Tuesday, 02 September 2014


Thursday, 19 January 2012

Reinsurance trade groups warn of damage caused by protectionist regulations

By Tony Dowding, London

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.

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“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.

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Insurance market M&A

Brokers, analysts and the insurers and reinsurers themselves keep telling everyone that will listen that the international insurance and reinsurance industry is currently over-capitalised. But at the same time corporate risk and insurance managers complain that the industry is barely scratching the surface of its risk transfer needs and that its cost-laden, traditional line of business approach prevents it from meeting their real demands. John Charman, Chairman and CEO of Bermuda-based Endurance Specialty, believes that consolidation is the answer. He is literally prepared to put his money where his mouth is and bought a $30m stake in Endurance when he took the helm last May. He has reorganised and refocused Endurance for further growth and has now made an audacious and contested bid for rival Bermuda insurer Aspen to fast track the process. Commercial Risk Europe Editor Adrian Ladbury investigates what lies behind the proposed deal and what potential implications it has for the wider market.