An FT article on US reinsurance collateral requirements has produced a transatlantic debate between the US NAIC, European legislators and Lloyds. The article based on a Lloyds paper accusing US regulators of “doing nothing” in the past five years to tackle “discriminatory” rules that affect non-US reinsurers operating in the US.
The FT article of 7 November cited John Oxendine, Georgia’s insurance commissioner and chairman of the NAIC’s reinsurance task force, saying that “I would caution Lloyd’s or anyone else not to read a lot into what New York is proposing because it would have negligible effect on the reinsurance market.”
Any foreign reinsurer using the proposed New York scheme would be “subjecting itself to retaliation from 49 other states” where it might also have business, because such a scheme would remain unapproved outside New York. “It would be very burdensome,” Mr Oxendine said.
Reacting in a letter form 9 November on Mr Oxendine's allegation, MEPs Peter Skinner and Jonathan Evans said that the comments of John Oxendine, Georgia’s insurance commissioner and chairman of the NAIC's reinsurance task force, threatening retaliatory measures in response to New York's sensible moves to drop collateral are simply outrageous”.
“The European Union is trying to create an additional barrier could not be more untrue”, MEPs said. “Equally ridiculous are his claims that there is systematic discrimination against US companies operating in Europe”.
The response from Mr Walter A. Bell, Alabama Insurance Commissioner and President of the NAIC, and Mr John Oxendine was published on 15 November, stating that “recent action taken by New York on this issue demonstrates creativity and contributes to the proficiency of our state-based system of insurance regulation.”
In fact, the New York draft contains several features present in the taskforce's proposal, including certification of a singlestate regulator to oversee authorised and unauthorised reinsurers doing business throughout the US, Bell and Ocendine went on.
“Those who choose not to obtain a licence for their own business reasons are required to provide full financial security in the form of collateral to secure their US business. Both Commissioners stated. “While the EU directive also requires licensing of reinsurers, there is no similar mechanism in the directive that allows an unlicensed reinsurer to assume EU business.”
The latest response came from Lloyds Lord Levene. He complained that talk of “unlicensed” reinsurers is disingenuous and misleading. “Reinsurers licensed in the US can trade freely on a cross-border basis into the European Union, without the need of local registration”, he said. “However, reinsurers licensed only in Europe are required by US regulators to post 100 per cent collateral when trading in the US – nothing could be more unbalanced or unfair.”
“The impression given by the letter from the NAIC is that great progress is being made”, he said. “The reality is very different.”
© Graham Bishop
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