Insurance Europe calls for removal of trade and market access barriers

A number of trade and market access barriers that European (re)insurers face in Argentina, Brazil, Canada, India and Indonesia should be removed, according to Insurance Europe. These barriers include restrictions on cross-border (re)insurance, (re)insurance retention limits, foreign exchange restrictions, rights of first refusal, and foreign ownership restrictions. “Removing these barriers is vital to reduce protection gaps and to avoid dangerous concentrations of risk in these jurisdictions,” said Insurance Europe. “Furthermore, to avoid a build-up of climate-related risks in any one jurisdiction and to facilitate the sharing of natural catastrophe risk across (re)insurance markets, it is more important than ever that discriminatory barriers to trade and market access are removed.” Argentina In Argentina, foreign (re)insurers face several barriers, including restrictions on cross-border (re)insurance, compulsory investment constraints and foreign exchange restrictions on reinsurance payments, according to Insurance Europe. “While a number of positive measures related to the reopening of the Argentinian market were introduced in 2017, the scope of these provisions does not foresee the full opening of the market at the end of the planned implementation timeline,” it said. For example, the percentage of ceded premiums per contract that may be ceded by Argentinian insurers to admitted reinsurers has been gradually increased in recent years and currently stands at 75%. And local reinsurers may not transfer more than 75% of aggregate premiums in a fiscal year to subsidiaries or companies belonging to the same financial conglomerate located abroad. Brazil Barriers in Brazil include restrictions on the reinsurance and retrocession limits applicable to cessions to occasional reinsurers, minimum insurance retentions by local cedants and their right to first refusal of business. Insurance Europe explained that positive measures were taken in 2019 legislation removing restrictions on the reinsurance and retrocession limits applicable to cessions to occasional reinsurers: Local insurance companies can now cede in reinsurance to occasional reinsurers up to 95% of the premiums transferred to reinsurers, calculated based on all transactions carried out in a given calendar year (the previous limit was 10%) Local reinsurers can now cede in retrocession to occasional reinsurers up to 95% of the retroceded premium volume in relation to the risks they have underwritten, calculated based on all transactions carried out in a given calendar year (the previous limit was 50%). One issue of concern for Insurance Europe is the right of first refusal. Cedants in Brazil are required to cede or offer preferentially at least 40% of their reinsurance cessions to local reinsurers. “The Brazilian government is reviewing the possibility of removing the existing preferential offer system to local reinsurers. It is understood that the requirement will be gradually reduced to zero over the next few years. This development is positive,” said Insurance Europe. Canada The review of the Canadian regulatory framework includes several potential threats to foreign/European reinsurers that conduct business on a cross-border basis. Insurance Europe said it is concerned that the review will increase Canada’s protection gap, as reinsurance capacity will significantly reduce and insurance prices will have to rise. “In June 2018, the Canadian regulator (the Office of the Superintendent of Financial Institutions) launched a review of the reinsurance framework, with the publication of a discussion paper. It suggested proposals that could threaten the operations of foreign reinsurers. One of the proposals would create an unlevel playing field between non-registered reinsurance (i.e. business written on a cross-border basis) and registered reinsurance (i.e. business written by a branch), in favour of registered reinsurance,” said Insurance Europe. It added: “The proposed reform creates barriers to foreign/European reinsurers doing business on a cross-border basis and would impact the business models of major international insurance and reinsurance players.” India While recent changes in Indian (re)insurance regulations have introduced some positive developments towards the further opening of the (re)insurance sector, European (re)insurers remain concerned about several discriminatory measures concerning foreign investments and the situation of foreign branch offices, said Insurance Europe. It said any form of order of preference and foreign direct investment cap should be abolished, and concerning developments in relation to the situation of foreign branches should be addressed to create a level playing field between national and foreign reinsurers Insurance Europe noted that earlier this year the Indian government proposed an increase in foreign investment limits for Indian insurance companies from 49% to 74%. But this was followed by draft rules that intensify restrictions on foreign investments in Indian insurance companies (e.g. requirements for there to be resident Indian citizens in the corporate governance structure of foreign-controlled insurers). “Insurance Europe is therefore supportive of the increase in the equity cap. However, it is concerned about other types of requirements being introduced for foreign (re)insurers, which in fact diminish the potential outcomes of the intended market opening,” it said. Indonesia Indonesia is moving gradually towards the liberalisation of market access for foreign (re)insurers. However, new market access rules could create an uneven playing field between foreign reinsurers, while the recent interpretation of a finance regulation denies the tax deduction of paid claims for all life insurers. In particular, said Insurance Europe, the new regulation removing retention limits should be applied to all foreign (re)insurers to allow domestic insurers to choose from a diverse range of competitive, globally diversified reinsurers for risk mitigation, and the tax deduction of paid claims for all life insurers should be authorised again.

Insurance Europe calls for removal of trade and market access barriers

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