Florida Weighs Reinsurance Collateral Rule Change

The Florida Office of Insurance Regulation held a public hearing recently on a draft rule that would give the insurance commissioner discretion to allow unaccredited reinsurance companies to conduct business in Florida without having to post 100 percent collateral.

In early 2007, the Florida Legislature passed a law that gives the insurance commissioner the ability to establish lower collateral requirements for foreign reinsurers that are highly rated and financially sound. The OIR is exploring whether this may lead to more reinsurance capacity to increase the supply of insurance in the Florida market.

“It is important for Florida that highly capitalized, well regulated foreign reinsurers be allowed to conduct business with Florida insurers without requiring them to post millions of dollars in collateral,” said Insurance Commissioner Kevin McCarty. “It will lead to increased capital and competition in our state, and it will help to stabilize and potentially reduce property insurance rates.”

U.S.-licensed and Florida-accredited reinsurers do not have to post collateral under current law. Even if an 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. This collateral requirement is a barrier to investment by foreign reinsurers in the Florida market, according to the OIR.

The rule will next be presented to the Florida Cabinet for final approval. No date has yet been set for that presentation.