Trade and Market access barriers that insurers face

Insurance Europe has published a series of country fact sheets that highlight the trade and market access barriers that European reinsurers face in Argentina, Brazil, Canada, India and Indonesia.

Removing these barriers is vital to reduce protection gaps and to avoid dangerous concentrations of risk in these jurisdictions.

Furthermore, to avoid a build-up of climate-related risks in any one jurisdiction and to facilitate the sharing of natural catastrophe risk across global (re)insurance markets, it is more important than ever that discriminatory barriers to trade and market access are removed.

In Argentina, foreign (re)insurers face several barriers, including restrictions on cross-border (re)insurance, compulsory investment constraints and foreign exchange restrictions on reinsurance payments. Despite some positive developments regarding the registration and licencing of foreign reinsurers, barriers in Brazil include restrictions on the reinsurance and retrocession limits applicable to cessions to occasional reinsurers, minimum insurance retentions by local cedants and their right to first refusal of business. 

The review of the Canadian reinsurance regulatory framework concluded in early 2022, with the final guidelines including several potential market access barriers to foreign reinsurers that conduct business on a cross-border basis.

This could increase Canada’s protection gap, as reinsurance capacity could be reduced significantly. Once implemented, the OSFI guidelines will create an unlevel playing field between registered and non-registered reinsurance, in favour of the former.

Currently, reinsurance is permitted on a cross-border basis. There is, however, a collateral requirement of 120% of ceded policy liabilities, plus receivables from the assuming insurer minus the amount of payables to the assuming reinsurer.
Canada recently concluded its review of the reinsurance framework.

It began in June 2018, when the Canadian regulator — the Offi ce of the Superintendent of Financial Institutions (OSFI) — published a discussion paper which included proposals that could threaten the operations of foreign reinsurers.

In February 2022, OSFI published two revised guidelines, which are due to come into effect in January 2025. The transition period will allow federally regulated insurers (FRIs) to adjust their business practices.

European (re)insurers are also concerned about the regulatory treatment of foreign branch offices in India.

In addition, the recent introduction of new restrictions on foreign investments represents a worsening of the framework for foreign reinsurers, in contradiction with the Indian Government’s commitments and its objective to encourage growth and long-term investment in the Indian insurance market.

Recent regulatory developments amended the way in which the order of preference is applied to local cedants when placing reinsurance business. While the new approach provides more business opportunities to European reinsurers, it still limits their ability
to compete on equal terms with national reinsurers.

Specifi cally, the Reinsurance Regulations came into force on 1 January 2019 with the intention of maximising retention within the country, subject to adequate diversifi cation of risks.

They envisage a two-step procedure for reinsurance placements (from which life (re)insurers are exempt):
• Step 1: Obtaining the best terms for cessions:
• Indian and foreign reinsurers can offer their terms to cedants on an equal basis.
• Step 2: An offer of participation taking into account the order of preference:
• Every cedant must offer the best terms obtained fi rstly to Indian reinsurers and, subsequently, to foreign ones.

It should be noted that the previous law granted full right of preference to national reinsurers. The two-step approach therefore constitutes a partial reopening of the Indian market to foreign players, since they are now able to compete with Indian reinsurers while offering their best terms. However, the approach does not provide for equal treatment of Indian and foreign players as there is still an order of preference that favors local reinsurers.

For this purpose, the European (re)insurance industry is calling on the Indian authorities to completely remove any form of order of preference and to achieve a level playing fi eld between national and foreign reinsurers.

Indonesia is moving gradually towards the liberalisation of market access for foreign (re)insurers.

However, new market access rules could create an uneven playing field between foreign reinsurers and affect the internal risk policies of international insurance groups.

On 17 April 2018, the Indonesian government issued Regulation GR14/2018 on Foreign Ownership of Insurance Companies. This confi rmed the caps on foreign ownership of 80% for (re)insurance companies. Entities that had already exceeded the 80% foreign ownership cap at the time the Regulation came into force are not required to comply with it but are prohibited from further increasing the percentage of foreign ownership.

In July 2019, the Ministry of Finance proposed that there would be no restriction on foreign ownership of insurance companies that are granted “grandfathering” benefi ts or are excluded from the 2018 Regulation (capping foreign ownership in local insurance companies at 80%). It does, however, appear to keep the cap at 80% for new market entrants, therefore maintaining market access barriers.

Insurance Europe welcomes the progress made regarding recent modifi cations to the reinsurance and retrocession limits applicable to cessions to occasional reinsurers in Brazil.

However, more ambition is needed to support the ability of European (re)insurers to place business in Brazil on a competitive, non-discriminatory basis.

Positive measures have been taken with 2019 legislation removing restrictions on the reinsurance and retrocession limits applicable to cessions to occasional reinsurers:

• Local insurance companies can now cede to occasional reinsurers up to 95% of the premiums transferred to reinsurers, calculated based on all transactions carried out in a given calendar year (the previous limit was 10%).
• Local reinsurers can also now cede in retrocession to occasional reinsurers up to 95% of the retroceded premium volume in relation to the risks they have underwritten, calculated based on all transactions carried out in a given calendar year (the previous limit was 50%).

Local (re)insurance regulators are allowed to issue specifi c regulations authorising insurance companies to cede to occasional reinsurers more than the above-mentioned limit, in relation to certain lines of business or type of insurance. The Brazilian government is reviewing the possibility of also lifting the existing preferential offer system to local reinsurers.

Nataly Kramer   by Nataly Kramer