The issue of reinsurance collateral dominated the opening session of the World Insurance Forum in Bermuda as it has other gatherings where reinsurance is discussed.
It was not the first time that Lloyd’s Chairman, Lord Peter Levene, has called for a significant overhaul of the U.S. trust fund requirements relative to “alien”- i.e. non U.S. – insurers. He’s been doing so since Sept. 11, 2001.
Levene, participating in a panel that included Munich Re chief executive Nikolaus von Bomhard, Marsh Inc. chairman Brian Storms and AIG chief executive Martin Sullivan, demanded “immediate changes to the existing rules.”
At issue is U.S. regulators’ insistence that alien or non-U.S. reinsurers place sizable amounts of capital in trust funds to be utilized to pay U.S. cedants should the reinsurers fail. Following the Sept. 11 attacks Lloyd’s says it had to come up with over $3 billion in 6 months.
In his remarks, Levene pointed out that ” the reinsurance industry is essentially global and as such 80 percent of the reinsurance utilized by the U.S. primary market is supplied by companies outside of the U.S. Alien insurers are being discriminated against and that is totally unacceptable.”
He added that the National Association of Insurance Commissioners (NAIC) in the U.S. has produced a paper that supports a fairer system. “They have had a task force looking at this issue for the past five years and it is still looking at it. We want to see this change and the sooner the better. What is happening at the moment amounts to protectionism and the market wants to see a level playing field.”
Von Bomhard also stressed the global nature of the reinsurance market. Although he didn’t mention it, when Swiss Re completes its takeover of GE Insurance Solutions there will only be two U.S.-based reinsurers in the top 10 – Berkshire Hathaway and Transatlantic.
Von Bomhard called for a federal system in the U.S. to replace the current system of 50 state regulators, but he also joined Levene in identifying the biggest issue as the “continued insistence on collateral.”
“The collateral question is one that still continues to occupy the minds of many so-called alien reinsurers,” he stated. “It is one that needs to be solved if we are to move forward in terms of a global regulatory system which is fair to all.”
Stores said that he believed that while the will for change was evident, action would be harder to come by. “I think change is going to be tough,” he indicated. “You have a wide variation in terms of the state regulators, some are appointed, some are elected and for varying terms. If you ask the 50 regulators the same question, the chances are that you will get 50 different answers.”
Sullivan said that moves towards a federal system of regulation in the U.S. would not be made in a single giant step. He said the market may well have to look at a single sector as the test case for a federal system.
“I think reinsurance is the ideal case given the fact that its buyers are sophisticated and the man in the street is not directly affected,” added von Bomhard.
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