The Global Reinsurance Forum (GRF) was formed in September 2009 as the representative body for the world’s largest reinsurers to respond to international policy and regulatory issues affecting the reinsurance industry. The GRF aims to promote a stable, innovative and competitive reinsurance market environment on a worldwide basis. The formation of the new Forum proved timely as it took place against a background of heightened regulatory changes, increased scrutiny on global financial services firms and a severe financial crisis. This crisis has led to intense debate on the supervisory architecture and regulatory requirements. The reinsurance sector is faced with the potential for overly conservative regulatory reactions as well as protectionism and fragmentation of regimes. The GRF has been focusing its efforts on three major regulatory developments and the role of reinsurance in Chile:

 

1. Liberalisation of reinsurance markets

The GRF strongly believes that open reinsurance markets are in cedants’ and economies’ best interests. They help to provide cedants with choice of provider, product and price and protect economies by enabling financial risk to be diversified into the global marketplace. As a general rule, reinsurance can be and is transacted freely, both on an establishment and cross-border basis, and from many countries worldwide.  Yet barriers to trade in reinsurance still remain, including in developed economies. The GRF will continue to make the case for open markets and for the removal of such barriers. (See appendix 1)

 

2. Supervisory Recognition

The IAIS has set a framework aiming at harmonising solvency regimes and establishing supervisory recognition. The IAIS Common Assessment Framework is expected to facilitate the international regulatory dialogue for cross-border groups. In Europe the CEIOPS published advices to the European Commission on third country equivalence assessment under Solvency II. The GRF supports the European Commission’s efforts to establish an adequate framework for recognition of equivalence. The recognition of solvency regimes is a key process to support capital efficiency and ensure adequate economic decisions. (See appendix 2)

 

3. Systemic risk and reinsurance

The reinsurance sector weathered the financial crisis well and acted as a source of stability in the global financial system by continuously providing needed capacity to insurers during the crisis. The financial crisis exposed flaws in the supervisory system and the GRF supports the introduction of comprehensive group supervision as well as macro-prudential surveillance. (See appendix 3)

 

4. Reinsurance role in the Chile earthquake 

The GRF believes reinsurance plays a major role in emerging markets with catastrophe exposures, as generally local insurers do not have the capital to mitigate their exposures which can be very high. Chile is the most seismic country in the world with the highest severity and frequency of earthquakes and therefore take up rates for quake insurance in the country are high. The recent major earthquake in Chile has demonstrated the key role of reinsurance in such a catastrophe which insured loss could be as high as USD 10 billion, which is estimated reinsured at over 95%: (See appendix 4). 

 

GRF members believe that the value of reinsurance to clients and the global economy became even more apparent during the present crisis.  Because of reinsurers’ shock absorbing capability, reinsurers are a major factor of stability to the financial system. The ongoing, prolonged, governments’ support to the banking industry results in a low interest rates environment which puts significant pressure on (re)insurers’ investment income. This is detrimental to the (re)insurance industry, and the GRF believes policy makers should aim at normalizing macro-economic policies as soon as possible. 

The GRF will continue to monitor closely regulatory, financial and economic developments and contribute to relevant debates.  

 

Denis Kessler, Chairman of the GRF, comments: “We are very happy with the efforts conducted by the GRF during its first year since formation. It is an active forum, which enables global reinsurers to monitor global issues closely and share views on key trends impacting the reinsurance industry. In a world where international policy and regulatory issues are profoundly changing the supervisory landscape, it is vital to have a unified voice to respond to debates in a timely manner”.