Association of Bermuda Insurers and Reinsurers
insurance in competition with the deeply indebted National Flood Insurance Program (NFIP).
ABIR works with policymakers to encourage actions that would focus public sector spending on resilience and land use planning; and regulations that don’t impede the private sector from providing insurance for consumers in need of coverage.
2. Grow markets by reducing reliance on government funds
Too much risk is held in government pools, whether it is US residual markets, the US NFIP, the French and Spanish catastrophe re/insurers, or government workers’ compensation funds. ABIR works with policymakers to encourage use of reinsurance products to transfer risk out of government funds and with legislators on the redesign of residual market mechanisms and government funds so that more insurance risk can flow to willing insurance providers.
ABIR also works with policymakers to oppose mandatory cessions to government funds or national champions. Protected markets reduce the competitive benefits to consumers and increase solvency risk with the concentrations in local insurers.
3. Grow markets by increasing utilisation in developing markets
The building-out of economies in China and India creates enormous new insurance opportunities, and offers considerable potential over time. The challenge is to work with local partners to transfer knowledge and craft products that fit the needs of the market. Financial literacy work is necessary to build consumer demand and knowledge. Improved risk analysis techniques are necessary to help local insurers evaluate coverage needs and potential resources.
Policymakers manage scarce resources and can direct government resources to risk mitigation while promoting regulatory policies that encourage competitive markets. ABIR works with insurance supervisors to build knowledge of available reinsurance resources to help developing markets improve their utilisation of insurance. The International Association of Insurance Supervisors’ research indicates that use of reinsurance in natural disaster events can help build gross domestic product while also speeding recovery from large loss events.
Regulatory and political risk
The ABIR’s members are global insurance providers, all having developed their capabilities over the last 25 years. The typical business models include underwriting risk globally; using expert enterprise risk management (ERM) analysis to manage accumulations; and then managing portfolios to achieve the benefits of diversification. This business model allows ABIR members to take on volatility risks which other commercial insurers might shy away from.
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Regulations or tax
measures that interfere with this fundamental tenet of the insurance business are contrary to the best interests of insurance buyers, both commercial and personal.
The historical analysis of Bermuda underwriting results documents the greater volatility in these re/insurers’ business portfolios. Expert ERM systems, sound underwriting judgement and liberal cross- border trade makes this model work in a way that benefits consumers with more re/insurance choices, and affords cedants a way to manage accumulations of risk.
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This business model is potentially under threat due to ill-considered regulatory and tax proposals. ABIR is working with allies globally to redirect this regulatory agenda to a productive path that meets policymakers’ objectives without placing undue restrictions on global risk underwriting and diversification.
Here are the threats to global risk pooling that ABIR is working on today:
1. US affiliate reinsurance tax This is a perennial proposal to deny the standard business tax election for affiliate reinsurance purchases. The effect is to deter the use of affiliate reinsurance. Strong pushback on the tax proposal from the insurance and reinsurance buying communities, European governments, and stakeholders which traditionally advocate cross-border trade has prevented the enactment of the tax to date. Seven state insurance regulators have written to their members of Congress to oppose the reinsurance tax.
2. Restrictions on cross-border reinsurance including use of affiliate reinsurance
Brazil is the poster child of a counterproductive regulatory measure that limits the use of affiliate reinsurance. Limits on use of cross-border reinsurance—both affiliate and non affiliate—exist in diverse locations around the world including Argentina, China, Indonesia and Poland. ABIR works with risk managers and insurance associations united through the Global Federation of Insurance Associations (GFIA) to oppose such legal restrictions.
21 Bermuda Finance | 2014
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