation 2007 ...
Sources of Foreign Reinsurance Supervisory Rules EU European Parliament and The Council Reinsurance Directive  (RID) 2005/...
Highlights EU/RID  NAIC/CRMA <ul><li>The RID gives reinsurers not based in an EU Member state the opportunity to conduct b...
Highlights (Cont’d)  EU/RID  NAIC/CRMA <ul><li>Art. 50:  “…negotiation of agreements with…third countries regarding means ...
Implementation Into National Law UK Adoption into State Law New York State Sources of Reinsurance Supervision EU European ...
New York State Regulation 20 (11 NYCRR 125) <ul><li>(c) (1)  In the case of an alien assuming insurer, not otherwise enter...
New York State Regulation 20 (11 NYCRR 125) <ul><li>Lloyd’s  </li></ul><ul><li>Finally, in the case of “a group located ou...
New York State Proposed Regulation for 2008 <ul><li>The Superintendent of Insurance for the NYSID has announced proposed n...
New York State Proposed Regulation for 2008 (cont’d) <ul><li>Other requirements would be as follows: </li></ul><ul><li>An ...
Red herring and elephant graphics compliments of Google Images.  Questions? Gregory S. Arnold, LL.M [email_address] (508) ...
Upcoming SlideShare
Loading in...5
×

Greg Arnold Collateral Gats 03 23 09

577

Published on

The Impact of an Optional Federal Charter on the Reinsurance Collateral Debate-
The Latest Red Herring

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
577
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • Transcript of "Greg Arnold Collateral Gats 03 23 09"

    1. 1. The Impact of an Optional Federal Charter on the Reinsurance Collateral Debate- The Latest Red Herring By Gregory S. Arnold, LL.M IADC International Surety Claims Conference and Appellate Advocacy Program (Canceled For Insufficient Registration Count) Coral Gables-Miami, Florida March 26-27, 2009
    2. 2. <ul><li>Brief historical overview of insurance regulation in the U.S. </li></ul><ul><ul><li>Paul v. Virginia (1868) </li></ul></ul><ul><ul><li>United States v. South-Eastern </li></ul></ul><ul><li> Underwriters Assn . (1944) </li></ul><ul><ul><li>McCarran-Ferguson Act (1945) </li></ul></ul><ul><ul><li>Gramm-Leach-Bliley Act (1999) </li></ul></ul><ul><li>“… the McCarran-Ferguson Act remains the law </li></ul><ul><li> of the United States.” (Title I, Sec. 104). </li></ul><ul><li>“… insurance activities…shall be functionally </li></ul><ul><li>regulated by the States…” (Title III, Sec. 301). </li></ul>
    3. 3. <ul><li>NAIC Credit for Reinsurance Model Law </li></ul><ul><li>NYS Regulation 20 </li></ul><ul><li>National Insurance Act 2007 (did not pass) </li></ul>
    4. 4. <ul><li>National Insurance Consumer Protection and Regulatory Modernization Act” </li></ul><ul><li>-- forthcoming 2009 </li></ul>
    5. 5. The Controversial Background of Reinsurance Collateral Requirements in the United States
    6. 6. NAIC Credit For Reinsurance Model Law <ul><li>NAIC MODEL LAWS, REGULATIONS AND GUIDELINES Copyright 2007 by the National Association of Insurance Commissioners </li></ul><ul><li>Current through Release No. 81 October, 2007 </li></ul><ul><li>VOLUME V - REINSURANCE   </li></ul><ul><li>785-1 CREDIT FOR REINSURANCE MODEL LAW </li></ul>
    7. 7. NAIC Credit For Reinsurance Model Law <ul><li>Purpose </li></ul><ul><li>Domestic Reinsurers </li></ul><ul><li>Licensed </li></ul><ul><li>Unlicensed </li></ul><ul><li>Non-U.S. Reinsurers </li></ul><ul><li>Licensed </li></ul><ul><li>Unlicensed </li></ul>
    8. 8. NAIC Credit For Reinsurance Model Law <ul><li>NAIC Model Laws, Regulations and Guidelines 785-1, § 1 </li></ul><ul><li>Section 1. Purpose   The purpose of this Act is to protect the interest of insureds, claimants, ceding insurers, assuming insurers and the public generally. The legislature hereby declares its intent is to ensure adequate regulation of insurers and reinsurers and adequate protection for those to whom they owe obligations. In furtherance of that state interest, the legislature hereby provides a mandate that upon the insolvency of a non-U.S. insurer or reinsurer that provides security to fund its U.S. obligations in accordance with this Act, the assets representing the security shall be maintained in the United States and claims shall be filed with and valued by the state insurance commissioner with regulatory oversight, and the assets shall be distributed, in accordance with the insurance laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic U.S. insurance companies. The legislature declares that the matters contained in this Act are fundamental [arguably meaning the “prudential” carve-out exception applies] to the business of insurance in accordance with 15 U.S.C. §§ 1011 -1012. </li></ul><ul><li>Legislative history (annotated page 17) below states this § 1 Purpose is based upon New York law. There is a reference in the legislative history to a “new” § 1. </li></ul>
    9. 9. NAIC Credit For Reinsurance Model Law <ul><li>Domestic Reinsurer – if (a) licensed or (b) accredited … </li></ul><ul><li>§ 2. Credit Allowed a Domestic Ceding Insurer </li></ul><ul><li>Collateral security not required. </li></ul>
    10. 10. NAIC Credit For Reinsurance Model Law <ul><li>U.S., Domestic Reinsurer – not licensed, accredited or otherwise permitted… </li></ul><ul><li>§ 3. Collateral required. </li></ul>
    11. 11. NAIC Credit For Reinsurance Model Law <ul><li>Non-U.S. Reinsurer – if (a) licensed or (b) accredited … </li></ul><ul><li>Section 2. Credit Allowed a Domestic Ceding Insurer </li></ul><ul><li>Collateral security not required. </li></ul>
    12. 12. NAIC Credit For Reinsurance Model Law <ul><li>Non-U.S. Reinsurer – not licensed, accredited or otherwise permitted… </li></ul><ul><li>§ 3. Collateral required </li></ul>
