100% collateral requirement “is a barrier to investment by foreign reinsurers in the Florida market”

The Florida Office of Insurance Regulation (OIR) has held a workshop to seek public input on a draft rule. The rule would implement new legislation which gives the insurance commissioner discretion in allowing unaccredited reinsurance companies to conduct business in Florida without having to post 100 percent collateral.

"Allowing foreign reinsurers to conduct business with Florida insurers without requiring them to post millions of dollars in collateral will lead to increased capital and competition in our state," said Commissioner Kevin McCarty. "These factors will help to stabilise and potentially reduce property insurance rates."

If an insurer buys reinsurance from a reinsurer which is authorised or accredited in Florida, the insurer gets a favourable accounting credit.

US-licensed and Florida-accredited reinsurers do not have to post collateral under current law.

For an insurer to get favourable accounting credit for reinsurance purchased from an unaccredited reinsurer, even if the unaccredited reinsurer is worth billions of dollars and regulated by a European country, the reinsurer has traditionally been required to post collateral for the full amount of the risk transferred.

This collateral requirement is a barrier to investment by foreign reinsurers in the Florida market, said the OIR. In Florida, the majority of the residential property risk is reinsured by non-US insurance companies already.