Foreign Insurers See Financial Reforms as Open Door to Increased US Business

The Dodd-Frank Act's surplus lines reforms mark a welcome change for foreign insurers, said Dave Matcham, chief executive of the International Underwriting Association of London.

"Any form of harmonization this bill was able to achieve was going to be welcome," Matcham said. But he said his organization was pleasantly surprised by "how far it went," including not only its surplus lines market changes, but also its streamlined single-state tax collection provisions and its easing of "diligent search" requirements. "After a long drawn-out process, we got to a reasonable result," he said of Congress' financial reform effort.

As soon as it was signed into law, according to IUA's interpretation, any of its member companies currently on the National Association of Insurance Commissioners' list of alien insurers were able to write in any state. "We, in the past, have had to adopt a state-by-state approach," he said, adding he expects a resulting opening of the Massachusetts and New Hampshire markets specifically.

The law says a state can't "prohibit a surplus lines broker from placing nonadmitted insurance with, or procuring nonadmitted insurance from, a nonadmitted insurer domiciled outside the United States that is listed on the Quarterly Listing of Alien Insurers maintained by the International Insurers Department of the NAIC." For now, Matcham said foreign companies will take full advantage of that status, though he guessed "there may be -- down the line -- additional requirements imposed by certain states who don't want the NAIC to be the sole arbiter of listing."

Matcham said IUA members haven't announced any specific business intentions, but the legal test will come soon, when a company "writes a piece of business they couldn't have written before," he said.

As a leading U.S. champion for those reforms, the National Association of Professional Surplus Lines Offices generally agrees with the IUA's interpretation of the new laws, said spokesman Mike Ardis, and NAPSLO shares that enthusiasm. "It's something we've been working on for a number of years," he said, creating uniform standards for multistate transactions that "will help make the transactions more efficient and effective. ... In general, the law just makes everything more uniform." He added that "foreign insurers represent a significant part of the surplus lines market," representing about 28% of the U.S. market.

Matcham said the IUA also embraced the new Federal Insurance Office, though he said he would have preferred one with more authority. "We welcome it. It's the beginnings of a new dialogue and liaison" between the United States and Europe, he said. "There was clearly a need for there to be a central body to represent the U.S. market to other markets."

The IUA also sees the Dodd-Frank Act's reinsurance provisions -- limiting regulatory authority to the state where the company is domiciled -- as a first step toward what it hopes will be wider easing of reinsurance collateral requirements.

The surplus lines section of the Dodd-Frank Act was based on the earlier Nonadmitted and Reinsurance Reform Act that had made repeated appearances in Congress over recent years.