|
|
The ratings agency pointed out that the agreement removes collateral requirements for EU reinsurers operating in the US, subject to certain solvency standards being met, but US states have five years to adopt these reforms, and collateral requirements for current reinsurance agreements will not be affected.
Best added: “However, once implemented, the reforms will have positive implications for liquidity and the fungibility of EU reinsurers’ resources. Lloyd’s and London market reinsurers will be disappointed that this long-fought-for concession will not apply to them post-Brexit, but will hope that the UK will be able to negotiate a similar deal now that a precedent has been set.”
For EU reinsurers operating in the US, the elimination of collateral requirements will level the competitive playing field by allowing them to operate under the same conditions as US companies. For US insurance groups operating in the EU, Best said they will be relieved that their worldwide operations will not be subject to the regulatory burdens of Solvency II. US reinsurers will also welcome the removal of the obligation to establish a local presence in the EU.
Best noted that there may be a pricing impact as a result of the agreement. “Measures that reduce the regulatory burden for foreign companies and promote the cross-border flow of business increase competition in local markets, leading to negative pricing pressure. Consequently, the agreement may have a detrimental impact on the performance of domestic reinsurers operating in the US and the EU. Conversely, an increase in the level of competition in the local reinsurance market benefits domestic primary insurers as they are able to take advantage of lower rates.”
Full article on Commercial Risk (subscription required)