One Hundred Percent Reinsurance Collateral May No Longer Required in Florida
Sep 16, 2008
Florida’s Insurance Commissioner received authorization from the Florida Financial Services Commission today, September 16, 2008, to use his discretion in allowing the financially strongest unaccredited reinsurance companies to conduct business in Florida without having to post 100 percent collateral.
To view a copy of the approved Rule, click here.
The Florida Office of Insurance Regulation press release on the approved Rule is reprinted below.
Should you have any questions or comments, please do not hesitate to contact Colodny Fass.
Florida Office of Insurance Regulation’s New Reinsurance Rule Approved by State Financial Services Commission
TALLAHASSEE, Fla. – The Florida Office of Insurance Regulation (Office) today announced that the Florida Cabinet, in its capacity as the Financial Services Commission, approved a rule that would implement 2007 legislation giving the insurance commissioner discretion to The approval follows public hearings that were held in November and April and now enables the Office to further its efforts at finding alternative approaches to improving Florida’s property insurance market.
In early 2007, the Florida Legislature passed a law (624.610(3)(e) F.S.) that gives the insurance commissioner the ability to establish lower collateral requirements for 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. “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.”
Under current law, U.S.-licensed and Florida-accredited reinsurers do not have to post collateral. When an insurance company buys reinsurance from a reinsurer authorized or accredited in Florida, the insurer gets a favorable accounting credit.
“This rule will allow the foreign reinsurers to be more competitive in our market,” added McCarty. “And it will make Florida a national leader in attracting capital via the reinsurance industry.”
Reinsurance is insurance for insurance companies. In the property insurance market, it is purchased to cover catastrophic losses that exceed what the company could pay out on its own.
The cost of reinsurance is one component included in the cost to the homeowner of a property insurance policy.
For an insurer to get favorable accounting credit for reinsurance purchased from an unaccredited reinsurer, even if the unaccredited reinsurer is worth billions of dollars and is well regulated, the reinsurer has traditionally been required to post collateral for the full amount of the risk transferred. The collateral requirement has been cited as a barrier to investment by foreign reinsurers in the Florida market.
“As a safeguard, the Office always will do a thorough analysis of a reinsurer’s financial condition, claims paying and compliance history and regulatory environment before any collateral reduction is permitted,” added Deputy Commissioner Belinda Miller.
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