The European Union is set to move a step closer toward enacting its first rules for reinsurance, in a bid to convince US regulators to unlock $50 billion of collateral parked there by European reinsurers. The European Parliament in Strasbourg, France, debates the proposal tonight and takes a final-passage vote tomorrow. The measure will take effect two years after EU governments' formal approval and translation into the bloc's 20 languages. The legislation will let EU reinsurers, including some of the world's largest such as Munich Re and Hannover Re, do business throughout the 25-nation area under supervision at home. The initiative may have a greater effect abroad if it persuades US state regulators that the bloc's reinsurers are adequately supervised and don't have to post collateral that costs the companies an estimated $500 million a year.

“We hope the directive will reassure the US sufficiently to abandon the collateral requirements,” the European insurance federation said in a statement from Brussels. “The fact that they are imposed on non-US reinsurers only is discriminatory and unjustified.” EU Financial Services Commissioner Charlie McCreevy in April called it one of his priorities in US relations to end the use of collateral, which some US states demand of foreign insurers who sell policies there without being subject to local rules.

Hannover Re, the world's fifth-largest reinsurer, has $5.5 billion of collateral deposited in the US, a company executive told the European Parliament at a November hearing in Brussels. The industry's burden of $500 million a year was estimated at the hearing by an executive of Swiss Re, the world's number two behind Munich Re. Switzerland isn't an EU member, though its companies including Swiss Re and Converium Holding AG have a stake in the legislation from doing business in Europe and the US.

The EU proposal would end similar collateral requirements in France and Portugal, one year after the law's effective date expected to be around the end of 2007, after time for publication of the translated text. The legislation would also set the EU's first regime for supervision and capital requirements for reinsurers, who provide coverage to other insurance companies. A committee earlier voted to reduce the minimum solvency margin, a measure of capital and reserves held to ensure a company's ability to pay claims, in a win for the industry.