Insolvency law still unclear.

Firms that write both insurance and reinsurance in the UK still had, as Reinsurance went to press, n...

Firms that write both insurance and reinsurance in the UK still had,
as Reinsurance went to press, no government definition of new and
potentially damaging insolvency rules that took effect on 20 April.


The Insurers' Reorganisation and Winding-up Directive of the European
Union (EU) could lead to the downgrading of such companies by rating
agencies and less willingness among insurers to buy reinsurance from them,
said the International Underwriting Association (IUA) of London.


The main problem is that, if a company is wound up, the directive gives
insureds priority as creditors over reinsurance buyers, with the latter
being at the end of the queue for pay-outs.


The directive could force firms to split their insurance and reinsurance
operations to avoid losing reinsurance business. However, Pam Byrnes, the
IUA's director of knowledge management, said that such a separation of
assets would be difficult and expensive, and would double regulatory
costs. Most IUA companies write insurance and reinsurance.


She added that, until the Treasury issued its regulations, it was unclear
whether the directive would replace or be in addition to an existing
compensation scheme for direct policyholders.


Few companies in the rest of the EU write both insurance and reinsurance
and the unique structure of the Lloyd's market is a particular problem.
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