Political changes

Protectionism is a growing issue in the reinsurance market. Some people view it as a way of levelling the playing field whereas others perceive it as restricting access to international reinsurance. Brazil was mentioned as a classic case of a very closed reinsurance market, with countries like India and China having restricted access. Examples of protectionism include limits on how much business can be ceded outside the country; holding capital within a country; and implications for ceding business to tax havens. Collateral rules in the US can be viewed as prudential by some but to international reinsurers they may be viewed as protectionist. It was noted that protectionism is symptomatic of the political environment we find ourselves in, both in the US and in some European countries.

In Argentina, the previous government had put in place a lot of protectionist policies which had contributed to poverty and international isolation. The new government decided to reopen the reinsurance market which had been closed since 2011 and re-engage in the international community. Measures to do this included removing capital controls and registration restrictions; floating the exchange rate; introducing central bank independence; and removing tax restrictions on foreign trade. As part of its presidency of the G20, Argentina also hosted side events for insurance.

Tax reforms in the US are also designed to mitigate unfair competitive advantage for reinsurers in places like Bermuda. However, these tax reforms do not just affect Bermuda, they also affect any affiliated reinsurances, some of which may have been set up for business reasons other than tax avoidance. These reforms will have a significant impact on the reinsurance industry, but the prevailing low interest rates would prevent this from causing an increase in reinsurance prices.

Economic changes

Most countries have been living in a low interest and low inflation environment in recent years, some have even experienced negative interest rates. Keeping interest rates low has been a deliberate policy by many governments to boost spending, but the artificially low rates have had a significant, negative impact on life insurance. In an audience poll, 50% thought that an increase in inflation and interest rates would become an issue which they would need to tackle in the coming years.

The protection gap is whereby total economic losses from catastrophic events far outstrip insured losses. In Canada, the economic loss from the Alberta floods was 3.5 times more than the insured loss, and some insurance companies in Canada have now started to launch flood products. It was felt that the protection gap is a big opportunity for the insurance industry, but along with governments, regulators and other stakeholders, it needs to do a lot more to articulate its value proposition and show how insurance can play a key role in transitioning to a more sustainable society.

Regulatory issues

Some countries are fully aligned with Solvency II (essentially, risk-based regulation), but others were not seeking equivalence. One criticism of Solvency II was that it allows companies to develop their own internal models, which de-emphasises the use of the standard formula approach. This means that regulators need to have enough people capable of assessing the internal models.  The pendulum has swung back towards the standard formula approach as it gives more information to internal stakeholders by allowing comparison with other companies.  

In the US, the concern is that they would have to deal with their own solvency requirements and take on Solvency II as well. For those countries like the US that do not have Solvency II equivalence, this raises the fundamental question of how they should work with other regulatory jurisdictions such as the EU. The EU/US Covered Agreement was developed to address this issue between the two largest reinsurance markets in the world. In the US there has been a collateral requirement (at state level) for non-licensed reinsurers, and as part of the Covered Agreement, this collateral requirement will be eliminated over five years. In return, the EU committed to not impose group supervision on US reinsurers doing business in Europe.

Session panellists:

• Guillermo Plate, Deputy Superintendent, Superintendencia de Seguros de la Nación (Argentina)
• Jonathan Turner, Senior Vice President and Chief Financial Officer, ‎Swiss Re Canada (Canada)
• Charles Chamness, President and CEO, National Association of Mutual Insurance Companies (USA)
• Bill Marcoux, Partner, DLA Piper (USA)
• Luc Boghe, General Manager, QBE Re Brussels and Head of Life, QBE Re (Belgium) moderator