Byline: Meg Fletcher
Drafters of tougher uniform financial and corporate governance standards for U.S. risk retention groups are debating a controversial issue concerning the capital requirements of reinsurers.
At issue is whether to require a reinsurer to have at least $20 million in capital or in trust before an RRG would be allowed to take credit for the reinsurance it cedes.
Pro-regulation supporters say the National Assn. of Insurance Commissioners' traditional standard for reinsurers is appropriate to ensure financial solvency of such groups, which consist of similar businesses with similar risk exposures that create their own insurer to self-insure on a group basis.
Pro-RRG supporters disagree, and say that a $20 million requirement is excessive for such groups.
While those discussions continue, regulators with domestic RRG industries, and those without such industries, joined with industry representatives in crafting tighter financial and corporate governance standards for RRGs. After nearly 18 months of work, the NAIC will consider formally adopting some governance recommendations at its March 10-13 meeting in New York.
Thus far, the proposed financial standards allow use of Generally Accepted Accounting Principles rather than mandating use of Statutory Accounting Principles. Even so, GAAP numbers would have to be converted to SAP in the footnotes of each RRG's annual statement.
It's "an important step forward" because the new financial standards are expected to become accreditation requirements, which would require states to use them. The standards would create "a more level playing field" among states concerned with RRG regulation and among RRGs themselves, said Tim Wagner, the Nebraska insurance director and chair of the NAIC's Property/Casualty Insurance Committee subgroup that is drafting the corporate governance requirements.
In addition, a wide range of proposed RRG corporate governance rules would …
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