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Pull back on protectionism to reduce insurance costs

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SINGAPORE — International regulatory barriers add to the expense of providing insurance and reinsurance and need to be lowered, a group of reinsurance executives said.

While developing nations that offer protections to local reinsurers are often seen as the main proponents of protectionism that restricts competition, mature insurance markets also need to review their regulations to help reduce insurance costs, they said.

Regulations that compel insurers to buy reinsurance from domestic market insurers “flies in the face of the whole concept of reinsurance, which is spreading of the risk,” said Malcolm Steingold, CEO of reinsurance broker Aon Benfield Asia Pacific, speaking Tuesday at the Global Insurance Forum in Singapore.

Ulrich Wallin, chairman of the executive board and CEO of Hannover Re S.E. in Hanover, Germany, agreed that reinsurance risks should be spread. In particular, property catastrophe risks are best diversified on a global basis. “It's the most capital-efficient way of dealing with these exposures, and therefore you get more competitive pricing that way,” he said.

“There's mounting pressure from a number of jurisdictions that, going forward, if we want to access the business, we have to localize capital, localize data, localize talent,” which adds to expenses and makes insurance and reinsurance more expensive, said Emmanuel Clarke, president and CEO of Pembroke, Bermuda-based reinsurer PartnerRe Ltd.

While free markets are desirable, developing insurance markets need some protection, said Alice Vaidyan, managing director of General Insurance Corp. of India, a government-owned reinsurer based in Mumbai.

“Domestic reinsurers need a little space to ensure technical efficiency as time goes by,” she said.

In India, mandatory reinsurance cessions have been reduced to 5% from 20% over the past 10 years, and several large global reinsurers have announced plans to establish operations in India, so competition is growing, Ms. Vaidyan said.

“We don't see this as a threat at all, because the Indian market is growing at a pace of 15% to 20% growth year on year … so there is ample room for everyone to grow in the market,” she said.

In addition, GIC is looking to expand globally. The reinsurer has offices in Dubai, Johannesburg, South Africa, Labuan, Malaysia, London and Moscow, and has long-term plans to open operations in China and the United States, she said.

And restrictive regulations can be found in mature markets, too, Ms. Vaidyan said. For example, GIC needs to post letters of credit to write business in Europe.

European regulators should review their approach to insurance reinsurance regulation, agreed Mr. Wallin of Hannover Re.

For example, he said, the European Union introduced the Solvency II capital requirements for insurers and has encouraged other jurisdictions to introduce equivalent regulations — a stance that has met with resistance from some.

“I think we should change the tone of the conversation more to mutual recognition and less to equivalence, because mutual recognition is what we really need in order to reduce the expense burden of regulation,” he said. “In an ideal world, regulators will trust each other and trust the regulation of an insurance or reinsurance company regulated by their counterparts.”