IIS delegates scorn IAIS systemic risk plan

Speakers at the International Insurance Society’s annual event gave what amounted to a damning indictment of plans by the International Association of Insurance Supervisors (IAIS) to class some reinsurers as being systemically important to the global economy.

In a panel held at the event in London yesterday (Tuesday June 24), the audience was asked to raise a hand if they believed reinsurers should be deemed systemically important.

With not one hand in the room raised, panellists went onto outline their arguments for the fact the industry – unlike banking – should not be classified in this way. Companies that are deemed systemically important are likely to be subject to stricter reporting requirements and regulatory oversight.

A frustrated Denis Kessler, CEO of SCOR, said the industry must accept it has lost this particular battle. “Of course we are not a systemic risk but we have made the arguments and presented figures and facts yet lost the battle,” he said.

To illustrate the point, he joked that if a bank defaults, there is panic in the banking world because of the interconnected nature of banking risks. In re/insurance the difference is stark: “Everyone simply smiles,” he said. “They just think ‘great, I can buy the portfolio.’ The fact is a default would not lead to the collapse of the industry.”

However, amid wider gripes over ever more zealous regulation, some noted that there would also be beneficiaries. Urs Ramseier, chairman of ILS specialist Twelve Capital, said that since he operates in an unregulated sector, more regulation being applied to traditional reinsurers is a good thing for his sector.

“People talk of shadow banking sector, in a sense we are becoming a shadow reinsurance sector,” he said. “More regulation for traditional players is ultimately a positive for us.”

The panellists also expressed worries over what they called an increasing parochialism among regulators. Some felt this could damage the global nature of the reinsurance industry with all the benefits that go alongside that.

Albert Benchimol, chief executive of AXIS Capital, said he sees little evidence of communication or an openness between regulators that could lead to a simpler and more global system. Instead, the opposite is true.

“A real negative of the financial crisis has been an increased parochialism in the regulatory environment and a long term consequence of that will be limited availability of coverage to consumers ultimately,” he said. “Any inhibition to the natural flow of capital will hurt consumers.”

Concerns were also expressed over plans by the IAIS to create an international capital standard for the industry that would also reflect the level of capital required in certain jurisdictions.

Vincent Vandendael, director of international markets at Lloyd’s, said: “Nothing shows that the cross border reinsurance order is broken so why would you have capital ring-fenced in a jurisdiction? It would just increase costs?”

Kessler blamed increasingly risk averse politicians for the changes. “The buzz word these days is ‘stability’ and if you want to get a law passed you just put that word in it,” he said. “We have to accept a certain level of risk for without that there cannot be growth. My fear is a fermentation of the regulatory regimes globally. That would be bad for us all.”

Benchimol added that while he felt large markets such as the US and the EU would not be harmed by such proposals, smaller markets would either lack coverage or suffer because of a concentration of risk. “Look at New Zealand in the aftermath of the earthquakes. If all the risk had been kept in that market it would have had a devastating effect on GDP,” he said.