Missouri Insurance Director John M Huff last week asked Congress to step down on the matter of negotiating with the European Union on the matter of required collateral by foreign companies providing reinsurance in the US.
Huff, who is also president-elect of the National Association of Insurance Commissioners, presented testimony to the Subcommittee on Housing and Insurance in the US House of Representatives on Sept. 29 regarding collateral requirements and numerous other insurance matters.
He told the subcommittee that it is not necessary for Congress or the office of the United States Trade Representative to be involved in collateral negotiations.
“(An) area of significant activity for state regulators is the measured and transparent reduction of collateral requirements for foreign reinsurance transactions,” Huff told Congress. “Historically, when a US insurance company was ceding some of its risk to a foreign reinsurance company, state regulators required that foreign reinsurer to hold 100% collateral onshore in the US to ensure rapid payment to the insurers and ultimately to policyholders,” he said.
“As an example, a significant portion of the hurricane risk taken on by US insurers is now spread globally when those insurers purchase reinsurance. That’s a good thing for the market, but it means that if a large disaster occurs, US insurers need those reinsurers to transfer huge amounts of money to quickly repay policyholders. Over time, foreign reinsurers, regulators and politicians have objected to collateral requirements, arguing they trap capital and are inefficient,” Huff explained.
He went on to say that state regulators have done a good job of working within the industry to reduce collateral requirements for reinsurers that are in good financial condition and overseen by effective regulators in their home countries.
He said state regulators are doing a good job in this area and urged the federal government not to interfere unnecessarily. “We are charged with the protection of US insurance policyholders, and thus it is our responsibility and our obligation to determine the appropriate reinsurance collateral rules and levels to ensure insurance consumers are protected,” he said of state regulators like himself.
He said the federal government has not made the case that federal intervention is needed and thus should not intervene and preempt standards already developed and implemented successfully by the states.
