The Cayman International Reinsurance Companies Association (CIRCA) has urged the National Association of Insurance Commissioners (NAIC) to base a proposed capital charge on life reinsurance on each reinsurer's financial strength, not on where the reinsurer is domiciled. CIRCA sets out the position in two comment letters dated 23 September, both signed by chairman of the board Faramarz Romer. The letters were submitted ahead of the public meeting of the NAIC's Life Risk-Based Capital (E) Working Group on 6 October. The letters respond to a referral of 27 July from the NAIC's Financial Condition (E) Committee, which directs the working group to develop new risk-based capital (RBC) requirements addressing reinsurance recapture and counterparty recoverability, with an implementation objective of year-end 2027. According to CIRCA, the referral directs a recapture factor applied to ceded reserves and modified coinsurance balances outside reciprocal jurisdictions, and a separate revision to recoverability for reinsurers with lower financial strength ratings. In the first letter, addressed to working group chair Ben Slutsker, Romer writes: "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." CIRCA recommends a modified version of the factor approach set out in the working group's exposure. The association asks that business ceded on or before 31 December 2027 be excluded, that stress testing be used to identify the transactions to which a charge would apply, and that the severity of a recapture be reduced for all legally available collateral. The letter cites a Bridgeway Analytics presentation to the NAIC's RBC Model Governance (EX) Task Force on 13 August, which reports approximately US$2.85 trillion in life reserve credit and modified coinsurance balances, of which about US$135 billion, or 4.7 per cent, is associated with non-reciprocal jurisdictions. Romer adds: "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." The second letter, addressed to committee chair Nathan Houdek, raises a concern about process. CIRCA states that the referral selects additional RBC as the regulatory response before a transparent technical process has established whether a material capital deficiency exists. According to the letter, the working group considered the referral on 26 August and stated that it does not have authority to change directives from its parent committee. "Exposing implementation of a decision is not the same as exposing the decision itself," Romer writes. "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 asks the committee to take four steps. The association wants the referral revised or supplemented so that the policy outcome remains open, and a public forum identified in which interested parties can examine the evidence. CIRCA also asks the committee to coordinate the work with the NAIC's RBC Model Governance initiative, and to let the analysis, not a predetermined date, set the timetable. The association states that it will engage constructively if the analysis demonstrates that additional RBC is appropriate. Romer concludes: "Our request is straightforward: establish the need, evaluate the alternatives, and allow the analysis to determine the outcome."