    13. 13. New York State Credit For Reinsurance Law <ul><li>New York’s collateral for reinsurance law – NY Admin. Code tit. 11 §§ 125.1 to 125.6 (1977/1994) (Regulation 17, 20) (Partially based on model). </li></ul>
    14. 14. Lord Red Herring
    15. 15. The Latest Red Herrings : U.S. Collateral Requirements <ul><li>“ Currently in the US, alien reinsurers trading on a cross-border basis are required, under National Association of Insurance Commissioners (NAIC) rules, to post collateral equal to the full gross amount of their liabilities for the US risks they underwrite. This puts them at a serious competitive disadvantage to domestic </li></ul><ul><li>companies which are not subject to the same rules.” </li></ul><ul><li>Remarks of Lloyd’s Head of Government Affairs, Alastair Evans. </li></ul><ul><li>See “Breaking Down The Barriers: Alastair Evans talks to the Market about his work as Lloyd’s Head of government affairs”. Lloyd’s Market Newsletter, Issue One, 2006, at 14. Available online at www.Lloyds.com , or http://works.bepress.com/gregory_arnold/5/ . </li></ul><ul><li>Focus / Red Herring – collateral </li></ul><ul><li>Ignores – </li></ul><ul><li>1. With licensing the non-U.S. reinsurers would be on equal footing with U.S. </li></ul><ul><li>domestic, licensed reinsurers. </li></ul><ul><li>2. Unlicensed, domestic U.S. reinsurers must also post collateral. </li></ul>
    16. 16. The Latest Red Herrings : E.U. Reinsurance Directive <ul><li>“ The adoption of the EU reinsurance directive in November 2005, which will remove completely collateral requirements for EU reinsurers across the 25 (now 27) member states by 2008, will be a critical factor in the EU’s future dialogue with the US on the issue.” [Parenthetical “now 27” added. This Directive has not been fully implemented as of 3-27-09] </li></ul><ul><li>Remarks of Lloyd’s Head of Government Affairs, Alastair Evans. </li></ul><ul><li>See “ Breaking Down The Barriers: Alastair Evans talks to the Market about his work as Lloyd’s Head of government affairs.” Lloyd’s Market Newsletter, Issue One, 2006, at 14. Available online at www.Lloyds.com , or http://works.bepress.com/gregory_arnold/5/ . </li></ul><ul><li>Focus/ Red Herring – Reinsurance Directive that, once implemented, will abolish collateral requirements among the 27 EU Member States. </li></ul><ul><li>Ignores – Under the EU Insurance Mediation Directive, E.U. Member States are permitted to require collateral from third countries, including the U.S. </li></ul><ul><li>Note: These EU Insurance Directives are set forth on slides below for your later review. </li></ul>
    17. 17. Licensing, Taxes
    18. 18. What Do The Critics Ignore? <ul><li>The Elephants in The Room </li></ul><ul><li> 1. Unlicensed, U.S. domestic </li></ul><ul><li>reinsurers must post </li></ul><ul><li>collateral. </li></ul><ul><li>2. Licensed, non-U.S. </li></ul><ul><li>reinsurers are not </li></ul><ul><li>required to post collateral. </li></ul><ul><li>3. Under the Insurance </li></ul><ul><li>Mediation Directive, the EU </li></ul><ul><li>Member States can </li></ul><ul><li>demand collateral from third </li></ul><ul><li>countries, including </li></ul><ul><li>reinsurers in the U.S. </li></ul>
    19. 19. OFC Trust Fund Requirement
    20. 20. Need for Reinsurance Capacity Motivates U.S. Accommodations to Non-U.S. Reinsurers <ul><li>So, why don’t the non-U.S. reinsurers just get licensed or accredited? </li></ul><ul><li>Licensing or accrediting in multiple U.S. jurisdictions is time-consuming, expensive and requires payment of taxes in the U.S. </li></ul><ul><li>The same problem faced by domestic reinsurers. </li></ul><ul><li>Is the U.S. doing anything to accommodate the non-U.S. reinsurers? </li></ul><ul><ul><li>Yes. For practical vs. legal reasons (we need reinsurance capacity and most reinsurance comes from foreign reinsurers), the U.S., through NAIC initiatives, has come up with the following proposal. </li></ul></ul>
    21. 21. Latest NAIC Proposals <ul><li>Previous, non-implemented proposal – Reinsurance Evaluation Office (REO) </li></ul><ul><li>Current, non-implemented proposal – Reinsurance Supervision Review Department (RSRD Proposal) </li></ul><ul><ul><ul><li>Non-controversial Aspects (“passporting”) </li></ul></ul></ul><ul><ul><ul><ul><ul><li>Single State U.S. Regulator – U.S. Domestic and Licensed Reinsurer </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Port of Entry (POE) Regulator – Certified Non-U.S., Unlicensed Reinsurer </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Resemble EU “single passport” directives </li></ul></ul></ul></ul></ul><ul><ul><ul><li>Controversial – Mutual Recognition Framework </li></ul></ul></ul><ul><ul><ul><ul><ul><li>Legal issues under U.S. Constitutional and </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>international law </li></ul></ul></ul></ul></ul>
    22. 22. Mutual Recognition Framework <ul><li>Controversial Provisions </li></ul><ul><ul><li>Recognition of Regulatory </li></ul></ul><ul><ul><li>Equivalence </li></ul></ul><ul><ul><li>Enforcement of Judgments </li></ul></ul><ul><ul><li>Methodology is Problematic </li></ul></ul><ul><ul><li>Memoranda of Understanding (MUO) </li></ul></ul><ul><ul><li>Mutual Recognition Agreement (MRA) </li></ul></ul>
    23. 23. The Latest Reinsurance Regulatory Modernization Framework Proposals from The NAIC <ul><li>Collateral calibrations </li></ul><ul><li>Options for conducting reinsurance under the RSRD Proposal </li></ul><ul><li>1. National Reinsurer – licensed in an approved state, with a physical presence in the U.S., available to both U.S. and Non-U.S., licensed reinsurers. </li></ul><ul><li>2. Port of Entry Reinsurer – certified by a POE state, the reinsurer must be from a non-U.S. jurisdiction recommended by the RSRD; no physical presence in the U.S. is permitted. </li></ul><ul><li>3. Licensed and Accredited Reinsurer, both domestic and non-U.S., under the current NAIC Credit for Reinsurance Model Law (CFRML), § 2. </li></ul><ul><li>4. Not licensed or accredited, whether domestic or non-U.S., reinsurers could continue to access the U.S. market by posting 100% collateral, per § 3, CFRML. </li></ul>
