ABIR Head Lauds Brazil Decision to Phase out Local Reinsurance Mandates

October 22, 2015

In a speech delivered before the Brazilian Center for International Relations (CEBRI), Bradley Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers (ABIR), praised the Brazilian government’s recent announcement to phase out mandates on local reinsurance operations that currently limit the availability of affiliate reinsurance in the country and limit cross border trade with unaffiliated reinsurers.

Kading noted that in 2013, the International Monetary Fund (IMF) advised CEBRI that “protectionist Brazilian reinsurance regulation hinders market development,” the bulletin said. “The IMF also advised that the liberalization of the reinsurance market would allow smaller companies to compete and reduce concentration risk, and international best practice calls for a risk-based supervisory regime which requires the removal of limits on reinsurance cessions.” It also stressed that diversification of risk and a centralized balance sheet are necessary for efficient global operations.

Kading said: “The implementation of the Brazilian government’s new program in 2017 to phase down mandates on local reinsurance placements and phase up allowable affiliate reinsurance cessions will go a long way towards meeting international best practices as defined by the IMF. Such conformance with international regulatory standards is a necessary ingredient to positioning Rio de Janeiro as a reinsurance hub for South America.”

He also noted that A.M. Best’s director of ratings recently stated at a St. John’s University regulatory conference that “regulatory protectionism leads to unnecessary ring-fencing of assets that reduces the benefits of capital fungibility and diversification” and creates “higher regulatory costs (that) drive small and mid-sized insurers out of the market.”

Kading added: “The IMF and A.M. Best critiques call attention to the negative market costs of regulatory protectionism and thus lend support to the recent positive actions announced by Brazilian policymakers.”

At the CEBRI conference entitled “Rio de Janeiro as a Global Financial Center,” Kading outlined the following “characteristics of a successful international insurance and reinsurance hub, which includes elimination of protectionist regulatory barriers:
• Robust prudential regulation necessary to bring international credibility;
• Regulation that will not impede deploying capital quickly for the risk taking business;
• High quality underwriting talent pool;
• Geographic convenience to customers;
• Time tested, legal system with commercial case precedents;
• Jurisdictional political and economic stability; and
• Quality infrastructure that includes legal, banking, accounting and actuarial components.

Kading also indicated that the Brazilian government’s plan to phase out reinsurance barriers has been praised by Brazilian risk managers who believe the plan should lead to increased insurance capacity and access to more innovative products. Bermuda, London and Singapore are examples of successful commercial insurance and reinsurance hubs that Kading cited in his remarks.

Source: The Association of Bermuda Insurers and Reinsurers (ABIR)

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