AIA Cautions State Regulators on Financial Markets

The American Insurance Association (AIA) is cautioning state insurance regulators not to proceed with their efforts to reduce collateral requirements for unlicensed reinsurers and put U.S. insurers at financial risk during the Fall 2008 National Meeting of the National Association of Insurers Commissioners (NAIC), Sept. 22 - 24, in Washington, D.C.

The issue of changing the requirement that unlicensed reinsurers post 100 percent collateral for reinsurance contracts they write in the U.S. is one of several ongoing matters of interest to the AIA during this NAIC gathering.

“AIA believes the recent turmoil in the financial sector underscores the need to retain the current collateral rules requiring that reinsurers without a U.S. license post 100 percent collateral. The primary concern of all state regulators and all interested stakeholders at this time of financial unease should be to best secure the solvency of U.S. insurers and to best ensure that payments due under reinsurance contracts are received,” said Steven Bennett, AIA assistant general counsel.

“The current system has worked with no known problems,” Bennett continued. “We oppose this dangerous change and think the NAIC is on its way to making a mistake by reducing collateral requirements, and thus, making it more difficult for U.S. insurers to recover reinsurance.”

AIA will also continue to press for working cooperatively with the NAIC on its climate change disclosure project. However, “We have strong doubts about certain scientific conclusions and whether mandated disclosures would be useful in terms of responding to any challenges posed to insurers by climate change or global warming,” said David Snyder, AIA vice president and assistant general counsel. “Instead, we have recommended that insurance regulators focus on actions such as advocating for stronger building codes and land use controls, support for insurers offering ‘green’ coverages and allowing insurers the ability to assess and fully underwrite for risk,” said Snyder.

Another issue of importance to AIA is the NAIC’s ongoing efforts to collect confidential and proprietary insurer information and make it public.

“The NAIC’s latest proposal raises a number of legal and practical problems that would need to be addressed before implementing any centralized data collection system. To begin with, state insurance commissioners lack the authority to require that insurers provide market conduct data to the NAIC,” said Cate Paolino, AIA senior counsel. “Market conduct information has legal protection under most state laws and that protection would be compromised if the information were collected by the NAIC, which is not subject to state confidentiality laws,” concluded Paolino.

The NAIC Catastrophe Issues Working Group is expected to continue considering its draft comprehensive national plan for dealing with natural catastrophes, with which AIA finds flaws.

“Several new ideas and proposals have surfaced that are not reflected in the current NAIC draft plan. We believe that this paper should be objective and reflect these proposals, instead of simply endorsing a Florida-type approach of new state catastrophe funds backstopped by the federal government,” added Eric Goldberg, AIA associate general counsel.