The Central Bank of Ireland (the “Central Bank”) has accepted an invitation from the National Association of Insurance Commissioners (the “NAIC”) (a collective association of US state insurance regulators) to participate in a review of requirements for Irish-authorised reinsurers operating in the US. If successful, it could result in the removal or reduction of collateral requirements for Irish-authorised reinsurers operating in the US.

Previously, most US states required reinsurance liabilities to be collateralised at 100% for reinsurance placements with reinsurers that were neither licensed nor accredited in the ceding insurer’s state of domicile. In 2011, however, the NAIC passed amendments to various model laws that allowed for reduced collateral requirements in certain instances. 

Under these revised rules, the amount of collateral required for non-U.S. authorised or licensed reinsurers will depend on a rating assigned to the reinsurer by the insurance commissioner in the relevant state.  For example, reinsurers with an A++ rating will not be required to post collateral, while those with an A+ rating will be required to post collateral of 10% of the risk.

To avail of collateral reductions the reinsurer must be: (a) certified by the insurance commissioner in the applicable US state; and (b) from a ‘Qualified Jurisdiction’.  Although it is ultimately the responsibility of each state to decide which jurisdictions are to be recognised as ‘Qualified’, the NAIC’s recommended list is likely to be influential. 

Having accepted the NAIC’s invitation, the Central Bank will now be subject to a substantive review that could see it included on the NAIC’s recommended list.  The NAIC has publicised the Central Bank’s willingness to partake in the process and has accepted comments from interested parties.  The next step is the report stage, which is the responsibility of the NAIC’s Working Group on Qualified Jurisdictions (the “Working Group”). The Working Group will ultimately make a recommendation, to which the Central Bank will be given an opportunity to respond.  The Working Group will present its final report to the NAIC’s Executive Committee for a decision.

If successful, Ireland will be placed on the NAIC list of “Qualified Jurisdictions”.  It is then up to the regulators of individual US states to recognise and certify Ireland as a “Qualified Jurisdiction”.  Where those regulators so certify, Irish reinsurers will be able to apply to these regulators to avail of collateral reductions. 

Once certified, reinsurers will be required to co-operate with US regulators on an on-going basis. This would include the filing of annual financial statements and the notification of regulatory actions against the reinsurer.

Contributed by:  Eoin Caulfield