    24. 24. The Latest Reinsurance Regulatory Modernization Framework Proposals from New York State <ul><li>Collateral calibrations are a moving target…, but the latest NY proposal is – </li></ul><ul><li>Alien and domestic unauthorized reinsurance companies with the highest credit ratings will be treated the same as authorized companies. Weaker reinsurance companies will be required to post collateral on a sliding scale from 10 to 100 percent. Unauthorized reinsurers with a triple A credit rating from two rating agencies would not have to post collateral. Unauthorized reinsurers with a double A or equivalent rating would have to post collateral equal to 10 percent of claims, single A 20 percent, and triple B 50 percent. Unauthorized reinsurers having a credit rating below triple B would still be required to post 100 percent collateral. </li></ul>
    25. 25. The Latest Reinsurance Regulatory Modernization Framework Proposals from New York State (cont’d) <ul><li>Other requirements would be as follows: </li></ul><ul><li>An unauthorized reinsurer must: </li></ul><ul><li>Meet the standards of solvency, including standards for capital adequacy, established by its domestic regulator; </li></ul><ul><li>Be authorized in its domiciliary jurisdiction to assume the specific kind of reinsurance it is offering; </li></ul><ul><li>Maintain a policyholder's surplus or equivalent in excess of $250,000,000; </li></ul><ul><li>Accept required contract terms, including consent to the jurisdiction of U.S. courts for disputes; </li></ul><ul><li>Have a primary regulator that has a memorandum of understanding with the NYSID that addresses information sharing; </li></ul><ul><li>Be domiciled in a country that allows U.S. reinsurers access to its market on similar terms; and </li></ul><ul><li>Post 100 percent collateral upon the entry of an order of rehabilitation, liquidation or conservation against the ceding insurance company. </li></ul><ul><li>See N.Y. Moves to Level Playing Field on Collateral for All Reinsurers , </li></ul><ul><li>Insurance Journal, Oct. 18, 2007, available at http://www.insurancejournal.com/news/national/2007/10/18/84395.htm , last viewed November 15, 2008. </li></ul>
    26. 26. The Latest Reinsurance Regulatory Modernization Framework Proposals from New York State (cont’d) <ul><li>Removed from the list above for purposes of this PowerPoint presentation is the following language: </li></ul><ul><li>“… and considers such matters as regulatory equivalency and enforceability of judgments”, following the words “Have a primary regulator that has a memorandum of understanding with the NYSID that addresses information sharing”. </li></ul><ul><li>This is because &quot;there is some legal debate whether states can compel a foreign regulator to take or require specific legal actions against a company domiciled there.“ </li></ul><ul><li>See New York Set to Relax Reinsurer Collateral, Meg Fletcher, Business Journal, July 7, 2008, available at http://www.businessinsurance.com/cgi-bin/article.pl?articleId=25319 , last viewed November 15, 2008. </li></ul>
    27. 27. Legal Analysis of the Latest Reinsurance Regulatory Modernization Framework <ul><li>The World Trade Organization and the General Agreement on Trade in Services </li></ul><ul><li>“ [T]he WTO legal framework for financial services addresses the intersection between financial services liberalization commitments and the role of prudential regulation.”* </li></ul><ul><li>_____ </li></ul><ul><li>*Douglas W. Arner, Financial Stability, Economic Growth, and the Role of Law, Cambridge University Press (June 4, 2007), at 273. </li></ul>
    28. 28. Legal Analysis of the Latest Reinsurance Regulatory Modernization Framework <ul><li>Federal Preemption Doctrine: World Trade Organization General Agreement on Trade in Services (GATS) </li></ul><ul><li>Most Favored Nation Obligations – GATS, Article II </li></ul><ul><ul><li>Prohibits the U.S., even at state level, from treating the services or services suppliers of one WTO Member less favorably than it treats similar services or service suppliers of any other WTO Member. </li></ul></ul><ul><ul><li>Exceptions: </li></ul></ul><ul><ul><li>(1) Apply a “like” vs. not sufficiently “like” test to distinguish non-POE WTO Members from those that are POE WTO Members, based upon “regulatory effectiveness” or “functionally different regulatory regimes”, justifying “disparate treatment.” </li></ul></ul><ul><ul><li>(2) Apply the “prudential carve-out exception”. Prudential/regulatory actions taken to protect policyholders or to ensure stability and integrity of the financial services sector of a WTO Member. WTO Members “shall not be prevented from taking measures for prudential reasons, including for the protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a financial service supplier, or to ensure the integrity and stability of the financial system”. This applies even when such measures would otherwise be in violation of a WTO Member’s obligation under GATS, including the MFN obligation. See, GATS Annex on Financial Services, ¶ 2(a). </li></ul></ul><ul><ul><li>§ 3, CFRML. Same “prudential carve-out” exception analysis applies. </li></ul></ul><ul><ul><li>Conclusion – it is unlikely that the RSRD Proposal or § 3, CFRML would be determined to violate the United States’ MFN obligations under Article II of the GATS. </li></ul></ul>
