CEO of the International Underwriting Association has said the changes to financial services legislation in the US will increase business opportunities for the London and is a major step towards the ending of the US collateralisationsystem.
Dave Matcham welcomed President Barack Obama’s signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act adding that while European insurers and reinsurers will benefit so with US consumers.
One important part of the Act is designed to eliminate inefficient regulation of both surplus lines and reinsurance business. It will open up new markets forIUA companies providing surplus lines cover and also paves the way for possible reductions in credit for reinsurance rules that require non-USreinsurers to post collateral of 100% for gross liabilities assumed for Americancedants.
Mr Matcham said: “These reforms represent the most sweeping change to financial regulation in the United States since the Great Depression. Much of the legislation is focussed on the banking industry rather than insurance, but there are a number of measures which could have very significant and lasting impacts for the London market.
“In particular, there is excellent news for surplus lines business where the new legislation will make it possible for London companies to offer cover in areas that were simply not possible before. The compliance burden of conducting surplus lines business will also be reduced and a more competitive market should deliver a better service to US customers.”
Currently individual states regulate the insurers to which surplus lines brokers may place risks and the levels of regulation vary significantly. The Act will establish uniform standards, barring any state from prohibiting a surplus lines broker placing business with an appropriate non-US insurer.
“This immediately opens up Massachusetts and New Hampshire to IUAmembers for surplus lines business,” added Mr Matcham.
He added: “The IUA has campaigned for many years for reforms to deliver a more modern and efficient US regulatory system. The Dodd-Frank Act is designed to restore responsibility and accountability in the US financial systems. It will also introduce some long-awaited improvements to surplus lines supervision.”
Another part of the Act will create a Federal Insurance Office (FIO) that will be responsible for monitoring all aspects of the industry. Its authority does not extend to a regulatory role and insurance will continue to be regulated at the state level. But the FIO will also have the power to enter into agreements with foreign governments and may subsequently override state laws that treat non-US insurers unfavourably.
Mr Matcham said: “While the Act does not in itself achieve the sweeping changes to US reinsurance collateral burdens that we have long sought to restrict, it does mean that London market firms will in future only need to worry about requirements in the state where a ceding insurer is domiciled.
“And in one state, Florida, the requirement for non-US reinsurers to post 100% collateral on gross liabilities for American risks has already been relaxed. The Act opens the door for other states to follow suit and I understand that several are now considering such reform.”