PCI Newsletter 2013
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PCI Newsletter 2013

 International broker deals

Ever since the global financial crisis hit hard in 2008, the reinsurance industry has instinctively known the regulatory backlash has been coming.

Now we know it is set for the summer of next year, when a list of global systemically important reinsurers will be released.

The arguments were beginning to be rehearsed four years ago.

The World Reinsurance Forum (WRF) was hastily assembled at the Monte Carlo Rendez-Vous of 2009.

The sector came together with one voice, and that voice has delivered a few very specific messages and it has repeated them very consistently in the intervening four years. Reinsurers are not banks. Reinsurers match their assets to their liabilities and do not engage in maturity transformation. You can't have a run on a reinsurer.

And if the worst happens, we go into solvent run-off and everyone gets paid (albeit a little more slowly and with a greater attention to policy wordings than before).

We also have a hungry and well-capitalised run-off sector that is dying to pick over the carcass of the next big market player to fall victim to overstretch.

Just occasionally - and following regulatory failure - we end up with insolvent run-off. But even the most infamous historical cases have still managed to return over 50 cents in the policyholder dollar. In fact, far from being a potentially destabilising problem, reinsurers are collectively forces for global financial stability.

Back in 2009 Scor CEO Denis Kessler was the energetic driving force behind the initial formation of the WRF and he continues to bang the drum for the sector today.

His latest salvo has come in the form of a Geneva Association paper.

Speaking at an AM Best conference last week, Kessler quipped that an outsider could instantly tell that our sector is not systemically important to the global financial system simply by looking at market participants' gleeful reactions when one of their brethren gets into difficulty and the chance to gain market share at their expense arises.

He is absolutely right, and indeed our industry owes a tremendous debt of gratitude to Denis for his vivacious and energetic defence of the collective good.

The problem is this. Sometimes simply being right is not enough.

In the aftermath of the crisis I remember briefing a prominent European politician who was coming to speak at one of our events. I explained that (re)insurers were not banks and had weathered the financial crisis comparatively well.

"But what about AIG and Swiss Re?" came the sharp response.

It doesn't matter how good a crisis we had - in the eyes of the global political class, there is no denying the facts. Their wounds are still hurting and they will make it so we are seen to pay.

We will get our new tier of global regulation whether we deserve it or not.

The fun will come when the regulators have to decide on what regime our newly defined dangerous global institutions will have to suffer. Here we should at least be a little more optimistic.

For at this point the politics will end. Our bruised political leaders will have their reinsurance G-SIFI headlines and move on, tossing the problem over to the regulators.

And happily, after many years of deliberation, these will finally realise that, with no solution needed to a non-existent problem, they can get away with merely cosmetic measures.

And then we will be left to carry on with the business of risk.

Mark Geoghegan

Editor, The Insurance Insider

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