South Korea Moves Closer To Qualified Jurisdiction Status

• Published date: 16 June 2021
• Subject Matter: Insurance, Insurance Laws and Products, Reinsurance
• Law Firm: Mayer Brown
• Author: Mr Lawrence Hamilton, David W. Alberts and Yuliya Feldman

Last week, the Reinsurance (E) Task Force ("Task Force") of the National Association of Insurance Commissioners ("NAIC") exposed for public comment the Final Evaluation Report of the Mutual Recognition of Jurisdictions (E) Working Group ("Working Group") recommending that the NAIC recognize South Korea, officially known as the Republic of Korea, as a Qualified Jurisdiction and place it on the NAIC List of Qualified Jurisdictions. Comments on the Final Evaluation Report can be submitted until close of business on Tuesday, July 6, 2021. If approved by the Task Force and by the NAIC Executive (EX) Committee and Plenary, the designation of South Korea as a Qualified Jurisdiction would allow South Korean reinsurers to apply for Certified Reinsurer status, which would enable them to post reduced collateral for credit for reinsurance purposes.

Background

Qualified Jurisdictions

In 2011, the NAIC amended its Credit for Reinsurance Model Law (#785) and Credit for Reinsurance Model Regulation (#786) (collectively, the "Credit for Reinsurance Models") to reduce collateral requirements for certain unauthorized reinsurers. Prior to these changes, reinsurers that were not authorized or accredited in their cedents' domiciliary jurisdictions were generally required to post 100 percent collateral in order for their cedents to be able to take credit for such reinsurance. The 2011 amendments to the Credit for Reinsurance Models created a new category of reinsurers called "Certified Reinsurers" that were permitted to post reduced collateral for credit for reinsurance purposes according to a sliding scale based on the financial strength and business practices of the reinsurers.

Only reinsurers licensed and domiciled in a "Qualified Jurisdiction" are eligible to become Certified Reinsurers. In 2012, the Working Group (originally known as the Qualified Jurisdiction (E) Working Group) was established to evaluate jurisdictions for listing on the NAIC List of Qualified Jurisdictions. So far, seven jurisdictions have been placed on the list'Bermuda, France, Germany, Ireland, Japan, Switzerland and the United Kingdom.

Reciprocal Jurisdictions

In 2017, the United States and the European Union entered into a Bilateral Agreement Between the United States of America and the European Union on Prudential Measures Regarding Insurance and Reinsurance. In 2018, the United States and the United Kingdom entered into a substantially similar Bilateral Agreement Between the United States of...