A new working group which will look into the potential impact of banking regulation on insured banks, and potentially their insurers, has been set up by the Lloyd's Market Association (LMA).

The group, which will report to the LMA's political risks, credit and financial contingencies panel, will particularly focus on understanding the potential impact of the use by banks of non-payment insurance as a means of capital relief.

Banks take out non-payment insurance to cover the risks associated with borrowers defaulting on loan repayments. The policies can also be used as a means of capital relief, provided that the bank complies with the relevant Basel III requirements.

The group's work on non-payment insurance will include the production of research to demonstrate the value of non-payment insurance for banks, according to the LMA. The group also intends to meet with various stakeholders to discuss how insurers and banks can work together in order to educate regulators about the role and potential benefits of various credit insurance products.

The working group will be led by Peter Sprent, head of global financial risks at Liberty Speciality Markets; and James Bamford, global practice leader for political lines at Talbot Underwriting. Other members include underwriters from Aegis, Channel, Chaucer, Chubb and XL Catlin and technical adviser Audrey Zuck of A2Z Risk Services. Leigh Allen and David Powell of the LMA will provide support to the group.

The group's work will "hopefully prove highly beneficial to financial lines and political risk underwriters at Lloyd's", Sprent said.

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