    29. 29. Legal Analysis of the Latest Reinsurance Regulatory Modernization Framework <ul><li>National Treatment Obligations – WTO GATS, Article XVII </li></ul><ul><ul><li>“ Schedule of Commitments” </li></ul></ul><ul><ul><ul><li>National treatment commitment in the reinsurance- and retrocession-related services sub-sector </li></ul></ul></ul><ul><ul><ul><ul><li>Obligates U.S. to accord to non-U.S. reinsurance supplier and their services, treatment no less favorable than that which it accords to U.S. domestic reinsurance companies. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>See GATS Annex on Financial Services § 5(a)(2). </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Where non-US WTO Members are not deemed “effective” in reinsurance regulatory regimes, at least in terms of outcomes; or where it is more difficult to satisfy judgments against non-U.S. reinsurers whose assets are outside the U.S., disparate collateral requirements could be justified under the “prudential carve-out exception”. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Note: The CFRML, Sec. D(2), with respect to incorporated underwriters, gives non-US reinsurers a right that U.S. companies do not enjoy abroad. 1990 Proc. IB 851. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>The NAIC noted that the international aspects had been considered and that an open market was, in the long term, in the best interest of the United States market </li></ul></ul></ul></ul>
    30. 30. U.S. Constitutional Issues <ul><li>The Compact Clause – Art. 1, § 10, cl. 3: </li></ul><ul><ul><ul><li>“ No State shall, without the Consent of Congress,…enter into any Agreement or Compact with another State, or with a foreign Power...” </li></ul></ul></ul><ul><ul><li>Whether Mutual Recognition Agreements Come Within the Compact Clause </li></ul></ul><ul><ul><ul><li>“ Reciprocal recognition” constitutes an “agreement” for purposes of the Compact Clause. See Virginia v. Tennessee , 148 U.S. 503, 520 (1982). Cooperation and information sharing also “agreements.” </li></ul></ul></ul>
    31. 31. <ul><ul><li>Whether Mutual Recognition Agreements Requires Congressional Consent </li></ul></ul><ul><ul><li>Virginia v. Tennessee , text of the Compact Clause, and Restatement (Third) of the Foreign Relations Law of the United States, § 302f (1986) all suggest that these agreements do require Congressional consent. But, per Louis Henkin, “Congressional consent to an agreement between a state and a foreign government [] is required only if the agreement tends to give the state elements of international sovereignty, interferes with the full and free exercise of federal authority, or deals locally with a matter on which there is or might be national policy.” (Henkins at 155). Ergo, not clear there would be a per se invalid encroachment into the federal government’s preeminent authority in the field of foreign affairs. </li></ul></ul>
    32. 32. <ul><ul><li>Whether Mutual Recognition Agreements Enlarge State Power and Encroach Upon Federal Sovereignty </li></ul></ul><ul><ul><ul><li>“ Market opening” / negotiation activity is outside traditional state regulation of insurance. Certification activity is sufficiently tied to the states’ traditional role of regulating the business of insurance. MFA implies Congressional consent to regulate business this way and thru MRAs, so long as does not lead to a GATS violation and stays clear of foreign affairs. </li></ul></ul></ul><ul><ul><ul><li>Unilateral agreements safer than MRAs. Need to be persuasive that there would be a domestic benefit. Can treat others more favorably (something other WTO Members not likely to do for U.S). </li></ul></ul></ul>
    33. 33. <ul><li>Whether There is Implied Congressional Consent for States to Enter into Mutual Recognition Agreements </li></ul><ul><ul><li>The MFA most likely gives Congressional consent to MRAs, but only to the extent they are used for information gathering and encourage improvements in non-U.S. regulatory schemes. Instead of MRAs, the U.S. should consider the alternative of a unilateral recognition framework, allowing cooperation and information sharing agreements that would only address issues that would not potentially impact the Compact Clause and that more precisely track the traditional power of states to regulate the business of insurance. </li></ul></ul>
    34. 34. <ul><li>Doctrine of Dormant Foreign Affairs Preemption </li></ul><ul><ul><li>Expansive, often asserted where there is no conflict with state law. “Federalism is the vampire of U.S. foreign relations law: officially deceased or moribund at best, but in reality surprisingly resilient and prone to recover at unsettling intervals.”* </li></ul></ul><ul><ul><li>Two cases: </li></ul></ul><ul><ul><ul><ul><li>1. Zschernig v. Miller, 389 U.S. 429 (1968) (foreign heirs) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>2. American Ins. Ass’n v. Garamendi, 539 U.S. 396, 428 (2003) (foreign claims settlements) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Alternative views: evaluation function and reciprocal recognition function. The latter, “opening foreign markets” to U.S. business not traditional state activity, but no apparent conflict with affirmative federal initiatives or negotiations with foreign governments. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>_____ </li></ul></ul></ul></ul><ul><ul><ul><ul><li>*Edward T. Swain, Does Federalism Constrain the Treaty Power? , Columbia Law Review, Vol. 103, No. 3 (Apr. 2003), pp. 403-533, at 404. </li></ul></ul></ul></ul>
