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GENEVA -- The World Trade Organization's agreement on financial services may create a more efficient insurance market for multinational buyers.

The range of commitments given by the countries that signed the agreement Dec. 13 will mean greater certainty for insurers acquiring operations overseas and a fixed system of remedy if any countries renege on the agreement.

"This is a historic accomplishment," said Gordon Cloney, president of the International Insurance Council in Washington.

The agreement, which takes effect in early 1999, covers more than 98% of the world's insurance business in more than 60 countries, he said.

Still, there were some notable exceptions. For example, Malaysia held out against U.S. pressure to guarantee that insurance companies with existing operations in the country would be allowed to continue 100% ownership.

American International Group Inc. in New York, which has had operations in Malaysia for 51 years, lobbied strongly for a "grandfathering" concession for existing foreign-owned operations.

Although that provision was not included, AIG Chairman and Chief Executive Officer Maurice Greenberg nevertheless joined other international insurers in hailing the agreement.

"Significant benefits will result for both producers and consumers of financial products. The market opening and investor protections. . .will lead to lower costs, enhanced product innovation and the mobilization of needed domestic and international capital to address the requirements of both developing and developed nations," Mr. Greenberg said in a statement.

The central feature of the agreement is the commitment most countries made to allow entry to their markets by foreign insurers:

Forty-five countries, including the United States, members of the European Union, Japan and Mexico, signed up to allow 100% ownership of subsidiaries and allowing them to enter markets via branch offices.

Seven countries -- Brazil, Chile, Indonesia, Jamaica, Nicaragua, South Africa and Venezuela -- agreed to allow 100% ownership of subsidiaries but no entry through branches.

Nine countries, including the Philippines and Singapore, agreed to allow majority ownership.

Five countries -- the Dominican Republic, Honduras, Malaysia, Sri Lanka and Tunisia -- will only allow minority ownership for new operations. Malaysia will allow only 51% ownership of existing operations.

Four countries -- Costa Rica, El Salvador, India and Kuwait -- made no insurance commitments.

While many of the countries merely reaffirmed their existing policies, there still were some significant concessions, said Mr. Cloney.

For example, Indonesia agreed to allow 100% ownership, whereas prior to the WTO agreement, foreign insurers could only have a minority ownership of Indonesian operations, he said.

And while Malaysia refused to grandfather existing operations, the U.S. government still will be permitted to negotiate with Malaysia bilaterally on this issue, Mr. Cloney said.

In the near term, the agreement will be a significant boost to international insurers, he said.

"The situation before, where you had to fight your way in everywhere, is being changed to a situation where everywhere we are building markets to the benefit of everybody," Mr. Cloney said.

The agreement gives international insurers a new level of comfort, said Brant Free, vp of international external affairs at Chubb Corp. in Washington. "What it means for us is more predictability," he said.

Even though the WTO agreement merely affirms the existing practice in many countries, insurers will now have a recourse if countries breach those policies, Mr. Free said.

If, for example, a country is found in breach of the agreement, the WTO -- which will oversee the agreement -- may permit countries that suffer from that infraction to take retaliatory action.

The WTO agreement has been a long time coming. U.S. insurers first called for trade rules for services in 1973. In 1995, many countries signed an interim agreement, but the United States refused to sign, saying it did not guarantee enough access to developing markets (BI, July 31, 1995).