Lloyds Director: Opposition To Collateral Proposal A Red Herring

Lloyds Director: Opposition To Collateral Proposal A Red Herring

Objections raised by U.S. regulators to a proposal to reduce collateral requirements for approved non-U.S. reinsurers were labeled a “red herring” today by the director of Lloyds worldwide markets.

Julian T. James made his comments at a meeting with National Underwriters editorial staff following the National Association of Insurance Commissioners session, which concluded last week.

During an NAIC reinsurance task force session, members said they could not support reducing collateral requirements until there is a common, international accounting standard to better account for foreign reinsurers finances.

Mr. James said, however, that both U.K. generally accepted accounting principles and Lloyds accounting principles are well understood by U.S. insurance regulators. So for them to raise this issue now “is a complete red herring.”

He said the proposal on the table is not mandatory and would give regulators flexibility to give individual firms an exception from the 100 percent gross collateralization requirement.

Mr. James noted that 36 percent of Lloyds capital comes from the United States and Bermuda, and he called the NAICs stance “a trade barrier, leading to consumer costs.”

He said it was possible that other approaches to secure a change in the requirement might be attempted, commenting that U.S. government officials were “looking at whats going on” and mentioning that a change in collateralization rules has the support of the National Coalition of Insurance Legislators.

The Lloyds executive said the London market is writing a letter with its objections to the NAIC.

The International Accounting Standards Boards efforts to draw up accounting standards that would pass muster among the NAIC members are not expected to be ready for use for foreign reinsurers until some time in 2005 at the earliest.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, June 30, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.