Lloyd's chairman Lord Levene has said trade restrictions such as collateral requirements must be abolished to allow foreign reinsurers to lend more support in the event of another mega-disaster such as Katrina.
Addressing the Downtown Association and Insurance Brokers Association of New York, Lord Levene said, “The illogical demand for collateral based on zip code, not financial health, has helped drive up the costs of reinsurance and restricted critical capacity. The events of 9/11 and more recently Katrina only underscore the unacceptable burden and unintended consequences of these requirements."
“In the 21st century,” he continued, “many European reinsurers find it difficult to interpret the current rules as anything other than sheer protectionism. We expect to see a definitive change in 2006.”
Describing the current rules as “neither efficient nor effective”, Lord Levene said that the system only served to “distort the operation of the US insurance market, leaving US customers as the biggest losers.”
Lord Levene remained confident that the global insurance market was capable of responding effectively to such catastrophes “as long as it is free to price risk adequately, and constantly refines its risk models.”
“Our experience is that insurance markets operate most effectively and most efficiently when left to free market forces,” he stated.
