LLOYD'S REINSURER COLLATERAL REQUIREMENTS FOR CALIFORNIAN RISKS SLASHED

Collateral requirements for Lloyd’s insurers writing reinsurance business in California have been slashed. This follows approval from the California Department of Insurance for Lloyd's to post reduced collateral in respect of US property/casualty reinsurance contracts with California-domiciled cedants. It means Lloyd’s syndicates now have the option to post 20% of gross liabilities, instead of the 100% previously required, for new and renewal business incepting on or after July, 1 2016. The approval from California follows similar approvals under the Florida, New York and Pennsylvania reduced collateral regulations. Lloyd's said reinsurance contracts supported by reduced collateral requirements must be funded outside Lloyd’s US trust funds arrangements. These contracts will need to 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 California regulation", it said. This may take the form of letters of credit, funds withheld or cedant-specific trusts. But Lloyd’s said syndicates may continue to fund reinsurance contracts issued to California cedants through the existing credit for reinsurance trust funds arrangements, at 100% of gross liabilities, where this is "commercially preferable to the parties to the reinsurance".