WASHINGTON, March 6 — Matthew Wulf, head of state regulatory affairs at Swiss Re Americas, Armonk, New York, has issued a public comment on the U.S. Treasury Department’s Bureau of the Fiscal Service notice entitled “Surety Companies Doing Business with the United States; Request for Information”. The comment was written on Feb. 13, 2020, and posted on March 5, 2020:

Thank you for the opportunity to respond to the Bureau of the Fiscal Service’s (Bureau) Request for Information (RFI) on the corporate federal surety bond program. The most important element Treasury and the Bureau can address to modernize and improve the surety bond program is to reconcile the inconsistency between state insurance regulation and the Bureau’s current practice regarding recognized credit for reinsurance and required collateral. Treasury should amend its rules to: (1) allow credit for reinsurance that is provided by reinsurers that meet certain stringent requirements such as those contained in the covered agreements and the recently revised NAIC Credit for Reinsurance models and (2) eliminate collateral requirements for non-US reinsurers from reciprocal jurisdictions that are recognized at the state level as meeting stringent requirements protecting U.S. ceding insurers.

The Bureau has a historic view that uncollateralized reinsurance recoverables of a non-US reinsurer may not be counted as an asset for a capital and surplus calculation. This position is out of step with the authoritative sources of reinsurance collateral regulation in the United States, i.e., standards set by the National Association of Insurance Commissioners (NAIC) in 2010 and codified in all states’ laws and regulations. Additionally, it is inconsistent with the purpose of the Dodd-Frank Act, Title V, and recent US-EU and US-UK covered agreements. Thus, the inconsistency exists not only between the Bureau and state law, but also between the Bureau and federal law, and within Treasury itself, between the Bureau and the Federal Insurance office (FIO).

A minor change to the application process, data considered, and the analytical methods used in evaluating financial condition will resolve this inconsistency and will not result in diminished protection of US government interests.

The Bureau should revise its practices and rules regarding credit for reinsurance to align analysis by Treasury with the analysis conducted by state insurance regulators. Additionally, Treasury’s collateral requirements should be consistent with those it has directed state regulators to adopt and those that Treasury has itself negotiated in the covered agreements.

These changes will not negatively affect the ultimate ability of a surety company to carry out its contracts and will not harm the financial interests of the United States or its taxpayers.

As the Bureau of Fiscal Service explores ways to modernize and improve how it evaluates the financial condition of companies seeking to underwrite and reinsure federal surety bonds or act as admitted reinsurers, it is important to appreciate that notwithstanding the “doing business with the United States” scope of Treasury’s regulation, it has been historically de facto regulation of both governmental and non-governmental surety bond business. Thus, the scope of consideration must go beyond strictly federal surety interests.

Responses to specific RFI questions

Because Swiss Re’s comments all center on the treatment of credit for reinsurance, the following should be considered responsive to the RFI questions 1, 3, 4 and 5.

The practice by the Bureau of Fiscal Service of not recognizing uncollateralized reinsurance that is otherwise recognized on company statutory financial statements by the states is inconsistent with the primacy of state regulation, inconsistent with public policy enshrined in the US-EU and US-UK covered agreements, punitive to companies complying with state prudential insurance regulation, and it does nothing to further protect the financial interests of the United States or its taxpayers.

US public policy on reinsurance regulatory collateral requirements has been clearly articulated by Treasury through the Federal Insurance Office via the covered agreements and establishes that financially sound, well-regulated companies may provide creditable reinsurance to US cedents without the need for 100% regulatory collateral.

The decision to move from a 100% collateral system for non-US assuming insurers to a system based on financial soundness, business practice, and regulatory reliability was made after years of debate and has proven to be sound public policy. Since non-US assuming insurers began providing reinsurance without 100% collateral in 2010, there has been no corresponding increase in uncollectible reinsurance.

In order to be eligible to provide creditable reinsurance to US cedents, non-US reinsurers must comply with rigorous financial statement/condition filing requirements at the state level and their home country must be vetted and approved by a state as a qualified or reciprocal jurisdiction.

A Bureau of Fiscal Service determination of credit for reinsurance on a separate basis than the states undermines the state-based insurance regulatory system in the US and could be the basis for a US state to challenge the preemptive authority of the FIO to enforce the covered agreements. Because the Bureau of the Fiscal Service and FIO both sit in Treasury, the failure of one office to recognize the public policy set by another establishes the argument that an integral purpose of the covered agreements is frustrated and without meaning, and therefore is unenforceable.

Further, a second key element of the covered agreements is the recognition of US state regulatory authority and prohibition against local presence and other doing business requirements abroad. If the EU or UK believes a covered agreement is not being enforced, non-US countries will be able to retaliate against US companies doing business internationally.

Fiscal Service could accomplish the proper credit for reinsurance recognition solely through the annual letter. However, if a change in regulation for clarity is desired, the following amendment to section 223.9 is recommended (new language underlined):

Sec. 223.9 Valuation of assets and liabilities.

In determining the financial condition of every such company, its assets and liabilities will be computed in accordance with the guidelines contained in the Treasury’s current Annual Letter to Executive Heads of Surety Companies.

However, the Secretary of the Treasury may value the assets and liabilities of such companies in his discretion. Credit will be allowed for reinsurance in all classes of risks if:

(a) The State of domicile of the company is an NAIC-accredited State, or has financial solvency requirements substantially similar to the requirements necessary for NAIC accreditation, and recognizes credit for reinsurance for the insurer’s ceded risk,

(b) the reinsuring company holds a certificate of authority from the Secretary of the Treasury, provided such reinsuring company is in continuing compliance with all certificate of authority requirements,

(c) or has been recognized as an admitted reinsurer in accord with Sec. 223.12.

Similarly, an admitted reinsurer’s assets, capital and surplus, and credit for reinsurance should be calculated in the same manner as performed by US state insurance regulators. And, to the extent reinsurance is a permissible method for limiting risk, the credit for reinsurance calculated and allowed by Fiscal Service should be the same as calculated by state insurance regulators and no additional collateral should be required.


Inconsistent credit for reinsurance valuation by the Bureau is punitive to non-US companies that are complying with the sound public policy articulated by the federal government and implemented by the states by requiring collateral be posted for US Treasury calculations when 4 not required for prudential, financial solvency regulation. Such treatment not only negatively affects reinsurers and cedents who rely on non-US reinsurance capacity, but also puts at risk benefits gained by US companies in the US-EU and US-UK covered agreements. The existence of regulatory collateral has not proven to be a superior financial solvency measure. For the reasons articulated, the Bureau should amend its rules and practices to allow credit for reinsurance in the same manner as allowed by the US state-based regulatory regime.

If you have any questions, please contact me.

Yours sincerely,

Matthew Wulf

Head State Regulatory Affairs Americas

Swiss Re Americas

The notice can be viewed at:

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