Credit for reinsurance model law, in plain words, 2019 to 2026

The credit for reinsurance model law is the NAIC's template, Model Law #785 with its companion Model Regulation #786, that every U.S. state has enacted in some form to decide when an insurer that cedes risk may record the reinsurance as an asset or a reduction of its liabilities. In plain words: credit is allowed in full when the reinsurer is licensed or accredited in the cedant's state, meets an equivalent route such as a qualifying trust, has been certified, or is domiciled in a reciprocal jurisdiction; otherwise credit is allowed only up to the collateral the cedant holds. Each route carries its own collateral rule, from none to 100%, and each can be lost. The 2019 revisions, adopted by all 56 U.S. jurisdictions by September 2022, removed collateral for qualifying reinsurers from the EU, the UK and other reciprocal jurisdictions. For a ceding insurer the model law is a monitoring task: a reinsurer's status and the conditions attached to it decide what it must post, which is the daily work of Botminds' Reinsurance Counterparty Risk Monitoring.

What is credit for reinsurance?

Credit for reinsurance is the statutory accounting permission for a ceding insurer to reduce its liabilities, or record an asset, for risk it has ceded to a reinsurer. Without credit, an insurer that reinsures a loss still carries the full reserve on its balance sheet and holds capital as if it had no reinsurance. With credit, it carries the reserve net of what the reinsurer owes. The model law's operative sentence is short: credit "shall be allowed a domestic ceding insurer as either an asset or a reduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements" of one of its routes (Model Law #785, Section 2).

The law exists because a ceding insurer's policyholders depend on reinsurers the state may not regulate. The NAIC frames the result as "an open, but secure, reinsurance market where most of the reinsurance premiums are reinsured outside the country" (NAIC, Reinsurance topic page). Collateral is the security; status is how the law decides when collateral is unnecessary.

What is NAIC Model 785, and what does Model 786 add?

Model 785 is the statute: it lists the routes to credit, the forms of security for unauthorized reinsurers, the definition of a qualified U.S. financial institution, and the concentration notices a cedant owes its regulator. Model 786 is the regulation that makes those rules operational: the certified reinsurer rating table, the reciprocal jurisdiction conditions, the required terms of trusts and letters of credit, the clauses every reinsurance agreement must contain, and the certificate forms reinsurers file.

The models are old and repeatedly amended. Model 785 was adopted in 1984 and amended in 1987, 1989, 1990, 1993, 1996, 2011, 2016 and 2019, according to its own chronological summary (#785). Every state has its own enacted version, sometimes with different section numbers, and the enacted text, not the model, is the law a carrier answers to. Florida's statute, for example, writes the reciprocal jurisdiction route into section 624.610 in words that track the model closely.

How credit for reinsurance reached its present form

For most of its life the model gave non-U.S. reinsurers two choices: be licensed or accredited, or post 100% collateral. The NAIC's own account is direct: "Historically, U.S. state insurance regulators have required non-U.S. reinsurers to hold 100% consumer protection collateral within the U.S. for risk assumed from U.S. insurers" (NAIC, Covered Agreement topic page). Foreign reinsurers and their governments objected that the rule tied up capital, and the 2011 amendments answered with certified reinsurers posting less according to their strength.

The covered agreements forced the next step. The EU agreement, signed on 22 September 2017, "required states to eliminate reinsurance collateral within 5 years or risk preemption", and a similar agreement with the United Kingdom was signed on 18 December 2018 (NAIC). On 25 June 2019 the NAIC adopted revisions to both models creating the reciprocal jurisdiction. States had to enact them before 1 September 2022, adhering to the models as adopted, or face possible federal preemption; as of 22 September 2022, all 56 NAIC jurisdictions had done so.

What is the covered agreement?

A covered agreement is a federal agreement with a foreign government about prudential insurance measures, negotiated under the Dodd-Frank Act by the Treasury and the U.S. Trade Representative with the Federal Insurance Office's help. The Treasury defines it this way:

"A covered agreement is an international agreement that relates to the recognition of prudential measures with respect to the business of insurance or reinsurance that achieves a level of protection for insurance or reinsurance consumers that is substantially equivalent to the level of protection achieved under state insurance or reinsurance regulation."

U.S. Department of the Treasury, Federal Insurance Office, Covered Agreements

Its force over state law is conditional. A state measure is preempted only after notice and comment, and only if the FIO Director finds it treats an insurer from a covered jurisdiction less favourably than a U.S. insurer and is inconsistent with the agreement (Treasury, FIO). In exchange for collateral relief, the EU agreed not to impose local presence requirements on U.S. firms and to defer to U.S. group capital for U.S. groups (NAIC). The states built the group capital calculation for that purpose; as of June 2025, 46 states had adopted it, and the NAIC made it an accreditation standard effective 1 January 2026.

What is a reciprocal jurisdiction?

A reciprocal jurisdiction is one of three kinds of place whose reinsurers may receive credit without collateral: a non-U.S. jurisdiction subject to an in-force covered agreement, which for the EU agreement means each member state; a U.S. jurisdiction that meets the NAIC's financial standards and accreditation requirements; or a qualified jurisdiction that the commissioner finds meets further conditions (Model Regulation #786, Section 9B). Those conditions mirror the covered agreements: the jurisdiction must give U.S. reinsurers credit on the same terms, must not require a local presence, must recognise U.S. group supervision and group capital, and must share information with U.S. regulators.

