Aon Re Global, the Chicago-based reinsurance broker, notes that it “recently facilitated communications between rating agency A.M. Best and Lloyd’s that resulted in a clarification of Best’s treatment of reinsurance recoverables from Lloyd’s. Companies who buy reinsurance from Lloyd’s will now have the benefit of the Lloyd’s Credit for Reinsurance Trust Fund (CRTF) collateralization requirements reflected in their Best’s Capital Adequacy Ratio (BCAR), the agency’s primary quantitative measure of financial strength.”
Aon Re explained that Best’s policy is for companies with recoverables from “A” rated reinsurers to receive a capital charge of 6 percent and to allow a 90 percent offset for acceptable collateral. “With this clarification, the net capital charge for reinsurance recoverables from Lloyd’s will be reduced to 0.6 percent to reflect the collateral held in the CRTF,” the bulletin continued. “A.M. Best will reflect this adjustment in their calculation of the published BCAR, as well as their separate calculation that predicts financial strength following an actual catastrophic occurrence.”
“We are pleased to have identified this issue and worked to ensure a successful resolution on behalf of our clients. With the insurance industry still adjusting to the increased capital constraints that followed recent catastrophic losses, it is good to find a measure of capital relief,” commented Greg Heerde, senior VP with Aon Re Services, Inc. “The information required to fully reflect this benefit is not currently included in publicly available information and, as a result, we at Aon Re are helping our clients to ensure they receive the appropriate treatment.”
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