1. Reinsurance Trends and Regulatory Issues
Donald F. Behan, Ph.D., F.S.A.
Georgia State University
14th Annual Meeting of ASSAL

2. Trouble in the Market Concerns in the early 1990s
A soft market with high claims
Global financial crises cause concern
On the edge

3. September 11, 2001 An unanticipated catastrophe
The largest insured catastrophe of all time
Shocks to many different lines of business
Uncertainty about the future

4. Premiums Increasing in 2000

5. A Shock to the System
Reinsurance claim: $25 Billion versus $125 Billion total capital
Loss of confidence in catastrophe models
Claims correlated
Capital market decline
Then comes asbestos (again)

6. Impact on Global Regulation
Reinsurance already on the agenda
Combination of forces
Lack of information
Declining financial strength

7. Availability Curtailed
Five major companies downgraded
Several others suspend operations
New and expanding markets are the first to be hit

8. High Level Attention
World Bank/IMF “reinsurance is an important element of global financial stability”
OECD “Decision on the Exchange of Information on Reinsurers”
IAIS – Several efforts completed or under way

9. The Context Financial Stability Forum
Financial Sector Assessment Program
International Accounting Standards Board
The Joint Forum
World Bank/IMF/BIS
OECD
The Basel Committee

10. Prudential Regulation
IASB – Fair Value of Liabilities
U.S. and E.U. Risk-Based Capital
Transparency
Information exchange

11. Fair Value of Liabilities (General Insurance)
Theory versus practicality
huge difficulty estimating losses
The chicken and the egg

12. Risk-Based Capital Formulas and parameters The square root!
Where are the data?
Automatic action level
Dynamic methods

13. Transparency The mystique of reinsurance Absence of regulation
A tangled web
systemic risks

14. Market Conduct Sophisticated participants
Generally don’t need to be protected
Link to prudential regulation
credit for reinsurance ceded
low price for low risk
make the credit match the risk

15. Financial Sector Assessment Program (FSAP)
World Bank/IMF
Includes reinsurance
100 countries by the end of 2003
Strengthens the hand of the regulator
Strong market pressure to participate

16. Conclusion Troubled times Pressure for improved regulation
Many sources of international assistance
An opportunity to improve stability