The Cayman International Reinsurance Companies Association (CIRCA) has submitted two comment letters to the National Association of Insurance Commissioners (NAIC) challenging a proposed new risk-based capital (RBC) charge on reinsurance/" style="color:#c0392b;font-weight:700;text-decoration:underline;" class="hta-topic-link">life reinsurance ceded to reinsurers in non-reciprocal jurisdictions.
The letters were submitted during the comment period ahead of the public Life Risk-Based Capital Working Group meeting on October 6.
In a letter to the Life RBC (E) Working Group, CIRCA responded to the group’s request for comment on how the proposed charge should be implemented.
The association argued that any recapture-related charge should be based on an individual reinsurer’s financial strength and the likelihood that ceded business would be recaptured, rather than on the reinsurer’s domicile.
“Jurisdictional status cannot serve as a proxy for the likelihood of recapture. Recapture risk exists across all reinsurers in varying degrees, and a charge that does not reflect that variation is not risk-based,” said Faramarz Romer, Chairman of the Board, Cayman International Reinsurance Companies Association.
CIRCA also observed that, if a recapture factor is introduced, it should be designed around demonstrated residual risk and the financial position of the assuming reinsurer.
Romer added, “If a recapture factor is ultimately developed, it should capitalise demonstrated residual risk, and reflect the assuming reinsurer’s financial strength, capitalisation and ability to meet its obligations, rather than the jurisdiction in which the reinsurer is domiciled.”
Meanwhile, the association’s second letter, addressed to the Financial Condition (E) Committee, raised a separate concern over the process used to arrive at the proposed capital requirement.
According to CIRCA, the committee’s July 27 referral selected additional capital as the solution before public analysis had demonstrated either that a capital shortfall exists or that RBC is the appropriate mechanism for addressing it.
CIRCA said the Life RBC Working Group has indicated that it cannot alter the directive from its parent committee, prompting the association to ask the Financial Condition (E) Committee to reopen the issue and allow the evidence to determine the outcome.
Romer said, “Exposing implementation of a decision is not the same as exposing the decision itself. The NAIC’s public process should permit stakeholders to address not merely the calibration of a predetermined remedy, but also the predicate for that remedy.”
CIRCA characterised its request as a call for the underlying need for the charge to be established before an implementation approach is settled.
Romer concluded, “Our request is straightforward: establish the need, evaluate the alternatives, and allow the analysis to determine the outcome.”
