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CHICAGOGlobal trade and the insurance regulatory environment and the challenges of dealing with catastrophe risks were issues that dominated much of the discussion during the Executive Panel of World Leaders at this summer's International Insurance Society Inc.'s 42nd annual seminar in Chicago.
With regard to the former, "Many barriers remain," Evan G. Greenberg, president and chief executive officer of Hamilton, Bermuda-based ACE Ltd., said at the July gathering.
"Trade is not truly open and free. That's a misnomer," Mr. Greenberg said. "There are misconceptions about who are the winners and losers in free trade."
He suggested that countries that have benefited from free trade have an obligation to promote further free trade by opening their own markets.
"Protectionism is not the answer. The answer is leadership," Mr. Greenberg said. Unfortunately, he said he sees a lack of political leadership in promoting free trade in the United States.
Insurance has become a global business, the ACE executive noted, and the IIS has promoted a framework that would allow international reciprocity for insurance supervision of companies by regulators in their home countries. As a global company, ACE has a vested interest in such developments, he said.
The panel's moderator, Karl Wittmann, a member of the board of management of German-based Munich Reinsurance Co. and chairman of the IIS board, said his company has a similar stance. "As far as we are concerned, as a reinsurer, we are promoting the home/host concept," he said.
That is the idea behind the reciprocity proposal, Mr. Greenberg said in noting the approach has worked for the banking industry. "Banking has clearly evolved that way, and I think insurance should as well."
To companies looking to do business in the United States, the existing state-based system of regulation is a "trade barrier" that U.S. trade negotiators "would not tolerate from another country," Mr. Greenberg said.
With that in mind, ACE supports a move for an optional federal insurance charter in the United States, Mr. Greenberg said, adding, "Next to TRIA (the Terrorism Risk Insurance Act), this is the most important piece of legislation that is taking place in Washington."
Mr. Greenberg said he thinks it will take several years to win passage of an optional federal charter law, suggesting that foreign insurers could probably help the effort by lobbying the U.S. government for it as a trade issue.
"There are fundamental contradictions in U.S. trade policy," said Edmund F. (Ted) Kelly, chairman, president and CEO of Boston-based Liberty Mutual Group. "I think foreign pressure can help change that."
As a company that traditionally has been a workers compensation insurer, Liberty Mutual has long favored state-based regulation of insurance, Mr. Kelly said. "But the important issues aren't state issues anymore," he said. "They're federal issues."
On the subject of catastrophe risk, Mr. Greenberg said, "It's interesting to me how many insurers and reinsurers view the past two years' cat losses as simply a U.S. wind problem." Instead, those losses should be viewed as just part of a bigger picture involving issues such as uncertainty over catastrophe severity and frequency and increased concentrations of property values in catastrophe-exposed areas, he said.
Modifying regulatory and accounting rules to enable insurers to reserve for catastrophes would be the single biggest step that could be taken in dealing with cat exposures, Mr. Greenberg said.
"The only proper capital management, risk management, is to be able to carry reserves," said Mr. Kelly. "It's just common sense and it will lead to better capital management."