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Eliminating Collateral Requirements Must Result In Savings To Insurance Consumers

Eliminating collateral requirements for foreign reinsurers should be judged on whether the change will produce savings that can be passed along to consumers, Howard Mills, New York State Superintendent of Insurance, told the Insurance Journal in an exclusive interview recently. The important question for regulators to address in considering the change is: "If the collateralization rule is dropped, will there be a cost savings passed on to the consumers of reinsurance and ultimately the primary insurance consumers?" The National Association of Insurance Commissioners (NAIC) is considering replacing collateral requirements with a rating standard to allow credit for reinsurance on insurer balance sheets. Currently, non-U.S. reinsurers, who provide more than 50 percent of reinsurance to the U.S. primary industry, must put up 100 percent of their actuarially estimated liabilities to U.S. ceding companies as collateral. Domestic companies, on the other hand, don't have to meet this requirement. Under the credit rating system being considered by NAIC reinsurers with high credit ratings would not have to put up collateral. U.S. regulators are being urged by the association of European insurance companies, Comite European des Assurances, to abolish collateral requirements for foreign reinsurers. E.U. is banishing collateral requirements and creating a uniform system of regulation across the 25 countries of the Union. U.S. RE supports eliminating the discriminatory collateral rule as a first step toward replacing the current system of regulation by 50 state jurisdictions with a uniform federal system.