News Analysis - Big Apple pie.

(From Reinsurance)

Byline: Adrian Leonard.

Victory has been declared by pro-collateralists in the long-running 'credit for reinsurance' debate, but their engagement with tireless anti-collateralist forces is far from over. The 'approved list' proposal to end blanket US collateralisation requirements for all non-admitted reinsurers has been shunted into the long grass, but at the urging of US regulators everyone will now seek a mutually agreeable solution.

To recap: in order for a US insurer to take a balance sheet credit for reinsurance, their foreign reinsurers must post collateral equal to 100% of their gross US liabilities. This, pro-collateralists say, eliminates the collections challenge arising when things go wrong in foreign jurisdictions.

Anti-collateralists argue that the requirement is naked protectionism (in the EU, only France imposes similar rules), especially since all reinsurers are treated equally regardless of their financial strength (US 'triple-B' = no collateral; alien 'triple-A' = 100% collateral). They point out that uncollateralised US reinsurers go bust too (Reliance, Legion).

Approved list

London, through Lloyd's and the International Underwriting Association, has argued against the rules for years. The lobbying (latterly supported by the Comite Europeen des Assurances and the personal connections of Lord Levene of Portsoken) culminated in the proposal of an approved list of reinsurers, including only financially strong, credibly regulated companies that would be allowed to trade in the US under a less onerous collateralisation burden.