Non-US reinsurers in the US may be able to reduce their financial commitment to letters of credit (L/Cs) and other forms of collateral if a recent move by insurance regulators in Florida is anything to go by.

The move may herald a more widespread loosening of collateral requirements for reinsurers according to the ratings agency, Moody's.

Regulations eased

Earlier this month, insurance regulators in Florida eased the collateral requirements for Bermuda-based XL Re.

According to Moody's, this move fits with an emerging trend by US regulators at both the state and national level to ease collateral requirements for foreign reinsurers operating in the US.

Costly L/Cs

The ratings agency says this would be welcome news for reinsurers who the ratings agency say had seen the cost of posting collateral via L/Cs double or even quadruple in some cases as banks became more selective with their capacity.

Usually, non-US reinsurers operating in the US must post 100 per cent collateral against their obligations. In 2009, this required such reinsurers to post US$23 billion of L/Cs as collateral according to US insurance regulatory filings.

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