Amendment to New York’s Credit for Reinsurance from Unauthorized Insurers Regulation issued.

Today, amendments to New York’s Regulation No. 20 (11 NYCRR 125), Credit for Reinsurance, took effect. The amended regulation includes numerous changes, including repeal and renumbering of sections as well as major modification to credits insurers may take as to recoverable reinsurance available from unauthorized reinsures.

 Section 125.1 was repealed and a new Section 125.1 was promulgated which permits ceding insurers “act with financial prudence” when entering into reinsurance arrangements. The new Section 125.1 provides 8 risk criteria that ceding insurers should consider. Section 125.1 also requires a ceding insurer to manage its reinsurance recoverable proportionate to its own book of business and to diversify its reinsurance program.

The most notable amendment to Regulation 20 was the amendment of Section 125.4 which was renumbered as the new Section 125.2 and was modified significantly. The amended regulation allows a ceding insurer to take a credit, as an asset or deduction from reserves, for reinsurance recoverable by unauthorized insurers that maintain financial strength ratings from at least two rating agencies, such as S&P, Moody’s, Fitch, or A.M. Best. The amount of credit the ceding insurer is allowed to take is based upon the rating of the reinsurer, and can be no greater than the credit allowed for the lowest rating as provided in the table below:

The collateral reduction credits are consistent with Florida’s regulatory scheme and NAIC recommendations. New York’s new credit provisions should not have lasting impact, however, because federal law will supersede the state regulation, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which will be effective July 21, 2011.

Full Text of the revised Regulation No. 20 can be found here: 

https://www.ins.state.ny.us/r_prop/pdf/rp20a10t.pdf