    35. 35. <ul><li>Dormant Federal Foreign Commerce Clause – Article 1, § 8 </li></ul><ul><li>States should not discriminate against foreign commerce in favor of their own citizens, should avoid imposing multiple taxation, and should avoid impinging the federal government’s ability to speak with one voice in the field of commerce with foreign nations. </li></ul><ul><li>Metropolitan Life Ins. Co. v. Ward, 470 U.S. 869, 880 (1985). “The McCarran-Ferguson Act exempts the insurance industry from Commerce Clause restrictions.” </li></ul><ul><li>Nothing in MFA distinguishes states’ ability to regulate U.S. insurers from their ability to regulate non-U.S. insurers. </li></ul>
    36. 36. EU – Insurance Mediation Directive <ul><li>The EU Member States will eliminate collateral demands upon one another, but, under the Reinsurance Directive, are permitted to demand “pledging of assets” from reinsurers in third countries. This takes precedence over GATS. </li></ul><ul><li>Cannot treat third countries more favorably than EU Member State. (Contrast U.S. approach, Legislative History of CFRML). </li></ul>
    37. 37. Countries Outside Europe That Have Collateral Requirements for Third Countries <ul><li>Australia requires collateral security from third-country reinsurers. </li></ul><ul><li>Who is complaining? </li></ul><ul><li>Australia also has reinsurance capacity issues, like the U.S. </li></ul><ul><li>Are the criticisms against the U.S. system justified? </li></ul>
    38. 38. Conclusions and Recommendations <ul><li>Reconsider the wisdom of the current system, including the benefits of the NAIC Credit for Reinsurance Model Law (existing provisions for U.S. jurisdiction of disputes and recovery from collateral). </li></ul><ul><li>CFRML a convenient nexus to overall objectives with proven success, could be salvaged for all purposes with appropriate collateral calibration. </li></ul><ul><li>The Hague Convention on Choice of Courts Convention </li></ul><ul><li>The New York Convention </li></ul><ul><li>Consider the wisdom of independent credit rating agencies. Are they facing the same constitutional or international trade scrutiny? </li></ul><ul><li>Are there opportunities for companies to enter the market by offering new services, such as independent reviews and opinions of foreign reinsurance regulatory regimes? If so, could their results/ratings/opinions be tied to the NAIC CFRML and individual state enactments, such as NY Regulation 20? </li></ul><ul><li>Avoid use of MUOs and MRAs, as these result in complex constitutional and international trade issues, when other alternatives are less controversial. Work within the CFRML. </li></ul>
    39. 39. Interplay Between U.S. and E.U. Reinsurance Regulatory Reform
    40. 40. Preliminary Basics <ul><li>Institutions of the </li></ul><ul><li>European Union </li></ul><ul><li>Council </li></ul><ul><li>Commission </li></ul><ul><li>Parliament </li></ul><ul><li>Court of Justice </li></ul><ul><li>Court of the Accountings </li></ul><ul><li>Sources of EU Law </li></ul><ul><li>--The… </li></ul><ul><li>Recommendations </li></ul><ul><li>Regulations </li></ul><ul><li>Directives </li></ul><ul><li>EU Treaty </li></ul>
    41. 41. Prudential / Supervisory Rules for The Conduct of Reinsurance Business EU and U.S.
    42. 42. Sources of Reinsurance Supervision Rules EU Federal-Like Supervision US State Supervision
    43. 43. Sources of Reinsurance Supervisory Rules EU European Parliament and The Council Reinsurance Directive (RID) 2005/68/EC Adopted Law, Required to Be Implemented Into National Law (Uniform Rules, 27 EU Member Countries, 30 EEA Countries) U.S. National Association of Insurance Commissioners Credit for Reinsurance Model Law ) Recommended Model Laws (Regulation by 50 States, District of Columbia, And Territories)
    44. 44. Reinsurance Directive 2005/68/EC Institutional Arrangements – Third Countries <ul><li>TITLE III </li></ul><ul><li>CONDITIONS GOVERNING THE BUSINESS OF REINSURANCE </li></ul><ul><li>Cooperation Agreements With Third Countries ( Article 26) </li></ul><ul><ul><li>TITLE VI </li></ul></ul><ul><ul><li>REINSURANCE UNDERTAKINGS WHOSE HEAD OFFICES ARE OUTSIDE THE COMMUNITY AND CONDUCTING REINSURANCE ACTIVITIES IN THE COMMUNITY </li></ul></ul><ul><ul><li>Third Country Reinsurance Undertakings (Article 49) </li></ul></ul><ul><ul><li>Agreements With Third Countries (Article 50) </li></ul></ul>
    45. 45. Article 26 Cooperation Agreements with Third Countries <ul><li>Member States may conclude cooperation agreements providing for </li></ul><ul><li>exchange of information with the competent authorities of third </li></ul><ul><li>countries or with authorities or bodies of third countries as defined in </li></ul><ul><li>Article 28(1) and (2) only if the information disclosed is subject to </li></ul><ul><li>guarantees of professional secrecy at least equivalent to those </li></ul><ul><li>referred to in this Section. Such exchange of information shall be </li></ul><ul><li>intended for the performance of the supervisory task of the </li></ul><ul><li>authorities or bodies mentioned. </li></ul><ul><li>Where the information originates in another Member State, it </li></ul><ul><li>may not be disclosed without the express agreement of the </li></ul><ul><li>competent authorities which have disclosed it and, where </li></ul><ul><li>appropriate, solely for the purposes for which those </li></ul><ul><li>authorities gave their agreement. </li></ul>
    46. 46. Article 49 Principle and Conditions for Conducting Reinsurance Business A Member State shall not apply to reinsurance undertakings having their head offices outside the Community and commencing or carrying out reinsurance activities in its territory provisions which result in a treatment more favourable than that accorded to reinsurance undertakings having their head office in that Member State.
