Lloyd’s Chief Executive Officer (CEO) Inga Beale has urged reinsurers to get to work against the trend of growing protectionism, citing increasing obstacles confronting reinsurers as barriers to international trade continue to go up across the globe, in the European re/insurance federation’s latest annual report.
“We need to continue our engagement and our efforts. This will involve significant work explaining to policymakers not only how our business model works but also the benefits of open reinsurance markets to local economies,” Beale said.
She added that the barriers to trade in reinsurance undermine the efficiency of reinsurance markets, as they lead to “higher reinsurance costs and less capacity in the long-term.
“It is crucial that global trends towards more risk-based regulation go hand in hand with appropriate, widespread recognition of the value of reinsurance and of reinsurers’ business models.”
The number of regions raising barriers to risk transfer has increased significantly over the past year, the Lloyd’s CEO referred to changes in Ethiopia and Namibia which now require local cedants to transfer a share of risk to local reinsurers or a state reinsurer – a practice which, Beale pointed out, had been common throughout several countries of Latin America, but is now spreading to both African nations as well as several member countries of the Asian Reinsurance Corporation (Asia Re) which have been considering its implementation.
And although India has taken significant steps to lift barriers to allow foreign reinsurers to establish branches, Beale said the order of preference for reinsurance business in India continues to be a “major obstacle” as the “underlying regulation established a four-tiered system that effectively created a “right of refusal” in favour of domestic reinsurers for reinsurance business, before it goes to branches of foreign reinsurers and cross-border reinsurers.”
But despite the international trade environment becoming increasingly tough to operate in, this year so far has also brought some positive developments to the fore.
The finalising of the EU- U.S. bilateral agreement is one such case – promising to remove post collateral requirements for foreign reinsurers when assuming risk from local cedants, creating a more level playing field across the Atlantic.
As the deal is still awaiting final signatures and stamps of approval before the international reinsurance industry can reap the benefits, Beale suggested that a proactive response would help move things forward – with reinsurers from the U.S. and the EU participating “to focus on ensuring a streamlined and ambitious execution of the measures to which the parties have committed.”
Argentina was hailed by the Lloyd’s CEO as another encouraging sign of forwards progress, despite the general trend moving in the opposite direction the country is setting about implementing a new resolution towards a staged lowering of barriers to access for the reinsurance market after many years of protectionism and economic instability.
And, contrary to expectations, South Korea chose not to place restrictions on cross-border risk transfer.
However, she noted that “these positive developments are, nevertheless, overshadowed by a significant tendency to re-embrace protectionism.”
“On balance, barriers or disincentives to domestic insurers accessing reinsurance from foreign reinsurers either cross- border or via branches are increasing in international markets,” Beale said, emphasizing that for reinsurers,”our work is set out for the coming months, which contain many uncertainties and challenges.”