Collateral cost phase-out

Date: 16/06/05

European reinsurers such as Munich Re and Lloyd's of London are hoping that a new EU law will cut the cost of operating in the US.

The law, backed by MEPs last Tuesday (7 June), will phase out collateral requirements for reinsurers - companies that insure insurers - operating in other member states within three years.

Under these requirements, foreign reinsurers operating in Germany, France and Portugal have to tie up credit in advance funds before they are allowed to underwrite businesses, which is also a requirement in the US.

Swiss Re estimates collateral requirements in the US for EU reinsurers amount to around €40 billion at an annual cost of €400 million per year.

The European Commission hopes that wiping out collateral demands within the EU will persuade the US to do the same.

Last week (10 June) Internal Market Commissioner Charlie McCreevy said that during his recent visit to the US he had seen "clear signs" that the US National Association of Insurance Commissioners was "willing to reconsider US regulation on reinsurance collateral".

Article reports on progress towards the phasing out of collateral requirements for reinsurers. This move by the EU was expected to persuade the United States to give up similar requirements.

Pre-Lex: Proposal for a Directive of the European Parliament and of the Council on reinsurance http://ec.europa.eu/prelex/detail_dossier_real.cfm?CL=en&DosId=190516

European Commission: DG Internal Market and Services: Free movement of services: Financial services: Insurance: Reinsurance http://ec.europa.eu/comm/internal_market/insurance/reinsurance_en.htm

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