A framework for an international supervisory system for reinsurance companies Nikolaus von Bomhard 11 July 2005

2 A framework for an international supervisory system for reinsurance companies Contents Core issues in reinsurance3 Current supervisory regimes4 Proposals for an efficient system 5 Benefits of a coordinated system6 Implementation9

3 A framework for an international supervisory system for reinsurance companies 11 July 2005Nikolaus von Bomhard Core issues in reinsurance  Geographical spread and risk diversification  Efficient capital allocation / use of risk capital  Group-wide risk management  Varying institutional form of supplier  Free market access

4 A framework for an international supervisory system for reinsurance companies 11 July 2005Nikolaus von Bomhard Current supervisory regimes  No international coordination  No "home state regulator" or "lead supervisor"  Multiple (conflicting) reporting and solvency requirements Consequences:  Economic inefficiencies cause disadvantages  Efficient use of capital hampered

5 A framework for an international supervisory system for reinsurance companies 11 July 2005Nikolaus von Bomhard Proposals for an efficient system  Global operations supervised by one authority → home state regulator  Licensing  Financial supervision  General legal supervision  System of information exchange between home state regulator and host state supervisors

6 A framework for an international supervisory system for reinsurance companies 11 July 2005Nikolaus von Bomhard Benefits of a coordinated system For supervisors:  Greater comparability, higher transparency  Improved supervisory quality  Elimination of supervisory arbitrage  Tracking of all relevant company data and information

7 A framework for an international supervisory system for reinsurance companies 11 July 2005Nikolaus von Bomhard Benefits of a coordinated system For reinsurers:  More economical administratively  No fragmentation of capital funds  Effective use of diversification effects

8 A framework for an international supervisory system for reinsurance companies 11 July 2005Nikolaus von Bomhard Benefits of a coordinated system For cedants:  Reduced reporting requirements (indirect supervision)  Direct access to a reinsurer's entire financial strength and security

9 A framework for an international supervisory system for reinsurance companies 11 July 2005Nikolaus von Bomhard Implementation  Establishment of minimum standards Examples:  European Union draft reinsurance directive  IAIS Principles and Methods  Bilateral agreements between states  Recognition of home state regulator as lead supervisor