Lloyd’s Chairman Lord Peter Levene may finally get his wish, as U.S. insurance regulators have instructed a National Association of Insurance Commissioners (NAIC) task force to examine options for a reform of the U.S. rules on allowing credit for reinsurance.
An announcement on the Lloyd’s Web site (www.lloyds.com) welcomed the decision, calling it “a major step forward in the ongoing campaign by international reinsurers to change the rules that require ‘alien’ reinsurers to place collateral in U.S. trust funds equal to their ‘gross’ reserves (i.e., without credit for retrocession).”
At a NAIC meeting in Florida last weekend, it was agreed that the task force would examine the current rule framework for reinsurance and report its findings by the end of the year.
The current requirements fall most heavily on Lloyd’s, due to its unique structure. While other “alien” insurers and reinsurers operate through American subsidiaries, that are subject to normal reserving requirements, they don’t fall within the ambit of the trust provisions. Lloyd’s has no similar operations in the U.S., as it is a market, not a company. It is admitted in two states – Illinois and Kentucky, but the bulletin notes that under the current provisions, “Lloyd’s underwriters alone have to place over $11 billion into these funds in order to underwrite business with U.S. insurers.”
The bulletin also indicated that “while the decision to undertake the review does not signal an immediate change to the collateral requirements, it is seen as the first tangible sign from the US that the rules need to be changed.”
The news was welcomed by Lloyd’s with Director of Worldwide Markets, Julian James, commenting: “This is a very welcome step and we are encouraged that the US regulators have acknowledged formally the need to review the current laws.”
NAIC President Alessandro Iuppa, Insurance Superintendent for the State of Maine, said the time had come for “some decision regarding collateral,” that it was time to move forward after five years of arguments and that he expected it to be the major workstream for the taskforce in the next nine months.
Massachusetts Commissioner Julie Bowler of will chair the task force. She has also been asked to “consider approaches that will take account of a reinsurers financial strength, regardless of domicile” and to consult with international regulators on the proposals.
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