The re/insurance industry is benefitting from a slow, deliberate pace of regulatory change as jurisdictions around the globe increasingly push for more stringent rules and requirements, according to S&P Global Ratings.
S&P compared the regulatory changes of the global re/insurance sector, which appear to be gaining momentum, to regulation in the banking industry, which are now being curtailed in the U.S after a significant ramp up following the 2008 Financial Crisis and the implementation of the Dodd-Frank Act.
The re/insurance industry typically lags behind the banking sector in terms of regulation and operates at a slower pace, allowing it to learn from the banking sector and implement more effective regulation with significant industry output, according to S&P.
For example, the Dodd-Frank Act took $27 billion out of the economy and required 2,600 new full-time federal employees to implement its 400-plus regulatory mandates during the act’s first five years, only to be later scaled back.
Insurance regulators are now pursuing similar regulations in terms of recovery plans and liquidity assessments, but can aim for a middle ground from the start and adequately adapt and budget for the increased cost of compliance.
Currently, regulators are continuing to develop Solvency II in Europe, while all jurisdictions are refining their risk-based capital (RBC) frameworks as a critical component of solvency, resulting in new or increased capital and administrative reporting requirements.
S&P noted that it did not expect any regulatory changes in the re/insurance industry to have a significant impact on its ratings, although it warned that different sectors and parts of the world may experience different effects on credit.