    47. 47. Article 50 Agreements With Third Countries <ul><li>1. The Commission may submit proposals to the Council for </li></ul><ul><li>the negotiation of agreements with one or more third </li></ul><ul><li>countries regarding the means of exercising supervision over: </li></ul><ul><li>(a) reinsurance undertakings which have their head offices </li></ul><ul><li>situated in a third country , and conduct reinsurance </li></ul><ul><li>business in the Community, </li></ul><ul><li>(b) reinsurance undertakings which have their head offices in the </li></ul><ul><li>Community and conduct reinsurance business in the territory of a </li></ul><ul><li>third country . </li></ul>
    48. 48. Article 50, Cont’d <ul><li>2. The agreements referred to in paragraph 1 shall in particular seek to ensure </li></ul><ul><li>under conditions of equivalence of prudential regulation, effective market </li></ul><ul><li>access for reinsurance undertakings in the territory of each contracting party </li></ul><ul><li>and provide for mutual recognition of supervisory rules and practices on </li></ul><ul><li>reinsurance . They shall also seek to ensure that: </li></ul><ul><li>(a) the competent authorities of the Member States are able to obtain the </li></ul><ul><li>information necessary for the supervision of reinsurance undertakings which </li></ul><ul><li>have their head offices situated in the Community and conduct business </li></ul><ul><li>in the territory of third countries concerned, </li></ul><ul><li>(b) the competent authorities of third countries are able to obtain the information </li></ul><ul><li>necessary for the supervision of reinsurance undertakings which have their </li></ul><ul><li>head offices situated within their territories and conduct business in the </li></ul><ul><li>Community. </li></ul><ul><li>3. Without prejudice to Articles 300(1) and (2) of the Treaty, the Commission shall with </li></ul><ul><li>the assistance of the European Insurance and Occupational Pensions Committee </li></ul><ul><li>examine the outcome of the negotiations referred to in paragraph 1 of this Article and </li></ul><ul><li>the resulting situation. </li></ul>
    49. 49. Insurance Mediation Directive, IMD <ul><li>Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on Insurance Mediation, also known as the Insurance Mediation Directive, or simply IMD. [1] </li></ul><ul><li>Under the IMD, Article 1, “Scope”, paragraph 3, “equal treatment” of reinsurance intermediaries is “guaranteed.” In the Reinsurance Directive, or RID, the “pledging of assets” by third-country reinsurers can be requested by an EU Member State. This is arguably not likely to occur given the EU’s attempts at global harmonization of the reinsurance business. Under the RID, EU Member States cannot offer terms to third-country reinsurers on terms more favorable than those offered to Community members. That refers to reinsurance companies, not intermediaries. Thus, under the IMD, equal treatment to intermediaries is guaranteed, with no mention of treatment of companies. Under the RID, equal treatment of companies is not guaranteed. Any attempts by the EU to require pledging of assets by third countries could be met with claims of discrimination. If the complainer is a U.S. reinsurance company, such complaints would be met with no sympathy – see the discussion of the collateral debate, infra. </li></ul><ul><li>[1] Available at www.eur-lex.europa.cu/LexUriServ/LexUriServe.do?uri=CELEX:32002L0092:EN:NOT. </li></ul>
    50. 50. RID Highlights <ul><li>The Reinsurance Directive gives reinsurers not based in an EU Member state the opportunity to conduct business in the EU without the need to establish a branch. </li></ul><ul><li>Art. 26: “Cooperation agreements…information exchange” </li></ul><ul><li>--”guarantee of secrecy” </li></ul><ul><li>Art. 49: “…no more favourable than that accorded to reinsurance undertakings having their head </li></ul><ul><li>office in that Member State.” </li></ul><ul><li>Compared with U.S. regime, infra. </li></ul>
    51. 51. RID Highlights (Cont’d) <ul><li>Art. 50: “…negotiation of agreements with…third countries regarding means of supervision over” “(a) reinsurance undertakings which have their head offices situated in a third country, and conduct reinsurance business within the Community </li></ul><ul><li>IMD – EU can require collateral (“pledging of assets”) of third countries such as the U.S. </li></ul><ul><li>Compared with U.S. regime, infra. </li></ul>
    52. 52. Implementation Into National Law UK Sources of Foreign Reinsurance Supervision EU European Parliament and The Council Reinsurance Directive (RID) 2005/68/EC Adopted Law for Implementation Into National Law (Uniform Rules, 27 EU Member Countries, 30 EEA Countries) US National Association of Insurance Commissioners Credit for Reinsurance Model Law (CFRML) Recommended Model Laws (Regulation by 51 Jurisdictions)
    53. 53. Implementation Into National Law UK Financial Services and Markets Act 2000 The RID came into force Dec. 10, 2005 and was originally to be implemented by Dec. 10, 2007 (extended to October 2008). The UK Financial Services Authority (“FSA”) states that most of the provisions of the RID had already been implemented by the UK prior to the planned effective date. The next slides will discuss what was done for full implementation.
    54. 54. Financial Services and Markets Act 2000 2006 Implementations (cont’d) On 31 December 2006 the FSA introduced prudential changes for insurers which included the introduction of a principles-based approach to asset admissibility, the reduction of certain reinsurance solvency requirements and the authorization and supervision of insurance special purpose vehicles. Source: Implementation of the Reinsurance Directive in the UK , Clyde & CO LLP Newsletter, January 2008, available at http://www.runoffmarket.com/docs/a014/Run-off-Jan-2008.pdf .
