Thursday, 19 January 2012
Reinsurance trade groups warn of damage caused by protectionist regulations
Protectionist reinsurance regulations which try to impose limits on global risk distribution via reinsurance such as those recently introduced in Argentina and Brazil will backfire, according to a coalition of international reinsurance trade groups.
Michaela Koller, Director General of the CEA
The group, which includes the CEA (the European insurance and reinsurance federation), the Reinsurance Association of America, the Association of Bermuda Insurers and Reinsurers, the International Underwriting Association, and the Insurance Information Institute, pointed to the record 2011 global natural disaster insured catastrophe losses as a warning sign.
The group pointed out that nearly 45% of the more than $105bn insured catastrophe losses in 2011 will be paid by global reinsurers, nearly all of which were not located in the jurisdiction in which the event occurred.
Brazil's protectionist reinsurance regulation, by contrast, would force domestic reinsurers to pay these record losses with less assistance from international reinsurance markets.
“Notably, the reinsurers of these losses were generally not located in the jurisdiction where the loss event occurred. Thus the losses were exported to ‘foreign’ reinsurers [that] then make claims payments to the local insurers in the economy where the event occurred. The impact of this is to speed recovery in the disaster-affected economy, since the loss is not largely borne by the local business and insurance community. The amount of the reinsured share of the losses sent to non-domestic reinsurers from these events ranged from 90 to 100%,” said Michaela Koller, Director General of the CEA.
According to Frank Nutter, President, Reinsurance Association of America, “Brazil’s protectionist reinsurance regulations, adopted in 2011, restrict the degree to which non-Brazilian reinsurers can share Brazilian losses; thus losses are not distributed globally as they are under other mega-loss events.”
He explained that the impact of the Brazilian regulations is to compel mega event losses to be contained within the Brazilian economy, meaning that Brazil would not receive the economic boost from reinsurance recoveries that were received in 2011 in Australia, Japan, New Zealand and Thailand; and in 2010 in Chile.
“Brazil is now the seventh largest economy in the world, largely as the result of its international trade,” said Dr Robert Hartwig, President and Economist for the Insurance Information Institute. “But that rapid growth has left the economy vulnerable to large scale catastrophic losses similar to those suffered in other fast-growing economies such as Thailand and Chile. Free and open access to global reinsurance markets is essential if Brazil is to protect its long-term investments in its future,” he said.
Following the financial crisis of 2008, AIG received a $182bn loan from the US government and taxpayers to save its business, which had been severely damaged by a foray into the credit default swap business and the global economic meltdown. Four years later, in December 2012, AIG announced that it had repaid its entire debt, plus a positive return of more than $22bn, to the US government.This restructuring and repayment was led by AIG president and chief executive officer, Robert Benmosche.