by ~ Steven J. Torres (Email) (Web Site)
MReBAs 2011 Annual Reinsurance Symposium opened with an insightful keynote address by Tracey W. Laws, Senior Vice President & General Counsel at the Reinsurance Association of America (RAA). In her position at the RAA, Ms. Laws is responsible for establishing and advocating the RAAs public policy positions.
Drawing upon her experience at the RAA, Ms. Laws remarks provided the audience with an overview of the current state of the reinsurance marketplace, how reinsurance is currently regulated, and emerging regulatory issues that are impacting reinsurance markets.
Todays Global Reinsurance Marketplace
Ms. Laws described reinsurance as a global business that provides the US with important capacity. She stated that only four of the top 25 property & casualty reinsurance groups (in 2009) were located in the United States, and that the top four reinsurance groups were located in Europe. While the U.S. is the largest property- casualty market in the world and has the largest amount of long-tail casualty business, U.S. reinsurance premium was ceded to thousands of entities in over 100 jurisdictions outside the U.S. In 2010, the total U.S. reinsurance premium ceded to non-U.S. companies was $55.1 billion, with $22.9 billion ceded to unaffiliated reinsurers and $32.2 ceded to affiliated reinsurers. Companies in 10 countries received approximately 93% of the unaffiliated premium. While U.S. reinsurers assumed over 40.1% of the reinsurance risk in the U.S., 59.9% of this risk was reinsured by non-U.S. reinsurers.
Ms. Laws also cited RAA statistics that show that the U.S. reinsurance industry has experienced favorable results of late, with combined ratios experienced over the last five years of 94.2% (2006), 93.5% (2007), 100.4% (2008), 92.3% (2009) and 94.5% (2010). But catastrophe losses in early 2011 in the U.S., New Zealand and Europe have spawned combined ratios of 129.3% and 116.2% for the first and second quarters of 2011, respectively. Finally, with respect to the reinsurance marketplace, Ms. Laws reported that the P&C reinsurance market outlook is considered to be stable by the rating agencies with Fitch (stable), Standard & Poors (stable, well capitalized) and A.M. Best (stable) all concurring that the industry has a stable outlook.
Regulation of Reinsurers
Ms. Laws noted that U.S. reinsurance regulation focuses on solvency, and therefore the collectability of reinsurance recoveries. Ms. Laws stated that rating agencies serve as de facto regulators given the impact that rating agencies can have on a companys ability to write business. U.S. reinsurers are generally subject to the same entity regulation as U.S. primary insurers, such as risk-based capital requirements, holding company laws, licensing laws, annual statement requirements, triennial examinations and investment laws. The exception to this general rule is that, for reinsurers, there is no regulation of rates and forms because parties to a reinsurance contract are considered to be of equal bargaining power; and reinsurance contracts tend to be prepared on a manuscript basis.
Regulation of reinsurance transactions was historically considered necessary because of (i) the significant amount of reinsurance ceded abroad; (ii) the substantial variance among jurisdictions regarding the level of reinsurance regulation; and (iii) the challenge U.S. regulators faced in assessing financial statements from multiple jurisdictions. But recent regulatory reforms in the EU, the UK and Bermuda have raised the bar, according to Ms. Laws, for international reinsurance regulation. Improved regulatory coordination and accounting convergence efforts have enhanced U.S. regulators ability to analyze and understand financial statements from other jurisdictions. And enactment of the Dodd-Frank Act in 2010 by the U.S. Congress has provided the proverbial camels nose under the tent for insurance regulation purposes.
Current Reinsurance Regulatory Issues
Ms. Laws provided an overview of the current regulatory environment in which todays reinsurers operate, and addressed emerging regulatory topics including the implementation of the Dodd-Frank Act, systemic risk, U.S. equivalence under Solvency II and the NAICs Solvency Modernization Initiative. Implementation of Dodd-Frank has included, among other things, the establishment of the Federal Insurance Office (FIO). The FIO monitors the insurance industry and provides an office at the federal level that is in tune with the issues facing the insurance industry. The FIO is also presently undertaking studies on the state of the industry as well as a study on modernizing insurance regulation. The FIO is also instrumental in coordinating and developing federal policy in international insurance matters and has the authority to enter covered agreements with international regulators on things such as collateral issues.
Dodd-Frank also included the passage of the Nonadmitted & Reinsurance Reform Act (NRRA). The NRRA established that reinsurance transactions are subject to a single financial regulator, which is the one established by the home state of the reinsured. This means that credit for reinsurance transactions will be determined by the cedents domicile. Ms. Laws also indicated that the Financial Stability Act of 2010 established the Financial Stability Oversight Council to monitor sources of systemic risk.
Ms. Laws addressed U.S. equivalence and explained how solvency changes being considered by the EU through Solvency II will impact the U.S. market and be a major catalyst for change in the U.S. system. The EU selected Bermuda, Switzerland, and Japan as the jurisdictions to include in their equivalence analysis. The U.S. will need to substantively address its collateral requirements before the U.S. will be deemed equivalent.
Ms. Laws final remarks related to the NAICs Solvency Modernization Initiative. One aspect of the initiative relates to corporate governance. The NAIC is reviewing the International Association of Insurance Supervisors insurance core principles regarding corporate governance, enterprise risk management and internal controls, among other areas. The NAICs modernization initiative also included credit for reinsurance reform and provides states with the option of requiring less than 100% collateral for unauthorized reinsurers. Several states, such as Florida, New York, New Jersey and Indiana, have already adopted legislation along those lines.
The NAIC also recently adopted the Revised Holding Company Act requiring companies to identify material risk within their holding company system that could pose systemic risk to the insurer through financial contagion. This change imposes increased disclosure requirements on companies and authorizes states to participate in supervisory colleges at the insurance groups expense.
Ms. Laws also addressed other financial matters the NAIC is reviewing. In February 2011, NAIC staff issued a draft U.S. Owned Risk Solvency Assessment that calls for companies to undertake an annual self-assessment of all reasonably foreseeable and relevant material risks. NAIC also has formed a capital adequacy task force to review capital requirements, measure calibration levels of risk-based capital, and make targeted improvements. Finally, the NAIC is also studying statutory accounting and financial reporting provisions, and, in particular, evaluating IASB insurance accounting standards to determine if they should form the basis of the future regulatory accounting model.
Steven Torres may be reached at email@example.com.
2011 Mintz Levin Cohn Ferris Glovsky and Popeo, P.C. All rights reserved. The views and opinions attributed to speakers at the Symposium do not necessarily reflect the views of their respective companies, law firms, or clients, or any of their members, affiliates, shareholders, or managers.Our range for men and women in fendi bags,replica watches,replica gucci watches and chopard replica watches will leave you agog.
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