Florida Zero-Collateral Rule Moves Ahead

Jul 23, 2008

National Underwriter--July 22, 2008


Foreign reinsurers with triple-A ratings from two rating firms would not have to post collateral under a new Florida Office of Insurance Regulation published Friday.

Florida and New York, in advance of action by the National Association of Insurance Commissioners, have been moving ahead with new rules to alter longstanding collateral requirements for reinsurers.

Ed Domansky, a spokesman for the OIR, commented via e-mail that the next step in the process will be a state cabinet meeting on the proposed rule, for which no date has been set.

In New York, Joe Fritsch, director of insurance accounting policy, said recently that his state insurance department had done an outreach to the industry concerning revisions in collateral requirements and had received a lot of responses.

He said the responses have been reviewed and changes have been made to the proposed rule change, and that all industry responses will get an answer. He said the department hopes to have its regulation done by end of summer.

The New York changes, he said, will be very consistent with the NAIC collateral reform.

In Florida, the new rule would eliminate collateral requirements for reinsurers with surplus in excess of $100 million and a secure financial strength rating of triple-A from S&P, Moody’s, Fitch or A.M. Best.

Reinsurers with less than a top rating would have to post collateral, with the percentage increasing for each notch they were rated below triple-A.

The Florida rule would apply only to property-casualty insurance.

Among other sections of the regulation is a requirement that reinsurers would have to:

• Document that they submit to the jurisdiction of U.S. courts.

• Have an agent for service of process in Florida.

• Agree to post 100 percent collateral for their Florida liabilities if the reinsurer resists enforcement of a valid and final judgment from a U.S. court.