Analyst firm Fitch Ratings that the abolition of the collateral requirement for reinsurers to back their transatlantic transactions could be the most significant policy in the recently inked EU-US bilateral trade agreement – but adds that the deal could also create greater competition.
According to a report from the firm, the agreement, which was announced by negotiators on January 13, “will release a large amount of capital currently locked up as collateral, providing an important boost to reinsurers’ liquidity and investment freedom.”
Further, the new deal will no longer require EU and US reinsurers to establish a local presence in the geographies where they do business, which will make it easier for these entities to access other regions.
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“Reinsurance is the most global segment of the insurance market, with transatlantic reinsurance already a major feature. The removal of collateral requirements and other hindrances should increase the attractiveness of doing transatlantic reinsurance, boosting business and diversifying risk exposure,” Fitch said in its analysis report.
However, the bane to the new measure would be “greater competition, which would put pressure on pricing and profitability,” the firm also noted.
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