New York- and London-based Corporate and Securities partner Tom Dawson authored an article for The Insurer titled “For Non-U.S. Reinsurers Operating in the U.S. Reinsurance Market – Options for 2019 and Beyond.” Tom outlines the upcoming implementation of the EU-U.S. Covered Agreement and urges those who are active in the U.S. reinsurance market, or considering entering it, to consider their options.
In the past, non-U.S. reinsurers were could write U.S. reinsurance only if they posted 100 percent collateral to permit U.S. cedents to take financial statement credit for ceded liabilities. However, the Covered Agreement paves the way for states to allow these reinsurers to post zero collateral. Reinsurance is regulated at the state level, so each state must pass legislation and adopt appropriate regulations.
Tom provides an overview of the various options available to reinsurers, including becoming “authorized” by establishing a U.S. subsidiary or branch and obtaining licenses for it; establishing a multi-beneficiary reinsurance trust; or securing U.S. cedents through letters of credit issued by qualifying banks or single cedent trusts. He outlines pros and cons associated with each option, and reminds reinsurers that the Covered Agreement opens the door for foreign reinsurers to significantly increase the amount of business they write in the U.S.