FROM THE PRESIDENT’S DESK Pre-emption Watch: States’ Jurisdiction at Risk
As we all know, 75 years ago, Congress wisely returned the regulation of the business of insurance to the States. We who serve in the States’ Legislatures must remain vigilant against federal preemption and take the steps necessary to maintain our jurisdiction.
One preemption clock, on reinsurance, began ticking in September 2017, and our time to act will expire in September 2022. Thus, five years has become two.
On June 25, 2019 the National Association of Insurance Commissioners (NAIC) adopted necessary amendments to its Credit for Reinsurance Model Law and Regulation (Reinsurance Models). The need for these amendments arose in order to incorporate provisions relating to reinsurance collateral requirements contained in what are commonly called the “Covered Agreements” but more formally known as the Bilateral Agreement Between the United States and the European Union on Prudential Measures Regarding Insurance and Reinsurance, and a substantially similar agreement between the United States and the United Kingdom, which were signed in September 2017 and December 2018, respectively. Pursuant to the text of the Covered Agreements, our State Legislatures must adopt the amended NAIC Reinsurance Models, which NCOIL has endorsed, or the States will be pre-empted.
NCOIL did not favor the Covered Agreements in the form in which they were signed because they contained provisions we opposed relating to reinsurance collateral. NCOIL nonetheless believes it is extremely important for states to adopt the Reinsurance Models, as amended, because pursuant to the terms of the Covered Agreements, the States face federal preemption of our reinsurance laws unless the appropriate reinsurance collateral reforms are adopted into state law within 60 months from September 2017 – the date the Covered Agreement with the EU was signed. Thus, the “drop dead” date when federal preemption will occur absent state legislative action is September 2022. Additionally, there is a separate, shorter 42-month deadline at which time the federal government will begin conducting an assessment of remaining non-compliant states. This will occur in February 2021.
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