    55. 55. Financial Services and Markets Act 2000 2006 Implementations (cont’d) <ul><li>The FSA’s proposed new measurers are discussed in its publication entitled Consultant Paper, Implementing the Reinsurance Directive , June 2006. The FSA implemented these new measures on December 31, 2006: </li></ul><ul><li>Removed restrictions on the assets held by reinsurers ; </li></ul><ul><li>The pre-existing prescriptive rules on admissible assets and quantitative limits were removed for pure reinsurers and replaced by high level &quot;prudent person&quot; investment principles covering liquidity, security, quality, profitability and matching of assets. </li></ul>
    56. 56. FSA’s 2006 Measures (Cont’d) <ul><li>Removing restrictions on the assets held by reinsurers; </li></ul><ul><li>Changed the life reinsurance rules on capital requirements and technical provisions; </li></ul><ul><li>Pure reinsurers and mixed insurers carrying on life reinsurance protection business and permanent health insurance can now determine their minimum capital requirement using the non-life solvency tests. Furthermore, pure reinsurers can now calculate their technical provisions on a basis which has less of a margin of prudence built in than was required. The FSA estimates that the combined effect of these is a significant increase in excess capital of UK pure reinsurers. A certain proportion of that capital is needed to meet the individual capital adequacy standards that the FSA imposes on each firm. But even taking that into account the FSA estimates the changes resulted in the potential freeing up of capital of approximately £730 million. </li></ul>
    57. 57. FSA’s 2006 Measures (cont’d) <ul><li>Removing restrictions on the assets held by reinsurers; </li></ul><ul><li>Changing the life reinsurance rules on capital requirements and technical provisions; </li></ul><ul><li>Relaxed restrictions on reinsurers' activities; </li></ul><ul><li>Previously reinsurers could only carry on reinsurance business and activities directly arising from that business. The FSA relaxed that restriction for pure reinsurers so as to permit them to carry on related operations such as providing actuarial advice or claims management services for their clients. </li></ul>
    58. 58. FSA’s 2007 Measures Dec. 31, 2007 <ul><li>Financial Services and Markets Act 2000 (Reinsurance Directive) Regulation 2007 No 3255: </li></ul><ul><li>This provides that a proposed transfer by a reinsurance undertaking must be publicized and notified to policyholders. That requirement can be waived by the court in certain circumstances. </li></ul>
    59. 59. FSA’s 2007 Measures Dec. 31, 2007 <ul><li>Financial Services and Markets Act 2000 (Reinsurance Directive) Regulation 2007 No 3255: </li></ul><ul><li>Services and Markets Act 2000 (Reinsurance Directive) Order 2007 No. 3254 </li></ul><ul><li>This makes clear that the term &quot;a relevant reinsurer&quot; (as used in Statutory Instrument No. 2001/544) includes reinsurers that fall within the RID as well as other foreign reinsurers. The instrument also deals with Gibraltar-based firms, extending to Gibraltar-based firms carrying on reinsurance within the meaning of the RID the right to establish branches in the UK, which Gibraltar-based firms carrying on direct insurance business already had. </li></ul>
    60. 60. FSA’s 2007 Measures Dec. 31, 2007 <ul><li>Financial Services and Markets Act 2000 (Reinsurance Directive) Regulation 2007 No 3255; </li></ul><ul><li>Services and Markets Act 2000 (Reinsurance Directive) Order 2007 No. 3254; </li></ul><ul><li>The Reinsurance Directive Regulations 2007 No. 3253 </li></ul><ul><li>A new procedure for reinsurance transfers. It was already possible, prior to the RID, to transfer reinsurance portfolios under Part VII of FSMA, but changes were required to the UK procedure to comply with the RID and in particular the need for home state authorization of transfers by UK branches of pure reinsurers. Also, the Treasury chose to simplify the Part VII process as it applies to reinsurance transfers, so that where the consent of all the policyholders has been obtained, an application to court will not be necessary, although a solvency certificate (which is a minimum requirement under the RID) will have to be obtained. There is also provision to clarify the application of the requirements for certificates as to solvency and consent of certain regulators to transfers by non-EEA insurers with a branch in the UK, and to transfers to branches of non-EEA insurers elsewhere in the EEA. </li></ul>
    61. 61. Sources of Foreign Reinsurance Supervisory Rules EU European Parliament and The Council Reinsurance Directive (RID) 2005/68/EC Actual Law (Uniform Rules, 27 EU Member Countries, 30 EEA Countries) US National Association of Insurance Commissioners Credit for Reinsurance Model Law-NAIC ) Recommended Model Laws (Regulation by 51 Jurisdictions)
    62. 62. Highlights EU/RID NAIC/CRMA <ul><li>The RID gives reinsurers not based in an EU Member state the opportunity to conduct business in the EU without the need to establish a branch. </li></ul><ul><li>Art. 26: “Cooperation agreements…information exchange” </li></ul><ul><li>--”guarantee of secrecy” </li></ul><ul><li>Art. 49: “…no more favourable than that accorded to reinsurance undertakings having their head </li></ul><ul><li>office in that Member State.” </li></ul><ul><li>Same. But, unlike EU, which can assess collateral but doesn’t, the U.S. does require collateral as a proxy to a branch, financial strength rating, equalization reserves, etc. </li></ul><ul><li>No counterpart. Likely in </li></ul><ul><li>future State regulations (information sharing part of NYS proposal). </li></ul><ul><li>With some exceptions disclosed in legislative history to CFRML, nonadmitted reinsurers are not treated more favorably than admitted/licensed reinsurers or domestic, unlicensed reinsurers who must post collateral. </li></ul>
    63. 63. Highlights (Cont’d) EU/RID NAIC/CRMA <ul><li>Art. 50: “…negotiation of agreements with…third countries regarding means of supervision over… </li></ul><ul><li>“ (a) reinsurance undertakings which have their head offices situated in a third country, and conduct reinsurance business within the Community” </li></ul><ul><li>EU insurers can require pledging of assets by third-country reinsurers. </li></ul><ul><li>No counterpart in CFRML. But, such negotiations are quite likely in the future, by both the NAIC and individual States. </li></ul><ul><li>States must require collateral of non-U.S. reinsurers not licensed in the U.S. </li></ul>
