Unintended consequences: squeezing capacity in the US
It’s clear that these laws are a major disincentive for international reinsurers to do business in the US. It’s perhaps not surprising that US reinsurers are lobbying hard to maintain the status quo. But the debate is not simply about prudential supervision and trade protectionism – there is also the effect on the US market to consider.
Today the vast majority of reinsurance is purchased from a very small number of large reinsurers. More than 90% of the world's reinsurance is written by the top 20 reinsurance groups. In the US, the bulk of reinsurance from non-US sources is written by around ten major players, including Lloyd’s. Higher costs, lower quality
By imposing punitive costs on this one section of the market, credit for reinsurance laws help drive up the costs of reinsurance and restrict the capacity of the market, especially in key areas such as medical malpractice. Worse, under the current regime there is no incentive for US insurers to choose the strongest providers of reinsurance.
The current rules distort the US insurance market, leaving US policyholders to pay artificially high premiums. Supporting a distorted and inefficient market, US businesses and consumers can end up paying more for inferior cover.
