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• In the 1990’s post Lloyd’s R&R: U.S. Trust Funds established. 3 years lobbying to secure competitive terms for Surplus Lines
Trust Funds Focus on initiating and subsequently progressing international
lobbying effort on funding issues
• Focus during last decade on: NAIC and model law reform Key states business case rationale for reform Need for harmonised implementation of reform at Federal level. International dimension, instigated U.S./E.U. dialogue
• Post financial crisis: U.S. changing regulatory dynamic. Has triggered a raft of legislation. Lloyd’s well positioned to leverage opportunities for change
• Dodd-Frank includes key reforms: Created Federal Insurance Office. Prospect of International Agreements. Nonadmitted and Reinsurance Reform Act (“NRRA”)
Overview of dodd-frank act insurance provisions• Created Federal Insurance Office (“FIO”)
FIO has no direct regulatory authority, but is tasked with monitoring the insurance industry and assisting in the negotiation of international agreements
• International Agreements Secretary of Treasury and U.S. Trade Representative authorized
to enter into international agreements on prudential regulation
• Nonadmitted and Reinsurance Reform Act (“NRRA”) Creates federal mandates regarding how states may regulate
reinsurance and surplus lines transactions Effective 21 July 2011
NAIC Reinsurance Task Force has exposed for comment draft revisions to the model Credit for Reinsurance law and regulation that would allow for reduced collateral
The comment period ends 23 March and this issue will be discussed at the NAIC annual meeting at end of March
• Florida and New York Currently have reduced collateral rules in place
• Other states are working to put in place rules similar to those enacted by Florida and New York New Jersey bill recently passed legislature and will become law if
signed by Governor Indiana legislation likely to pass this year
Florida and New York• Since a nationwide collateral reduction rule is not yet in place
in the US, Lloyd’s is taking advantage of the state based rules that are in place
Lloyd’s has filed applications with Florida and New York to be recognized as an eligible reinsurer under these rules
This will allow underwriters to take advantage of reduced collateral on a single cedant basis by providing a letter of credit for a particular cedant in lieu of posting collateral in the CRTF
Cedants receiving LOCs under the reduced collateral rules will not be covered by the CRTFs or JATFs, to avoid duplication of security
Lloyd’s does not intend to set up a separate MBRT for reduced collateral cedants at this time
It is important to note that Florida has advised that approval for reduced collateral is currently being limited to property catastrophe business
• Filings responsibility of both managing agents & Lloyd’s: Syndicates make individual state eligibility returns in May each
year. Lloyd’s produces in excess of 180 U.S. returns including:
– Eligibility returns state by state– Supported by transactional data at state level– Annual filing with the NAIC IID– Quarterly and annual Trust Fund solvency filings
Returns include a mixture of financial, statistical & global financial details
Trend towards increased data demands and more intrusive review
• Under NRRA states cannot prevent brokers from placing surplus lines business with insurers listed on IID White List
• Role of the IID office will therefore be more significant for alien surplus lines insurers that are listed on the White List Lloyd’s is liaising with IID concerning potential changes to the
• Not just a SL intermediary/coverholder/broker/XIS problem! Data Collection
– Currently, brokers required to report premium tax allocation by state. Brokers will also be required to begin reporting home state
– Depending on which allocation system, if any, is adopted by the states Lloyd’s may need to change data collection procedures
– At this point, Lloyd’s does not intend to change or reduce data collection requirements since it seems likely that some allocation will be required for multistate surplus lines risks
– NAPSLO published their intent to provide regulators / carriers with home state only, allocating premium where the home state requires.
– Deciding next steps will require careful consideration taking into account many factors.
• Premium Statistical Reports Lloyd’s currently files premium statistical information annually with
U.S. states
Not clear whether these requirements will change after NRRA becomes effective
Since states use this information to reconcile broker filings and ensure they get the full amount of premium tax, it’s likely these will continue to be required in some form
Potential Implications for master policies/Group Insurance• Treatment of Group Insurance Under NRRA
Our view is that the home state for a group insurance policy under the NRRA definition is the state where the master policy is issued, though as under current rules, not all states may agree with this view
• This issue will be addressed in detail as part of a separate presentation
Regulatory & political Backdrop• State Legislation
States are rushing to change their laws and incorporate the mandates of NRRA, but much of this legislation is problematic
• Political Pressures Extreme budgetary pressures mean states need as much tax
premium as they can get– Competing models for tax allocation – Some states may simply keep 100% of the tax
Changes in Insurance Commissioners and Staff– New regulators may not have the background on Lloyd’s issues– Lloyd’s is working to educate regulators and explain the market's
• Continued engagement with key sector groups in London & U.S.
• Targeted communications advising progress
• Repository of useful information accessed via dedicated page under “Key Projects” on “Lloyds.com Regulatory communications” page. This includes: Title V of the Dodd-Frank Act and summary of key provisions Regulatory updates addressing Dodd-Frank Letter to managing agents, dated 14 February, 2011 detailing Lloyd’s
response Detailed timeline of key events and planned communications
• Next planned communications:Q1 Mar Market communication – Update on Lloyd’s state level
collateral applications
Q2 Apr Market bulletin – detailed guidance on practical implementation of state level collateral arrangements
Q2 May Market bulletin – setting out approach to data collection after 21 July 2011, NRRA effective date
This document is intended for general information purposes only.
Whilst all care has been taken to ensure the accuracy of the information, Lloyd’s does not accept any responsibility for any errors and omissions. Lloyd’s does not accept any responsibility or liability for any loss to any person acting or refraining from action as the result of, but not limited to, any statement, fact, figure, expression of opinion or belief in this document.