Multinational insurers are facing increasing blockages to open market access as governments across the globe shift towards a protectionist stance that seeks to favour national business.
Where protectionism was once typically confined to emerging markets, recent geopolitical developments have meant that the otherwise open markets of the West could now veer towards regulation that favours domestic players, warned A.M. Best in its latest Special Report on rising protectionism.
As the Trump administration works towards implementing tax reforms – multinational re/insurers could see their wings clipped with domestic players being given the upper hand over foreign insurers.
The U.K.’s exit from the E.U. further complicates the position of many multinationals within Europe, placing a cloud of uncertainty over the London market with implications for insurers using the EU financial services passporting scheme to conduct insurance business between the United Kingdom and the rest of the EU.
“In emerging markets, where international companies are seeking to capitalise on growing demand for insurance, an increasing number of countries are putting measures in place to encourage the local retention of insurance risk and restrict the involvement of foreign (re)insurers, said Catherine Thomas, A.M. Best senior director.
“These include: mechanisms that favour domestic companies, such as compulsory cessions and systems of right of first refusal; requirements for companies to collateralise or localise assets; and restrictions on foreign ownership and investment. Such measures can limit growth opportunities for international (re)insurers and can lead to risk concentration within domestic insurance markets,” Thomas said.
Going against this trend, however, is the recently signed covered agreement, which seeks to even the playing field between U.S. and EU reinsurers operating in each other’s market.
Yvette Essen, director, research and communications, said international insurers are experiencing market access issues from growing regulatory and tax protectionism in mature and emerging markets.
“In emerging economies, potential opportunities for growth and diversification are being constrained by regulatory measures that favour domestic insurers and restrict the involvement of foreign competitors,” said Essen.
In order to navigate the associated challenges, rating agency A.M. Best has advised multinational insurance groups to re-examine their corporate structures and weigh the commercial and diversification benefits of spreading risk more widely against the potential expense and capital consequences.