On Thursday, New York Superintendent of Insurance Eric Dinallo proposed a regulation seeking to eliminate the existing collateral requirements imposed on foreign and alien reinsurers operating in New York.
Under the current rules, reinsurers not authorized or accredited to conduct business in New York are required to post collateral equaling 100% of their share of policyholder claims. The new regulation would calculate collateral requirements on a sliding scale based on the reinsurers' financial rating. Reinsurers with S&P AAA or AM Best A++ ratings would not be required to post collateral. Lower rated reinsurers would have to post collateral ranging from 20% to 100%. The proposed shift to an approach focusing on the financial stability of reinsurers with regard to collateral requirements has been received positively by the industry. Lloyd’s general counsel, Sean McGovern, was reported as saying that the proposed regulation is “a significant step forward towards U.S. and non-U.S. reinsurers being treated equally.” Since Lloyd’s is a market, and not a company with U.S. subsidiaries, it has been disproportionately effected by the current rules. By leveling the playing field for well-capitalized reinsurers, the new regulation is expected to attract more reinsurance capital to New York, which should ultimately benefit consumers. If approved, the regulation would go into effect on July 1, 2008.