The Treasury Department’s blueprint for insurance regulatory reform has proven quite controversial in the United States, but it is getting rave reviews “across the pond.” The United Kingdom’s top regulator, along with the chairman of Lloyd’s and others, have been criticizing the current U.S. rules on reinsurance collateralization while lamenting the slow pace of regulatory reform in the United States.

“I am disappointed that progress has been so slow with the reform of the current U.S. system, whereby so-called alien reinsurers are required to post 100% collateral to cover their liabilities to U.S. cedants,” Hector Sants said at the Financial Services Authority’s annual Insurance Sector Conference in London. The FSA will continue to push for change, Sants said. He noted that the National Association of Insurance Commissioners is looking at the issue, with the idea of considering factors other than the reinsurer’s domicile. Lloyd’s Chairman Peter Levene quoted a derisive suggestion that NAIC stands for “No action is contemplated.”

European insurance people sometimes bristle at the word “alien,” as it is applied to collateralization. And Britons, with their history of a highly centralized political environment, frequently show frustration at the state-based nature of U.S. insurance regulation. Despite his comments, Sants stressed the FSA’s reluctance to criticize the regulatory structures in other jurisdictions. Still, he said a system like the one proposed by Treasury “would greatly simplify our lives.”

What It Means to Agents:  Simplifying the lives of insurance people in the U.K. and Europe, while a nice gesture, should not be a top policy priority of the United States. It should not take precedence over ensuring that our domestic U.S. insurance market, comprised of carriers of all sizes, remains robust and successful and that insurance consumers and their agents throughout the country have access to the broadest number of insurance products – not just those offered by big multi-national carriers.

Chief U.K. Regulator Attacks U.S. Collateralization Rules (BestWire 4/10/08)

April 15, 2008