REINSURANCE REGULATORY MODERNIZATION ACT OF 2009

1. REINSURANCE REGULATORY MODERNIZATION ACT OF 2009

2. Need for Reinsurance Modernization • Need for more capacity for reinsurance in the U.S. • Need for uniformity across the states, especially in dealing with foreign reinsurers and foreign jurisdictions • Need for a single U.S. regulator to deal with foreign reinsurers and foreign jurisdictions • Need for consistent collateral and credit for reinsurance standards • Need for mechanism to work toward mutual recognition standards

3. Framework Structure • Reinsurance regulatory modernization concepts had been in play for at least a decade at the NAIC • Framework concept began in 2007 • December 2008 – NAIC Plenary adopted Framework Proposal (with 2 additional principles to protect small states) • Reinsurance Task Force charged with drafting a federal bill to fit the Framework

4. Key Framework Components • Two new classes of reinsurers – National and Port of Entry (POE) • Mechanism for recognition of foreign jurisdiction insurance supervisory systems • Mechanism for single state supervisor for National and POE reinsurers • Collateral requirements from 0%-100% based on reinsurer’s rating based on financial strength

5. Key Components (cont’d) • Establishment of Reinsurance Supervision Review Department (now Board) • “Federal tools” approach (Federal enabling legislation) • New model state legislation or amendments for reinsurance collateral standards for National and POE supervisory states

6. Reinsurance Regulatory Modernization Act of 2009 • Establishes Reinsurance Supervision Review Board (RSRB) • Establishes two new types of reinsurers: National and POE • Establishes authority to the Board and supervisory states • Pre-empts any inconsistent state laws for reinsurance ceded to National or POE reinsurers

7. Reinsurance Supervision Review Board (RSRD) • Established as a federal entity • Members appointed by the President • 10 from the states • 5 from federal agencies

8. Duties of the RSRB • Evaluate supervisory systems of states to determine qualification for certification as Home State or POE Supervisors • Evaluate supervisory systems of non-US jurisdictions to determine eligibility for recognition • Treatment of U.S. companies entering non-U.S. jurisdiction is a factor when evaluating jurisdiction for recognition • Develop supervisory recognition, information sharing and regulatory cooperation agreements for use by POE supervisors and non-US jurisdictions

9. Steps To Implementation • Passage of federal legislation • Appointment of RSRB members • Development of uniform standards for certification of Home State and POE Supervisors • Development of processes for evaluating the regulatory systems of non-US jurisdictions • Approval of NAIC model laws by NAIC and participating states for credit for reinsurance

10. Other Considerations • Coordinate with other NAIC committees • Accounting and reporting • Risk based capital • Financial analysis • Current reinsurance structure remains, if companies prefer that • Ceding companies free to negotiate additional collateral requirements in its reinsurance contracts

11. Benefits of the Proposed Bill • National plan • Supervision remains with the existing experts (the state insurance departments) • More comprehensive structure than existing proposed bill (Non-admitted and Reinsurance Reform Act) • Uniform standards • For supervisors • For reinsurers

12. Benefits (cont’d) • Speed to implementation • Only states that need to pass model credit for reinsurance legislation are those that wish to become Home State or POE supervisors • Reasonable and fair balance on collateral requirements • Focus on financial strength of reinsurer • No requirement of 100% for foreign reinsurers

13. Next steps • Proposed Act approved by the NAIC Government Relations Leadership Council at the September 2009 national meeting as fitting within the Framework approved in December 2008 • NAIC will now seek Congressional sponsors

14. Questions????