Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Industry Background

INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS 17TH TRI-ANNUAL CONFERENCE

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The International Association of Insurance Supervisors (IAIS) — a consortium of insurance and reinsurance regulators and supervisors from 190 jurisdictions around the world — had its tri-annual conference and general meeting in Dubai on October 29, 2010. The conference featured discussions about regulatory reforms in light of continuing global financial crises. The IAIS adopted a “Strategic Plan and Financial Outlook” for 2011 to 2015, to ensure resources are in place to strengthen overall supervision. It also approved a two-year roadmap to ensure timely progress toward high level goals. The IAIS will undertake research and analysis of systemic risk in the insurance sector, and the means by which to assess those risks from qualitative and quantitative standpoints. It adopted eight “supervisory papers,” which revised the insurance core principles with supporting standards and guidance materials. The IAIS also announced the signing of two more signatories to the IAIS Multilateral Memorandum of Understanding, the members of which voluntarily agree to be bound by certain minimum regulatory standards (no U.S. authority has yet signed). For more details, see the attached Press Release.

This post written by John Pitblado.

GUY CARPENTER AND THE RAA ISSUE REINSURANCE REPORTS

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Recently, Guy Carpenter issued a World Catastrophe Reinsurance Market report for 2010. The report noted that 2010 has been an exceptionally difficult year for the reinsurance industry noting the Chilean Earthquake and the BP Deepwater Horizon oil spill as particularly costly events. However, even with such events (and an active hurricane season approaching), reinsurance costs declined in 2010 roughly 6%, and the reinsurance market was overcapitalized by 8%. Thus, while the market has been able to cope with the disasters of 2010, a difficult second half of the year could bring about a significant change in the market. The outlook for the catastrophe bond market is similarly dependent on the second half of 2010.

The Reinsurance Association of America also recently released a comprehensive summary of the 2009 data for underwriting and operating results of major property/casualty reinsurers and the US reinsurance market (available for purchase on the RAA’s web site). The RAA also published a survey of the first six months of 2010 underwriting results.

This post written by John Black.

S&P ARTICLES ON REINSURANCE MARKET CHANGES

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Standard & Poors, in addition to providing ratings of reinsurance companies, also provides free articles on various aspects of the reinsurance market. These articles often include significant financial analysis and illustrative charts. To access these articles, go to S&P’s Home Page and search for “reinsurance.” You will be asked to register as a user for free access to the site’s content, and we are unable to provide direct access to the articles. There are two recent articles that may be of interest to our readers:

  • Fall in Traditional Reinsurance Pricing Outpaces Decline in ILS Pricing – In an article that is somewhat inconsistent with the ILS reports of some involved in the insurance-linked securities markets, S&P opines that the decline in the price of traditional reinsurance for cat risks is likely to dampen the issuance of ILS as an alternative to traditional reinsurance over the next 12-24 months.
  • The Sluggish Economic Recovery and Emerging Regulatory Changes Are Reshaping the Life Reinsurance Landscape – This article discusses the options of life reinsurers for capital raising and deployment in light of Solvency II, the decline in life reinsurance cessions and limited capital resources.

This post written by Rollie Goss.

IAIS MID-YEAR REPORT ADDRESSES MACROPRUDENTIAL SURVEILLANCE OF REINSURANCE COMPANIES AND THE REINSURANCE MARKET

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The Global Reinsurance Market Mid-Year Report recently released by the International Association of Insurance Supervisors (“IAIS”) focuses on the extent to which regulators of insurance and reinsurance companies are gathering data and engaging in macroprudential analysis of the reinsurance sector. The report contains three parts: (1) a discussion of what a macroprudential surveillance approach means in this context; (2) examples of such activities in the United States (through the NAIC), India, Europe and globally through the World Bank and the International Monetary Fund; and (3) a “case study” of such surveillance efforts. It is interesting that the fragmentation of regulation in the United States among the states is viewed as beneficial to this analysis, because it illustrates a possible global model in which one entity (the NAIC in the U.S. model) would gather data and provide stress testing on a broad scale across multiple jurisdictional lines. To some, this may overstate the NAIC’s activities in the reinsurance sector. The unspoken assumption is that the IAIS would serve that global role, and the report touts its data gathering activities as a first step along this path.

Highlights from the report:

  • While the meaning of macroprudential surveillance in insurance and reinsurance varies by jurisdiction, such activities are geared towards identifying, assessing and monitoring risks to the financial system. These activities include gathering and analysis of macroeconomic and financial market information, and of how these data interact with each other.
  • The current global financial crisis has highlighted the complexities inherent in capturing and making sense of risks that evolve rapidly in time, and cut across geographical boundaries and financial sectors.
  • Although most supervisory authorities do not have a formalized definition of macroprudential surveillance, nearly all of them carry out some such activities.
  • The two most prevalent macroprudential surveillance activities are insurance market analysis and analysis of the impact of macroeconomic variables on the insurance market. In both instances, the focus tends to be on the analysis of domestic data, with international data analysis receiving comparatively less attention.
  • Under 50% of regulators carry out insurance market-wide stress testing; however, approximately 20% of those who do not stress test their markets have plans in place do so within the next 12 months.
  • Macroprudential surveillance activities appear to assist regulators in: (1) identifying and assessing relevant changes in insurance markets as well as macroeconomic factors affecting these markets; (2) providing early warning signals of emerging risks, and enabling prompt action; (3) providing value-adding information for forward-looking monitoring; and (4) identifying futures issues that may affect the insurance market.
  • There is limited information available on insurance-specific macroprudential surveillance activities at the global level collected and compiled by insurance regulators.

This post written by Rollie Goss.