Continuing the discussions from last quarter on liberalisation and re/insurance supervision, I would like to expand on recent developments towards the creation of a single market in reinsurance in Europe.
The International Underwriting Association (IUA), and before it, one of its predecessor organisations, LIRMA, has long pushed for a single market in reinsurance. Working on the behalf of the industry to establish a level playing field, we have, through the British Insurers' European Committee (BIEC), representing the Association of British Insurers, the IUA and Lloyd's), now established common ground with the French and German associations.
The ramifications of what we are trying to do will, if successful, extend far beyond Europe.
Our common aim is to see a fully free market in reinsurance across the globe. An efficient international wholesale market in what is by nature an international business should suffer no barriers to competition or innovation. Insurance companies, businesses and their customers world-wide today can rightly expect global focused reinsurance services, which meet their needs and spread their risks efficiently, cost-effectively and with security.
Yet, internationally, the divergent requirements of different jurisdictions are a clear barrier to the ability of the industry to perform cost-effectively and transparently. Distortions of competition also arise from the existence of so many different regimes.
While we appreciate the need for adequate supervision, we believe that many of the restrictions and conditions which countries impose on foreign reinsurers are, in fact, protectionist in their effects and often inappropriate for business to business transactions. A level-playing field in regulation of reinsurance in the European single market would be a first step in the right direction. Under the existing regime, companies benefit from freedoms to trade, but there is no single passport for pure reinsurers.
Mutual recognition must be the solution. The European Third Insurance Directives do not cover pure reinsurers, because companies buying reinsurance policies do not need the same kind of protection as private policyholders. So, a different framework is needed.
Under a mutual recognition scheme, the regulator in each participating country recognises companies approved by the regulators from the other participating countries. This means that companies are free to trade anywhere in the geographical area of mutual recognition, as long as they can demonstrate that they have been approved by their country of origin, by showing some form of passport or certificate.
Obviously, the standard set must be adequate. Each country of origin must impose similar minimum core requirements before granting approval to companies seeking to do business in the other participating countries. We have proposed that the appropriate core requirements for reinsurance companies (and other legal forms of reinsurer) should be that :
Therefore, the outcome of our talks is a proposal that the solution for Europe would be a system of mutual recognition based on these requirements.
Initially, we informed the French insurance association (FFSA) of our work and now we have also briefed the other European associations through the umbrella body for European insurers, the Comité Européen des Assurances (CEA). While much discussion remains, I have high hopes that we will be able to reach agreement.
The task will then be to convince the European regulators. I have, however, been encouraged by the interest that we have already been able to kindle recently within the European Commission and the European Insurance Committee in the overall issue of supervision of reinsurance in Europe.
Ultimately, our goal will remain free trade in reinsurance across the whole world. I believe that, in the foreseeable future, European passports for insurance and reinsurance will attain mutual recognition with equivalent North-American passports. Once that has been achieved, the rest of the world will in time participate.