The Florida Office of Insurance Regulation said the state’s Cabinet approved a rule implementing legislation giving the insurance commissioner discretion to allow reinsurers to conduct business in Florida without posting 100 percent collateral.
The department said the rule will only apply to the financially strongest unaccredited reinsurance companies and enables the department to “further its efforts at finding alternative approaches to improving” the state’s property insurance market.
The Florida Legislature passed the bill allowing the change in 2007. It gives the insurance commissioner the ability to establish lower collateral requirements of foreign reinsurers that are highly rated and financially sound.
“Florida needs to have well-capitalized and well-regulated foreign reinsurers to conduct business with Florida insurers without requiring them to post millions of dollars in collateral,” said Insurance Commissioner Kevin McCarty in a statement. “Attracting this capital is an important step toward stabilizing our insurance market. This rule sends a message of openness to the reinsurance market and encourages the investment of capital in reinsurance for Florida property risk. Increasing capital and increasing competition are very important to cover hurricane risk in our state.”
The department pointed out that under current law U.S.-licensed and Florida-accredited reinsurers do not have to post collateral, and an insurance company that buys reinsurance from one of these companies receives a favorable accounting credit. In the past, foreign reinsurers have had to post 100 percent collateral so insurers could receive the credit.
Mr. McCarty said the new rule will make foreign reinsurers more competitive in Florida and make the state “a national leader in attracting capital” by the reinsurance industry.
The department emphasized it would thoroughly examine a reinsurer before allowing it to write reinsurance in the state.
Lloyd’s of London, a major source of reinsurance through syndicates, has long criticized the uneven playing field it has had to do business under, needing to put up 100 percent collateral in order to do business.
A representative from Lloyd’s was unavailable for comment.