Certified reinsurer (NAIC)

November 2011: the NAIC amends its Credit for Reinsurance Model Law and the regulation that goes with it. Until then, a US cedant could take balance sheet credit for a cession to a reinsurer not licensed in its state on one condition. That reinsurer had to post collateral equal to 100% of its obligations, in a trust, a letter of credit or a deposit. A well-capitalized reinsurer from Bermuda or Europe tied up as many assets as an unknown one. The new certified reinsurer status changes the math. The cedant's state rates the reinsurer on its financial strength ratings, from Secure-1 to Vulnerable-6. The required collateral runs from 0% for Secure-1 to 100% for Vulnerable-6, through 10, 20, 50 and 75%. The reinsurer must also be domiciled in a qualified jurisdiction, on a list kept by the NAIC, and show a minimum surplus. Florida had led the way in 2008 with a reduced collateral rule, and New York followed; the model law spread the mechanism state by state, at the pace of each legislature. For the cedant, the status shows up in Schedule F of its annual statement, where unsecured recoverables from reinsurers weigh on surplus. The June 2019 amendments go further. For a reinsurer from a reciprocal jurisdiction, collateral falls to zero if it meets the capital and solvency conditions. Such a jurisdiction is bound to the United States by a covered agreement, or recognized as one. Not to be confused with reinsurance collateral in the broad sense, which means the assets themselves, whatever regime requires them.