Proposed Calif. reinsurance regulations could hurt business

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The California Department of Insurance has proposed new reinsurance oversight regulations, which several insurance industry associations said are “unnecessary, burdensome and anti-market competition,” according to comments filed at a public CDI hearing on Jan. 24, 2006, in Los Angeles.

CDI says reinsurance permits an insurer to share the risk it assumes on policies it writes with additional insurers, in exchange for a portion of the premium earned on those policies. Existing law dictates that licensed insurers must conform to the requirements of the National Association of Insurance Commissioners’ Accounting Practices and Procedures Manual, except where NAIC rules are inconsistent with California law or have been modified by the commissioner.

“The Commissioner has determined that there is a need for additional and different provisions pertaining to accounting for reinsurance transactions on financial statements, based on his experience with the limitations of Bulletin 97-5 and as the result of developments and disclosures in the reinsurance industry ,” CDI wrote in its Notice of Proposed Action.

The proposed regulations detail the principal requirements of substance and procedure in accounting or reinsurance on insurer financial statements, the general requirements applicable to reinsurance agreements, and related sanctions and oversight.

According to CDI, “a significant part of the proposed regulations concern the proper accounting for reinsurance on insurer statutory financial statements. Such statements are prepared in accordance with statue designed to conservatively test solvency from the policyholder standpoint. The rules governing statutory accounting are designed to minimize the risk to an insurer’s policyholders and creditors.”

However, the National Association of Mutual Insurance Companies, Pacific Association of Domestic Insurance Companies, American Insurance Association and Association of California Insurance Companies testified that the proposed regulations would increase costs for insurers and consumers, making it more difficult for insurers to do business in California and making it more difficult for California insurers to do business in other states.

“These regulations are unprecedented, unfair and could hurt the availability of reinsurance in California,” said Sam Sorich ACIC president.

William Boyd, NAMIC financial regulation manager, echoed those sentiments. “The CDI’s reinsurance regulations would impose significant administrative and accounting procedures on reinsurance companies,” he said.

“It is imprudent to impose new regulations that could limit an insurance carrier’s reinsurance options,” added Christian John Rataj, NAMIC state affairs manager for the western United States.

NAMIC and PADIC argued the regulations are problematic because they:

•Are not necessary and offer no appreciable benefit to consumers;

•Have the potential to limit availability of reinsurance to small, domestic insurance companies (those that need it the most);

•There is a high probability that they will raise the cost of reinsurance products, which could lead to increases in consumer premium rates; and

•Could adversely impact insurance carriers’ ability to secure reinsurance to handle natural disasters and terrorism-related claims.

Topics California Carriers Legislation Reinsurance