For nearly six years, so-called alien reinsurers have beenbattling to convince regulators to lower their collateralrequirements and create a more level playing field with their U.S.competitors. Regulators shocked the industry last June by takingthe argument one step further, with a proposal to demand collateralfrom all carriersforeign and domesticaccording to the financialrisk they pose. The big question is, will it pass, as planned, bySeptember?

Currently, alien reinsurers–including some of the best-knownplayers in the world, such as Lloyd's of London–must post 100percent of their gross American liabilities as collateral, puttingthem at a competitive disadvantage. Under the plan put forth by theNational Association of Insurance Commissioners, a ReinsuranceEvaluation Office would be established to rate all carriers anddetermine how much collateral each must post.

The rationale behind the move is that discriminating againstforeign carriers undermines the benefits of globalization withoutbenefiting buyers. The fact that most non-U.S. reinsurance comesfrom four countries with reliable regulatory systemsthe UnitedKingdom, Germany, Switzerland and Bermudamakes the collateralmandate moot, or at least unfair, critics contend.