Hannover Re (Bermuda) and XL Re lead the way in Florida, as Bermuda-based reinsurers look to take advantage of the state’s easing of collateral limits.
Hannover Re became the first reinsurer to qualify for reduced collateral limits following a successful application to the Florida Office of Insurance back in February. The company achieved ‘Eligible Reinsurer’ status in the state, closely followed by XL Re in June and Hannover Re (Bermuda) in September.
Florida is the first US state to ease collateral limits for foreign reinsurers operating in the United States. Previously, non-US reinsurers doing business in the state, had been required to post 100% collateral (cash, letters of credit) to secure obligations for incurred losses in order for clients to receive full regulatory credit for reinsurance. The move by Florida has now reduced this requirement and placed it on a sliding scale with negotiations regarding collateral levels still in progress, with the development likely to have major implications for Bermuda reinsurers doing business in Florida.
Indicative of the appeal of the reduced collateral limits, the Florida Insurance Regulator has received applications from a further six Bermuda-based reinsurers, which have all filed to receive ‘Eligible Reinsurer’ status in order to take advantage of the reduced requirements.
Asked about developments, Konrad Rentrup, president and chief executive officer of Hannover Re (Bermuda), said: “Florida’s collateral cut removes a disadvantage facing foreign reinsurers relative to domestic ones.”
Greg Hendrick, president and chief underwriting officer of XL Re Ltd, said “XL Re Ltd has written reinsurance for Florida clients since our inception in 1992. Our recentapproval [now] allows us to post 20 percent collateral instead of the full 100 percent required by alien reinsurers”.
Touching upon other reinsurers following in Hannover Re (Bermuda) and XL Re’s footsteps, Hendrick said “Recent press reports have suggested that another six Bermuda companies have filings pending with the OIR in Florida to achieve similar recognition” and Rentrup concurred: “Hannover is ahead of the pack... other reinsurers are working on this status as well and I expect to see more announcements in the near future.”
Moody’s said that the development is a win-win for Florida and foreign reinsurers: “Florida is better able to attract reinsurance capital to its hurricane-exposed insurance market, while foreign reinsurers reduce theircost of doing business.” Moody’s continued —“the development in Florida is part of an emerging trend by US regulators at both the state and national level that has the potential to lower collateral requirements for foreign reinsurers when they operate in the US.”
According to US insurance regulatory filings, non-US reinsurers put up $23bn of letters of credit as of year-end 2009 (versus a $115bn market capitalization for the entire global reinsurance sector, excluding Berkshire Hathaway and ACE) and the move by Florida should help to ease this burden.
Following Florida’s easing of collateral requirements, there are expectations that other US states will follow suit, with New York State among those mooted as likely to follow Florida’s lead.
US, Bermuda, reinsurance, collateral, Hannover Re, XL