Insurance Europe : The Power of Reinsurance: new report sets out recommendations to promote an open global reinsurance market

The Insurance Europe Reinsurance Advisory Board (RAB) has published a comprehensive report on the importance of an open global reinsurance market. Entitled ‘The Power of Reinsurance: Supporting the resilience of societies through an open and well-regulated reinsurance market’, the report explains how key aspects of the reinsurance business model, particularly global diversification, allows the industry to contribute to narrowing insurance protection gaps, promoting innovation, supporting adaptation against the growing dangers of climate change, and improving financial resilience.

The report notes, ‘Against a backdrop of significantly increasing losses from catastrophes worldwide — a consequence of economic development, climate change and globalised production and distribution chains — the efficient pooling of risks across borders is now more important than ever’. It sets out recommendations on how to tackle market access barriers and how to support a healthy competitive industry that can continue to play a pivotal role in protecting insurers and, fundamentally, help maximise insurance coverage worldwide.

The report’s recommendations for reinsurance trade and regulatory policies:

Best practices

• Promoting the free flow of affiliated and unaffiliated reinsurance capital and pay-outs to enhance resilience.
• Recognising the specific nature of reinsurance, ie, that it is a business between risk professionals whose value is based on expertise in peak risks, continuous product innovation and global diversification.
• Promoting risk-based prudential regulation that fairly recognises the benefits of reinsurance for the cedants through appropriate capital relief.
• Promoting international supervisory cooperation and following successful examples such as the EU-US Covered Agreement.
• Ensuring truly proportionate and risk-based supervision of reinsurance.

Counterproductive practices

• Restricting or disincentivising cross-border business, either affiliated or unaffiliated, based on the geographic location of a reinsurer or its legal form.
• Encouraging home bias by treating domestic reinsurers more favourably.
• Restricting the global diversification of risks through barriers to the transferability/fungibility of capital or through the localisation of assets.
• Limiting reinsurance capacity by mandating the collateralisation of reserves.
• Imposing restrictions on reinsurers’ internal models and the recognition of risk diversification