Global Insurance Forum: Dear regulator: Let reinsurance serve its function
Global Insurance Forum
June 15, 2016
Subjecting reinsurance to regulatory protectionism defeats a fundamental purpose of reinsurance which is to diversify risks globally, said panellists on the global reinsurance panel chaired by Mr Brad Kading, President, Association of Bermuda Insurers and Reinsurers.
“Regulations which seek to retain reinsurance premiums onshore really fly in the face of the whole concept of reinsurance,” said Mr Malcolm Steingold, CEO, Aon Benfield, Asia Pacific. But a distinction must be made for regulations seeking to protect the consumer by capital requirements, which sometimes differentiates between onshore and offshore reinsurers, he said.
Benefits local market
It is important to remember that the reinsurance market is only a fraction of the insurance industry, said Mr Ulrich Wallin, CEO of Hannover Re. Regulators should be encouraged to allow unrestricted cross-border trade as only a small fraction of the premium will actually exit the market. It also in turn brings a lot of benefits, particularly as risks such as property and casualty are best diversified on a global basis. It is the most capital efficient way, which brings about competitive pricing that ultimately benefits the local insurance market, he added.
Citing the examples of floods in Thailand and earthquakes in Chile, among others, Mr Emmanuel Clarke, CEO, PartnerRe said: “Immediately after the events the insurance markets managed to stabilise and the societies managed to move forward. And that was thanks to the global resilience of the reinsurance system. And none of these would have been possible if it had to be paid only by capital from within.”
Beware invisible barriers
Mrs Alice Vaidyan, Managing Director, GIC Re, said visible barriers may be apparent in some developing countries when talking about protectionism or mandatory cessions. But even in developed markets, there are barriers, albeit invisible, she said, citing letter of credit, premium deposit reserve and tax withholding as examples.
It is important for all to work together towards a freer market. “I’m a firm believer in a free and open market,” she said. But it must be understood that for some markets, they are in an evolving stage of regulatory landscape. These countries may “need a little space” to ensure technical efficiency.
“India’s market has actually opened up. Foreign reinsurers are set to open offices in India. It is only a matter of time. From GIC Re’s point of view, we don’t see this as a threat at all. We welcome foreign reinsurers. The Indian market is growing at a pace of 15-20% growth year-on-year. There is ample room for all to grow in the market,” she said. She cited international best practices, price alignments and innovation as some of the positives she hopes to see come out of foreign reinsurers’ entry.