11 November 2014
In 2011, the NAIC Credit for Reinsurance Model Law and Regulation were amended to reduce the collateral requirements for certain unauthorized reinsurers. Prior to the amendments, reinsurers that were not authorized or accredited in the cedant’s domiciliary jurisdiction were generally required to post 100% collateral for the liability being assumed. The amendments allow unauthorized reinsurers “certified” by the cedant’s domiciliary jurisdiction to post collateral based on financial strength and business practices of the reinsurer and determined on a sliding scale. Only reinsurers licensed and domiciled in a “qualified jurisdiction” are eligible to become certified. In 2012, a Qualified Jurisdiction (E) Working Group (“QJWG”), established by the NAIC’s Reinsurance (E) Task Force (“RTF”), developed criteria and processes for identifying non-US jurisdictions that are qualified jurisdictions and created a procedures manual, the “Process for Developing and Maintaining the NAIC List of Qualified Jurisdictions” (the “Qualified Jurisdiction Process”). The QJWG has since performed expedited reviews on four jurisdictions (Bermuda, Germany, Switzerland and the United Kingdom), each of which has been placed on the NAIC list of qualified jurisdictions as a “conditional qualified jurisdiction” pending full review. Three additional jurisdictions (France, Ireland and Japan) have agreed to participate in the process and are currently under review by the QJWG.
The Qualified Jurisdiction Process requires a qualified jurisdiction to agree to share information and cooperate on a confidential basis with the US state insurance regulatory authority with respect to all certified reinsurers domiciled within that jurisdiction. The initial draft of the Qualified Jurisdiction Process directed the NAIC staff to create a template memorandum of understanding (“MOU”) to be used with each qualified jurisdiction. However, during the initial expedited reviews conducted in 2013, the QJWG discovered that the jurisdictions under review strongly preferred to use the International Association of Insurance Supervisors (“IAIS”) Multilateral Memorandum of Understanding (“MMOU”) for cooperation and information sharing between insurance supervisors, rather than entering into individual MOUs with multiple NAIC jurisdictions. However, because not all certifying states have become signatories to the IAIS MMOU, the QJWG recommended allowing those states not yet party to the IAIS MMOU to enter into anMOU with a “lead state” that is a party to the IAIS MMOU. The lead state may then share information with those states under the provisions of the NAIC Master Information-sharing and Confidentiality Agreement, which essentially provides that (i) each state has the authority to share confidential information with regulatory officials of any state, federal agency or foreign countries and the NAIC; and (ii) each state has the authority to keep confidential information obtained from any state, federal agency or foreign countries and the NAIC that is considered confidential in its jurisdiction.
A revised Qualified Jurisdiction Process reflecting the above recommendation was adopted by the RTF on August 17, 2014.
Reinsurers seeking status as a certified reinsurer are encouraged to submit initial applications to a single state, in an effort to facilitate multistate recognition of certification through a “passporting” process developed by the NAIC Reinsurance-Financial Analysis (E) Working Group (the “Reinsurance FAWG”). That state will generally be considered the “lead state” for purposes of the certification process. Upon receipt of the application, the commissioner of the lead state will submit notice of the application to the Reinsurance FAWG, along with information provided by the applicant. The lead state will also present its evaluation of the application to the Reinsurance FAWG at its next meeting. As part of its review process, the state may also request the assistance of NAIC staff in completing its evaluation. Members of the Reinsurance FAWG will review the lead state’s report and will have an opportunity to provide input or submit inquiries with respect to the lead state’s final certification of the applicant. After considering input from the Reinsurance FAWG, the lead state commissioner will issue written notice to the applicant upon determination that it has been approved as a certified reinsurer.
The role of the Reinsurance FAWG is intended to facilitate communication and consistency among NAIC member jurisdictions with respect to the certification process. Once a reinsurer has been certified by an NAIC-accredited state using the foregoing process, it is eligible to apply for certification in other states using a Uniform Application Checklist for Certified Reinsurers developed by the Reinsurance FAWG and approved by the RTF on August 17, 2014. Rather than conducting a de novo review process, the commissioners in those other states can then rely on the lead state’s certification process and defer to the lead state’s certification decision, as well as the rating assigned to the reinsurer by the lead state. This is informally referred to as “passporting.”
The QJWG has utilized a similar concept of a lead state in its evaluation of qualified jurisdictions. Under this process, a reinsurer domiciled in a jurisdiction that has not been approved as a qualified jurisdiction by the NAIC may apply for certification in a lead state, which may evaluate the jurisdiction in accordance with the Qualified Jurisdiction Process, the results of which are shared with the QJWG for its review and final approval. Alternatively, the lead state may request the NAIC to perform the review, but remain as the primary contact with the reinsurer and the supervisory authority of the reinsurer’s domiciliary jurisdiction.