Reinsurers face higher transatlantic competition
The Covered Agreement between the EU and the US makes these markets more attractive for reinsurers from the opposite side of the Atlantic, increasing competition and therefore adding pressure on pricing and conditions.
The European Union and the US on January 13 unveiled an agreement which removes collateral and local presence requirements for reinsurance.
For EU-based reinsurers operating in the US this is expected to free around $40 billion of collateral. The agreement will enable players like Munich Re, Hannover Re or Scor to deploy this capital more effectively. Some estimates suggest that these $40 billion actually translate into opportunity costs of $400 million – if the way that money could have otherwise been deployed is considered.
“By having the same rules that apply to US reinsurers, the EU reinsurers will become more competitive than now, when the collateral requirements put them at a competitive disadvantage,” said Cristina Mihai, head of prudential regulation and international affairs at Insurance Europe.
US reinsurers operating in Europe are also set to benefit as the agreement reduces regulatory barriers, making the region more attractive for business.
“Before this agreement was reached, a reinsurer wanting to operate in Europe was required to establish multiple branches in Europe and competitors did not have to. That’s a very big deal," said Tracey Laws, senior vice president and general counsel of Reinsurance Association of America (RAA).
The removal of collateral requirements and other hindrances should increase the attractiveness of doing transatlantic reinsurance, boosting business and diversifying risk exposure, according to a January 17 Fitch Ratings statement.
But the deal is also set to make the EU market more attractive for US reinsurers, leading to greater competition and consequently putting pressure on pricing and profitability, Fitch warns.
Nevertheless, the Covered Agreement may serve as a blueprint for other countries such as non-EU member Switzerland, which is set to seek similar access conditions to the US market for its reinsurers.
This is a snapshot of a longer article you can read here.
Did you enjoy reading this story? Sign up to our free daily newsletters and get stories like this sent straight to your inbox.
Already registered?
Login to your account
If you don't have a login or your access has expired, you will need to purchase a subscription to gain access to this article, including all our online content.
For more information on individual annual subscriptions for full paid access and corporate subscription options please contact us.
To request a FREE 2-week trial subscription, please signup.
NOTE - this can take up to 48hrs to be approved.
For multi-user price options, or to check if your company has an existing subscription that we can add you to for FREE, please email Elliot Field at efield@newtonmedia.co.uk or Adrian Tapping at atapping@newtonmedia.co.uk
Editor's picks
Editor's picks
More articles
Copyright © intelligentinsurer.com 2024 | Headless Content Management with Blaze