Collateral: credit risk or trade barrier?

Collateral: credit risk or trade barrier?

The European Union reinsurance marketplace is widely recognised as important to the stability of the US insurance market. According to S&P, 10 of the top 40 reinsurers in the world (including seven of the top 10 companies) are based in Europe. On a global basis, the market for US-based buyers of reinsurance from non-US reinsurers is 46% to Bermuda, 24% to the EU and 30% to markets in other locations. However, a highly contentious issue between the two markets is the collateral requirement imposed on foreign reinsurers doing business on a cross border basis in the US. The issue was addressed last week by Franklin W. Nutter , president of the Reinsurance Association of America, in his testimony before the Committee on House Financial Services Subcommittee on Domestic and International Monetary Policy, Trade and Technology. The following is an edited extract from Mr Nutter's testimony.