Lowering of reinsurers collateral requirements to make the Florida market more accessible

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Reinsurers are queuing up to apply to get access to the Florida insurance market after Hannover Re announced it was returning to Florida thanks to the state insurance regulator lowering its collateral requirements to do business there. Hannover Re is the first foreign reinsurer to benefit from a relaxation of the rules around how much collateral reinsurers need to hold.

In the past foreign reinsurers were required to post collateral for 100% of loss reserves, while domestic reinsurers didn’t have to post any collateral at all. Now that percentage has been dropped to just 20% for Hannover Re and other reinsurers are applying for the same treatment.

This change will allow foreign reinsurers to work in a more capital efficient manner. It’s assumed that Florida hopes this will encourage supply of reinsurance into the state, particularly important in a state so prone to hurricanes.

The change of requirements in Florida is now expected to be looked at by other U.S. states and it’s possible we will see this begin to roll out around the country.

How this will affect reinsurers bottom lines hasn’t been confirmed but it’s assumed this will free up capital that would otherwise have been used as collateral which could prompt reinsurers to seek further risk transfer with the capital markets.

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