The reinsurer itself must also qualify: at least $250 million of capital and surplus, a solvency ratio of 100% of the solvency capital requirement for covered-agreement jurisdictions or 300% of authorized control level risk-based capital for U.S. ones, consent to U.S. courts and to paying final judgments, a treaty clause requiring 100% security if it resists a final judgment, and a record of prompt payment. The guide to the NAIC list of reciprocal reinsurers sets out the prompt-payment tests and what to watch once collateral is gone.

Which jurisdictions are qualified jurisdictions?

Qualified jurisdictions are non-U.S. supervisory systems the NAIC has evaluated and listed, whose reinsurers may apply for certification, and some of which are also reciprocal jurisdictions. In October 2025 the NAIC's Mutual Recognition of Jurisdictions (E) Working Group reapproved Bermuda, France, Germany, Ireland, Japan, Switzerland and the United Kingdom as qualified jurisdictions, and Bermuda, Japan and Switzerland as reciprocal jurisdictions, according to the Reinsurance (E) Task Force's draft minutes of 9 December 2025 (NAIC, 2 March 2026 materials). The same minutes note that Bermuda, Japan and the UK were changing their regulatory systems and that NAIC staff were monitoring the changes.

The list is maintained, not fixed. The model regulation lets the commissioner withdraw recognition of a qualified jurisdiction, and remove a qualified jurisdiction from the reciprocal list if it stops meeting the conditions, though not a covered-agreement or accredited U.S. jurisdiction (#786, Sections 8C and 9D). A reinsurer's status rests on its home jurisdiction's status as well as its own.

What the model law asks of the cedant, not the reinsurer

Much of the model governs the cedant. It must notify its commissioner within 30 days when recoverables from one reinsurer or group exceed 50% of its surplus or cessions exceed 20% of prior-year premium, and it "shall take steps to diversify its reinsurance program" (#785, Section 2K). Its reinsurance agreements must contain an insolvency clause making reinsurance payable to its liquidator without diminution, a clause by which an unauthorized reinsurer submits to U.S. courts or arbitration and appoints an agent for service of process, and, where an intermediary is used, a clause putting the intermediary's credit risk on the reinsurer (#786, Section 15).

The cedant must also hold the evidence. A letter of credit counts for a year-end statement only if effective by 31 December and in the cedant's hands by the filing date; a trust counts only if established on or before the filing date. The NAIC's government affairs summary of the models describes their purpose as to "strengthen state regulation, prevent regulatory arbitrage, protect U.S. policyholders, and reduce the uncertainty faced by insurers when planning for collateral liability" (NAIC, Credit for Reinsurance Model Law summary). The last of those is the cedant's job to deliver.

What the 2019 revisions changed for monitoring, and how Reinsurance Counterparty Risk Monitoring follows status

The 2019 revisions moved much of the panel from watching collateral to watching conditions. A reinsurer that posted 100% as unauthorized, or 10% to 20% as certified, may now post nothing as a reciprocal jurisdiction reinsurer. The cedant's security is no longer an instrument it can value but a set of conditions it must watch: the reinsurer's capital and solvency ratio, its payment record, its home jurisdiction's standing, and the treaty triggers that restore 100% security.

Status can also be lost, and the model is specific about the consequences. If a reciprocal jurisdiction reinsurer's eligibility is suspended, no agreement issued, amended or renewed after the suspension qualifies for credit except to the extent secured; if it is revoked, no credit may be granted after the revocation, even for older agreements, except to the extent secured (#786, Section 9F). A carrier that learns of a revocation at quarter-end has already lost the time to collect security. Reinsurance Counterparty Risk Monitoring keeps each reinsurer's status with its source, checks it nightly against the published lists, and puts status, ratings, collateral and payment record on one row; see it on the Reinsurance Counterparty Risk Monitoring page, or start with the year-end cost of the authorized and unauthorized distinction.

Questions people ask

Is the credit for reinsurance model law federal law?

No. It is an NAIC model that each state enacts in its own statute and regulation; the enacted versions are the law. Federal law enters through the covered agreements, which can preempt an inconsistent state measure after a determination by the Federal Insurance Office Director, and that threat is why every state adopted the 2019 revisions by September 2022.

Does every state recognise the same certified and reciprocal reinsurers?

Not automatically. Each commissioner keeps its own list, but the models let a state defer to another accredited state's determination, a process the NAIC calls passporting. By December 2025, according to draft minutes, 49 states and two territories had passported at least one reciprocal jurisdiction reinsurer.

What happens to existing treaties when a reinsurer becomes reciprocal?

Under Model Law #785, credit through the reciprocal route is available only for agreements entered into, amended or renewed on or after the effective date of the state's enacting statute, and only for losses incurred and reserves reported on or after the later of the date the reinsurer met the conditions and the agreement's effective date. The model adds that nothing in the route lets a reinsurer withdraw or reduce security except as the agreement permits.

What is Form RJ-1?

The certificate a reciprocal jurisdiction reinsurer files under Model Regulation #786 to give the commissioner adequate assurance of its agreements: prompt notice if it falls below the capital or solvency minimums, consent to the state's courts and to paying final judgments, the 100% security clause in each treaty, and confirmation it is in no solvent scheme involving the state's cedants.

Does the model law apply to life reinsurance too?

Yes. The models cover life, health and annuity cessions as well, with their own lists of liabilities. A 2016 amendment also gave commissioners authority to set additional requirements for reinsurance with certain affiliated captives and special purpose vehicles in life and health business.