    64. 64. Implementation Into National Law UK Adoption into State Law New York State Sources of Reinsurance Supervision EU European Parliament and The Council Reinsurance Directive (RID) 2005/68/EC Adopted Law for Implementation Into National Law (Uniform Rules, 27 EU Member Countries, 30 EEA Countries) US National Association of Insurance Commissioners Credit for Reinsurance Model Law (CFRML) ) Recommended Model Laws (Regulation by 51 Jurisdictions)
    65. 65. New York State Regulation 20 (11 NYCRR 125) <ul><li>(c) (1) In the case of an alien assuming insurer, not otherwise entered as a United States branch in another state, such assuming insurer meets the standards of solvency required of licensed insurers of like character, such terms and conditions as prescribed by the superintendent, and otherwise complies substantially with related requirements, and such assuming insurer has deposited and continues to maintain in one or more New York state banks and/or members of the Federal Reserve System located in New York state, a trust fund or trust funds, constituting a trusteed surplus, in cash, readily marketable securities, or letters of credit, in an amount of not less than $20,000,000 for the protection of the United States insurers, and United States beneficiaries under reinsurance policies (contracts) issued by such alien assuming insurers. Such trusteed amount shall be in addition to any other trust fund required by this department, including, but not limited to, a trusteed amount at least equal to the liabilities attributable to United States insurers and United States beneficiaries under reinsurance policies (contracts) issued by such alien assuming insurers. As used in this subdivision, surplus means the balance remaining after subtracting the liabilities, attributable to reinsurance policies (contracts) issued in the name of such alien assuming insurer from the total assets deposited in the trust fund or trust funds </li></ul>
    66. 66. New York State Regulation 20 (11 NYCRR 125) <ul><li>Lloyd’s </li></ul><ul><li>Finally, in the case of “a group located outside the United States whose </li></ul><ul><li>members consist of individual incorporated assuming insurers who are not </li></ul><ul><li>engaged in any business other than underwriting as a member of the group </li></ul><ul><li>and individual unincorporated assuming insurers” (referring to Lloyd’s-style </li></ul><ul><li>reinsurers without mentioning any company or market names), there is an </li></ul><ul><li>additional requirement of trusteed surplus funds in the amount of </li></ul><ul><li>$100 million. [1] (Lloyd’s has always been an insurance market, not an insurance company or insurance corporation). </li></ul><ul><li>Thus, Lloyd’s is required to post collateral (a) equal to liabilities under </li></ul><ul><li>reinsurance contracts, plus (b) trusteed surplus funds in the amount of </li></ul><ul><li>$20 million, and (c) trusteed surplus funds in the amount of $100 million. </li></ul><ul><li>Therefore, as discussed later in this section, it is not surprising that Lloyd’s is </li></ul><ul><li>the most vocal opponent of the U.S. reinsurance collateral requirements, and </li></ul><ul><li>the leader of the Pan-European effort to abolish such requirements. </li></ul><ul><li>[1] §125.4 ( c) (5) (d) (1) (iv) (a) Regulation No. 20, available at </li></ul><ul><li>http://www.ins.state.ny.us/r_finala/2003/pdf/fr20a9tx.pdf. </li></ul>
    67. 67. New York State Proposed Regulation for 2008 <ul><li>The Superintendent of Insurance for the NYSID has announced proposed new reinsurance collateral rules. Alien and domestic unauthorized reinsurance companies with the highest credit ratings will be treated the same as authorized companies. Weaker reinsurance companies will be required to post collateral on a sliding scale from 10 to 100 percent. Unauthorized reinsurers with a triple A credit rating from two rating agencies would not have to post collateral. Unauthorized reinsurers with a double A or equivalent rating would have to post collateral equal to 10 percent of claims, single A 20 percent, and triple B 50 percent. Unauthorized reinsurers having a credit rating below triple B would still be required to post 100 percent collateral. </li></ul>
    68. 68. New York State Proposed Regulation for 2008 (cont’d) <ul><li>Other requirements would be as follows: </li></ul><ul><li>An unauthorized reinsurer must: </li></ul><ul><li>Meet the standards of solvency, including standards for capital adequacy, established by its domestic regulator; </li></ul><ul><li>Be authorized in its domiciliary jurisdiction to assume the specific kind of reinsurance it is offering; </li></ul><ul><li>Maintain a policyholder's surplus or equivalent in excess of $250 million; </li></ul><ul><li>Accept required contract terms, including consent to the jurisdiction of U.S. courts for disputes; </li></ul><ul><li>Have a primary regulator that has a memorandum of understanding with the NYSID that addresses information sharing and considers such matters as regulatory equivalency and enforceability of judgments ; </li></ul><ul><li>Be domiciled in a country that allows U.S. reinsurers access to its market on similar terms; and Post 100 percent collateral upon the entry of an order of rehabilitation, liquidation or conservation against the ceding insurance company. </li></ul><ul><li>Collateral requirements will not change for authorized reinsurers; they will still not be required to post any collateral. However, new safeguards will be put in place to help ensure the ability of these reinsurers to cover claims and thus protect consumers. </li></ul><ul><li>Insurance companies ceding risk to reinsurers have responsibility for vetting those reinsurers and developing risk management plans for their reinsurance placements. </li></ul><ul><li>The Superintendent of Insurance will retain final authority over any particular transaction. </li></ul><ul><li>Source : NYSID </li></ul>
    69. 69. Red herring and elephant graphics compliments of Google Images. Questions? Gregory S. Arnold, LL.M [email_address] (508) 688-4119
    1. A particular slide catching your eye?

      Clipping is a handy way to collect important slides you want to go back to later.

    ×