Reinsurance Charge for RBC

DianeS-AC · #1 04-03-2015, 08:57 AM

We have heard that the NAIC is considering applying the charge for Reinsurers in RBC to be based on the credit rating assigned to that reinsurer. Does anyone know who will be assigning this rating and whether the NAIC will provided it to Booke or will we be responsible for getting this from a third-party vendor? Will this be needed for 2015 annual reporting?

BarryW · #2 04-03-2015, 10:05 AM

I THINK what you are referring to is a discussion the NAIC is having around the XXX/AXXX Reinsurance Framework. This aspect would impact captives reinsuring such business that hold assets backing other security that are not admissable under SSAP 4. One suggestion would have the C-1 factor based on the credit rating of the captive. If the captive didn't have an NAIC designation,it would need to have a rating assigned by the Commissioner who would likely look to the SVO for a guidance.

I don't believe this is pending adoption at this time.

Stay tuned for further developments.

DianeS-AC · #3 04-03-2015, 10:37 AM

Thanks for the quick response. But see the attached file. This is the issue I was referring to.

BarryW · #4 04-03-2015, 10:56 AM

Sorry, when I picked up your question I was under the impression it was a Life RBC question. I will forward this to our P&C staff for follow-up.

Jeff · #5 04-03-2015, 11:40 AM

Marwan is our P&C RBC guru. Also, he was at the NAIC meeting last weekend. He's out today.

P&C has always had a 10% credit risk charge applied to reinsurance recoverables but the charge does not vary by the credit quality of the reinsurer. In AM Best's BCAR formula, they do vary the credit risk charge based on the rating they have assigned to the reinsurer.

If the NAIC is proposing to do something similar, I was not aware but I've always thought that it would be logical to not treat all reinsurers the same. One could argue that high quality reinsurers demand a premium for the same coverage and that in paying the higher premium, the ceding company's net premiums written are lower, which effectively reduces their Premium Written risk charge.

Again, Marwan is the one that follows the Capital Adequacy Task Force closely and he'll be back in the office next week.

Marwan · #6 04-06-2015, 10:28 AM

Diane,

I can report that the proposal in question (2014-38P) was adopted at the meeting of the P&C RBC Working Group on March 28. It is for year end 2015 reporting, but will be "For Informational Purposes Only" to begin with.

The issue of where a reporting entity can get the assigned ratings has been discussed, but has not yet been resolved by the NAIC. According to the attachment you posted, however, it appears that unless some other mechanism is put in place first, companies will be responsible for getting and maintaining the ratings of their reinsurers for purposes of complying with this new reporting requirement.

Hope this addresses all your questions!

Marwan

MikeG-ACC · #7 10-14-2015, 01:42 PM

Do you have any updates on how insurers will gather financial strength ratings for the updated Credit Risk for Receivables - Reinsurance portion of RBC?

Will changes be incorporated in to the TCP package to help calculate the charge under the new methodology?

Thanks for any updates you can provide!

Jeff · #8 10-14-2015, 02:01 PM

I suspect different insurers will gather the information differently. Some reinsurers will disclose their strength ratings on the Investor Relations page on their website. If you get your reinsurance through a broker, the broker may have this readily available. You could go directly to the Credit Rating Providers to get the information. Google may do the trick.

Yes, TCP will have the new page in the RBC software.