“However, it is here in America, the bastion of free trade, where we face one of the greatest obstacles to trade,” he said. “Despite our integral role in this economy throughout the past 150 years, Lloyd's remains under U.S. regulation as an alien insurer and reinsurer.”

He explained that Lloyd's currently has some $9 billion tied up in collateral, regardless of the amount or quality of reinsurance protection it has bought, much of it from U.S. companies. This represents massive and needless overfunding of its liabilities, he argued.

“These U.S. regulations prevent market forces from operating freely, preventing insurance from being priced as competitively and economically as possible.” And in the end, it's not the reinsurers, but rather ordinary policyholders, who suffer the consequences of the liability-funding requirement, he said.

In an interview with NU several weeks ago, Lord Levene said Lloyds continues to be in “serious dialogue” with U.S. insurance commissioners to change the requirement. “If the Italians put this regime on U.S. [reinsurers], there would be all hell let loose,” he said. “What makes it 50 times worse is the fact that we are not dealing with one U.S. authority, [but] different authorities in every single state,” he said.

The issue has recently been taken up by state regulators. Currently, the National Association of Insurance Commissioners is discussing a possible modification to the rule that might involve a case-by-case certification process to exempt a handful of most secure foreign reinsurers from the 100-percent collateral rule. (See NU, April 7, page 47.)

But there are also those who are vigorously opposed to any loosening of the existing requirement, including The Reinsurance Association of America in Washington, D.C. The RAA believes the rule is needed since non-U.S. reinsurers lack a common accounting standard and reinsurance regulatory system, and because U.S. court judgments can't be enforced overseas.

Additional reporting by Lisa S. Howard.

Reproduced from National Underwriter Edition, April 14, 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.