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 voiced his approval in a speech delivered before the Brazilian Center for International Relations (CEBRI),
With diversification of risk and a centralised balance sheet necessary for efficient global operations, Kading noted that in 2013, the International Monetary Fund (IMF) advised CEBRI that protectionist Brazilian reinsurance regulation hinders market development. The IMF also advised that the liberalisation 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.
“The implementation of the Brazilian Government’s new programme 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,” said Kading.
“Such conformance with international regulatory standards is a necessary ingredient to positioning Rio de Janeiro as a reinsurance hub for South America.”
Kading also noted that AM Best’s director of ratings 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.”
“The IMF and AM 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,” he said.
Kading also outlined the characteristics of a successful international insurance and reinsurance hub at the CEBRI conference. These included 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 convienciece to customers; a time-tested legal system with commercial case precedents; jurisdictionional political and economic stability and quality infrastructure that includes legal, banking, accounting and actuarial components.
Kading noted 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.
“ABIR’s property and casualty insurance members are well regarded global providers of commercial insurance and reinsurance with major underwriting operations in Bermuda,” he said.
The ABIR represents 20 commercial insurers and reinsurers with underwriting operations in Bermuda.
ABIR, Brazilian Government, IMF, AM Best, Bradley Kading, Bermuda, North America, Latin America