Publications

FIO Focus, Issue No. 16

FIO Requests Comments Regarding Its Report on the Global Reinsurance Market
06.28.12

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Devoted to exploring the progress of the modernization of the insurance industry, FIO Focus provides information and insights about the organizations and issues that are driving change and influencing the future of the industry.

Federal Insurance Office Requests Comments Regarding Its Report on the Global Reinsurance Market

Under the Dodd-Frank Act, the Federal Insurance Office (FIO) is tasked with publishing a report by September 30, 2012, which describes the breadth and scope of the global reinsurance market and the critical role such market plays in supporting insurance in the U.S. On June 27, 2012, the FIO published a notice and request for comment in the Federal Register regarding the global reinsurance market report.

The FIO requested that commenters "submit views" on the following:

  1. The purpose of reinsurance;
  2. The breadth and scope of the global reinsurance market;
  3. The role the global reinsurance market plays in supporting insurance in the U.S.;
  4. The effect of domestic and international regulation on reinsurance in the U.S.;
  5. The role and impact of government reinsurance programs;
  6. The coordination of reinsurance supervision nationally and internationally; and
  7. Any other topics relevant to the global reinsurance market report.

This comment period is an opportunity for companies and interest groups to communicate directly with the FIO concerning matters that are likely to impact the industry directly as the role of the FIO continues to unfold. The comment period is open through August 27, 2012.

FIO's Involvement in Reinsurance

The FIO has several reporting obligations under the Dodd-Frank Act. In addition to the September 30, 2012, global reinsurance market report, the FIO is tasked with releasing a report by January 1, 2013 on the impact of reinsurance reform measures in the Nonadmitted and Reinsurance Reform Act (NRRA). Reinsurance may also be addressed in the much anticipated modernization report, which is six months overdue. The FIO similarly requested comments relevant to the modernization report, at which time a handful of reinsurers and reinsurance interest groups submitted comments, including:

  • Concerns that the financial reporting, licensing, mandatory contract terms and regulatory requirements vary from state to state;
  • Statements that U.S. insurance regulation should be structured to attract reinsurance capacity;
  • Observations regarding the potential impact of the emergence of international organizations such as the International Association of Insurance Supervisors (IAIS) and changes in international regulation, including Solvency II; and
  • Requests that the FIO ensure U.S. reinsurance companies have access to foreign markets and establish treaties allowing court judgments in reinsurance cases to be recognized and enforced throughout the world.

In his testimony before a House Financial Services Subcommittee on May 17, 2012, FIO Director Michael McRaith addressed the importance of the international reinsurance market. McRaith noted that a 2011 Reinsurance Association of America study found that 60 percent of the U.S. reinsurance market was ceded to non-U.S. reinsurers, giving at least some indication of the relevance of the global reinsurance market to the U.S. insurance industry.

Related Developments in Reinsurance Regulation

The NRRA, which was passed as part of the Dodd-Frank Act, imposed new rules relating to the recognition of credit for reinsurance and regulation of reinsurers. Under the NRRA:

  1. A reinsurance company's domiciliary regulator is the sole regulator of the company's financial solvency;
  2. Only the cedent's domiciliary regulator may impose requirements for the terms and enforcement of reinsurance contracts; and
  3. Only a cedent's domiciliary regulator may deny credit for reinsurance.

In 2011, the National Association of Insurance Commissioners (NAIC) amended its Credit for Reinsurance Model Law and Regulation. The changes included a process by which certain reinsurers may qualify for reduced collateral requirements.

The recognition of credit for reinsurance and the issue of requiring collateral or security from alien reinsurers will have a significant impact on the U.S.'s involvement in international insurance and reinsurance industries. The European Union (EU) has started to conduct equivalency assessments of foreign jurisdictions under Solvency II. As part of Solvency II, reinsurers from equivalent regimes will not have to post reinsurance collateral. Cedents will also be granted equal credit for reinsurance by non-admitted reinsurers from equivalent countries. The European Insurance and Occupational Pensions Authority (EIOPA) has issued consultation papers recommending the reinsurance regulatory systems in Bermuda, Japan and Switzerland be deemed equivalent for Solvency II purposes. The U.S. system has not yet been considered by EIOPA.

Deputy Assistant Secretary Mark Sobel of the U.S. Department of the Treasury previously stated that the FIO is working to address issues that have arisen between the U.S. and EU, such as reinsurance collateral and Solvency II. McRaith has also stated in public comments that the FIO is working with EU regulators on the regulatory expectations and capital requirements of Solvency II. Both McRaith and Sobel have indicated that an EU-U.S. work plan regarding Solvency II will be released by the end of the year.