ACA Insurance Day 2024 : Future prospects for the Luxembourg insurance and reinsurance sector

On the occasion of the 12th edition of the ACA Insurance Day, a panel discussion titled “Future Prospects of the Luxembourg Insurance and Reinsurance Sector” brought together esteemed industry leaders to delve into the evolution, strengths, and challenges of this vital sector. Moderated by Laura Barre, Legal Advisor at ACA, the discussion featured insights from Lize-Mari Barnes ( General Manager of SwissRe), Thierry Flamand (President of the Executive Committee of the Commissariat aux Assurances), Marc Lauer (CEO of the Foyer Group), and Tom Theobald (CEO of Luxembourg for Finance). Their dialogue provided a panoramic view of the sector’s current landscape and future opportunities.

Asked to depict the current situation of the Luxembourg insurance and reinsurance, Tom Theobald recalls the evolution in the perception of Luxembourg, from the clichés of tax haven to a solid and secure financial market. The proactive engagement of the market on the international environment is consolidating its reputation and helps maintaining the competitiveness of the financial sector. Luxembourg’s insurance and reinsurance sector is a cornerstone of the country’s financial ecosystem. Leveraging the nation’s economic and regulatory stability, the sector has continually adapted and thrived amidst global market transformations. The country has developed a reputation as a diversified financial center with an international scope, supported by its alignment with European and global standards.

One of Luxembourg’s competitive advantages is its ability to balance innovation with regulation. Over the years, the country’s financial landscape has shifted from being primarily domestic to an international hub catering to European and global markets. A pivotal moment was the relocation of SwissRe’s European headquarters to Luxembourg, an event Thierry Flamand described as transformative, strengthening Luxembourg’s position as a global reinsurance hub.

More specifically, the insurance and reinsurance sector has also undergone a massive transformation over the past few years. From the 2008 financial crisis, and the arrival of many international non-life companies following the Brexit, to the latest newcomers on the market, without forgetting the historical players, the composition of the market is very diverse and always changing. Lize-Mari Barnes and Marc Lauer note how the business in itself has evolved, with a massive increase in regulations, more stringent obstacle to the freedom to provide services. While regulation ensures stability and consumer protection, overregulation could stifle innovation and competitiveness.

Lize-Mari Barnes added that the reinsurance industry, traditionally seen as a buffer against risks, now plays a proactive role in managing volatility and enhancing societal resilience. The sector’s growth, both in terms of volume and influence, has underscored its critical role in addressing emerging risks, including those stemming from climate change and geopolitical tensions.

Thierry Flamand emphasized the unique structure of Luxembourg’s supervisory framework, which integrates prudential, market conduct, and AML supervision under one authority—the Commissariat aux Assurances (CAA). This streamlined approach fosters collaboration between regulators and industry stakeholders, setting Luxembourg apart from other financial centers.

In an ever-changing environment the discussions are EU level have a strong impact on the evolution of our sector. The year 2024 itself has shed some interesting light on areas which are key for us, as highlighted by the report from Enrico Letta on the Future of the Single Market, or the report of Mario Draghi on the Future of European Competitiveness. These reports sound as strong wake-up calls to the market, and the panelists also cautioned against the pitfalls of excessive EU-wide regulatory centralization, as outlined these recent reports. They advocated for a balanced approach that preserves the flexibility and agility needed to compete in a global market.

For Tom Theobald, rather than focusing on endless institutional discussions around centralised supervision, actions should focus on real sources of fragmentation: national gold-plating, overly complex and burdensome regulation with redundant reporting requirements, and national divergent company and insolvency laws. These future actions will be key to secure the competitiveness of the country, and to battle the rise of protectionism in our main markets in the EU.

Luxembourg is notorious for offering a safe framework for companies to settle and expand, and this protective environment is an advantage, considering the many challenges the companies have to face. A strong business-oriented approach from the various stakeholders is also key to maintain the good dynamics of the market and maintain its competitive advantages.

Proactive action on regulatory development and topics like emerging risks will also play an important role in the capacity of the sector to keep the pace of the required adaptation and face the many challenges ahead. The discussion identified several key challenges and opportunities shaping the future of Luxembourg’s insurance and reinsurance sector:

• Geopolitical and Economic Uncertainty: Shifts in global power dynamics and rising geopolitical tensions are reshaping investment priorities. Governments are reallocating resources towards military expenditures, which could divert funds from infrastructure and other civil developments.
• Demographic Changes: Aging populations and the rising demand for healthcare services pose systemic risks. Addressing these issues will require innovative insurance solutions and closer partnerships between the public and private sectors.
• Climate Change and Natural Catastrophes: Increasing frequency and severity of natural disasters demand enhanced risk management frameworks. The insurance sector must adapt to these challenges while maintaining its role as a critical enabler of societal resilience.
• Technological Advancements: Artificial intelligence and data analytics are set to revolutionize the insurance industry. Luxembourg must strike a balance between embracing these innovations and managing the associated risks through effective regulation.
• Global Competitiveness: As international markets evolve, Luxembourg must ensure its regulatory environment remains competitive and attractive to global investors, coming from the EU and beyond.

The panelists unanimously agreed on the importance of fostering collaboration among industry players, regulators, and policymakers to navigate the challenges ahead. Luxembourg’s ability to maintain its unique value proposition—a blend of regulatory stability, innovation, and global connectivity—will be critical in shaping its future success.

As the sector adapts to a rapidly changing world, the Luxembourg insurance and reinsurance industry remains well positioned to leverage its strengths and seize new opportunities. By addressing emerging risks and embracing innovation, it can continue to play a pivotal role in the global financial ecosystem.

This discussion serves as a reminder of the sector’s resilience and adaptability, offering a roadmap for sustained growth and leadership in the years to come.