Open to all
Removing cross-border (re)insurance barriers boosts sustainability as well as economies
By Brad Smith, chair of the GFIA trade working group
Striking images of the container ship Ever Given blocking the Suez Canal hit our screens in March 2021. More striking for many, though, were the shockwaves the incident sent through global trade and the sudden realisation of the interconnectedness of our modern world; an estimated $9.6bn of goods were affected on each of the six days the canal was blocked, with repercussions that continued for months for transport providers, retailers and manufacturers around the world.
The global insurance community is well-attuned to the interconnectedness of our world and to the benefits it can bring. GFIA’s members advocate and educate about the important role open and well-regulated (re)insurance markets and cross-border business play in allowing the optimum geographic and economic spread of risk and in underpinning sustainable and equitable economies.
Open markets boost management of climate risks
As this Annual Report is published, world leaders are gathering for the UN’s COP26 climate conference. Insurers’ roles at the forefront of climate change adaptation and mitigation are well documented (see Climate risks article). What is perhaps less well understood is how crucial the international dimension of (re)insurance markets is in making it possible to cover risks that may not be insurable locally but can be insured through more diversified international markets. Better management of climate risks is therefore yet another reason for policymakers to promote open (re)insurance markets, as set out in GFIA’s position paper on climate adaptation and mitigation.
The GFIA trade working group has focused on a number of markets over the last 12 months as it seeks to reduce barriers to open (re)insurance trade or hindrances to efficient (re)insurance markets.
Welcome increases in FDI
GFIA welcomes the fact that recent amendments to the Indian Insurance Companies (Foreign Investment) Rules have increased from 49% to 74% the limits for foreign direct investment (FDI) in Indian insurers. However, it continues its close communication with India’s Ministry of Finance to seek the phasing out of the remaining “safeguards” that still discriminate against FDI, preventing foreign (re)insurers from fully supporting the local market. These include nationality and citizenship restrictions placed on managers and directors, and discriminatory solvency requirements for companies with foreign investment above 49%.
Meanwhile, GFIA remains concerned that India’s Reinsurance Regulations limit the capacity of international reinsurers to compete on equal terms, as an order of preference still exists in favour of local reinsurers. Furthermore, draft Regulations on Registration and Operations of Foreign Reinsurance Branches published in January 2021 would limit the technical support parent reinsurers provide to their branches, significantly affecting the ability to transfer local risks to the global market and undermining reinsurance provision.
GFIA has been pleased to be able to continue in virtual mode the dialogues with regulators it would usually have, particularly on the fringes of annual events by the International Association of Insurance Supervisors. In the case of Vietnam, the virtual briefings with regulators over updates to its insurance laws were especially welcome, in particular over the creation of a credit for reinsurance law, as such a law would bring Vietnam into line with the world’s developed insurance markets, which all allow reinsurance recoverables to be recognised as an asset or reduction of liabilities. GFIA was also pleased to be able to offer expertise and support on the drafting of rules on the localisation of services, resulting in requirements for the strict localisation of services within Vietnam being removed.
Requesting virtual meetings
GFIA is seeking a virtual meeting with the Office of the Insurance Commissioner of Thailand, as there have been regular meetings at IAIS events that were productive in the past. Issues that GFIA would like to discuss include the possibility of a more flexible approach towards reinsurance collateral based on the creditworthiness and home supervision of the reinsurers, as already happens in a number of other jurisdictions. GFIA members also wish to discuss with regulators several proposals in response to COVID, which they believe are not prudential and should be modified.
The Chinese government made a welcome commitment at the end of 2020 to remove the foreign equity cap placed on foreign life, health and pension insurers, and began to align the administrative procedures with those for domestic companies. GFIA has been monitoring the various elements of this adjustment and how they are being implemented. GFIA also welcomes the fact that China refrained from adopting proposed onshore collateral requirements, in line with global good practices. GFIA has continued to share information among members on the adoption and implementation of the China Cyber Security Law and its pending implementing measures. China continues to grow for many global companies, but barriers remain in political risk and pension products.
Defunding private pensions
Last but by no means least in terms of GFIA concerns is Chile. Insurers are significant providers of private pensions across the globe, including in Chile. GFIA has therefore been vocal in decrying the developments in Chile allowing the defunding of workers’ pensions, without prudential justification, to counter the economic shock caused by the pandemic.
Despite objections by Chile’s supervisors and its central bank, as well as the Chilean Insurance Association (AACH) and FIDES (respectively the national and regional GFIA members), a series of laws has been enacted allowing pensioners to withdraw up to 30% of the funds from their private pensions, up to a cap. This goes against the recommendations of the OECD and the International Organisation of Pension Supervisors. In addition, Chile is now considering allowing a fourth tranche of pension withdrawals. This would not only further reduce the future pension adequacy and security of Chilean savers, but would also severely impact the financial market in Chile.
GFIA highlighted its concerns over this action not only to the Chilean government but also to the G20 and to the Financial Stability Board (FSB), since it runs counter to FSB principles, financial stability and consumers’ long-term financial interests. Following the policy and advocacy lead of those companies directly impacted, GFIA’s trade working group will work with the associations affected on trade remedies under at least four bilateral trade agreements between Chile and GFIA member jurisdictions. While within GFIA this effort is being coordinated by the trade working group, this is an issue that relates to financial stability, ageing societies and contract certainty, so it is coordinating with all interested members.
American Council of Life Insurers