US: Reduced Credit for Reinsurance Requirements - Pennsylvania
Reduction in collateral requirements in respect of US reinsurance contracts with Pennsylvania domiciled cedants.
On 30 December 2014, Lloyd’s received approval from the Pennsylvania Insurance Department to post reduced collateral in respect of reinsurance contracts with Pennsylvania domiciled cedants.
Lloyd’s secure financial strength rating means its collateral requirements will be reduced from 100% to 20% for US reinsurance contracts with Pennsylvania domiciled cedants. Lloyd’s approval applies to prospective business only (either new business or renewals), is effective immediately and can be used for policies incepting on or after 30 December 2014 with Pennsylvania domiciled cedants. This approval allows Lloyd’s syndicates to post reduced collateral where commercially acceptable and practical for the parties to the reinsurance contract, whilst still permitting cedants to take 100% credit for their Lloyd’s reinsurance.
Reinsurance contracts supported by reduced collateral requirements must be funded outside Lloyd’s US trust funds arrangements (ie the Lloyd’s Credit for Reinsurance Trust Funds (CRTFs) and the Lloyd’s Credit for Reinsurance Joint Asset Trust Fund (CRJATF)). These contracts will be funded on a cedant and contract specific basis where alternative security may be agreed between the parties to permit the cedant to take credit for reinsurance under the Pennsylvania regulation. This may take the form of letters of credit, funds withheld or cedant specific trusts. However, Lloyd’s syndicates may continue to fund reinsurance contracts issued to Pennsylvania cedants through the current CRTF arrangements, at 100% of gross liabilities where this is commercially preferable to the parties to the reinsurance.
Lloyd’s approval in Pennsylvania is the first occasion where Lloyd’s has been able to utilise the application process set out under the National Association of Insurance Commissioners’ (NAIC) recently introduced Uniform Application Checklist process. The NAIC’s recognition of the UK as a Qualified Jurisdiction (see Lloyd’s article) enables UK reinsurers to apply through this process. Guided by the commercial priorities of the market, Lloyd’s will now seek to accelerate the application process to gain approval in additional states where reduced collateral is permitted under their insurance code.
A Market Bulletin will be issued in the following weeks setting out the key features and details of Lloyd’s reduced collateral approval. For any related enquiries please contact Lloyd’s International Trading Advice (LITA).
For any related enquiries please contact Lloyd’s International Trading Advice (LITA)
Lloyd's International Trading Advice
Primary point of contact for advice and information on Lloyd's trading status worldwide.