Global Perspectives on Insurance Today: A Look at National Interest versus Globalization PDF
Preview Global Perspectives on Insurance Today: A Look at National Interest versus Globalization
Global Perspectives on Insurance Today Global Perspectives on Insurance Today A Look at National Interest versus Globalization Edited by Cecelia Kempler, Michel Flamée, Charles Yang, and Paul Windels Palgrave macmillan GLOBAL PERSPECTIVES ON INSURANCE TODAY Copyright © Cecelia Kempler, Michel Flamée, Charles Yang, and Paul Windels, 2010. Softcover reprint of the hardcover 1st edition 2010 978-0-230-10477-8 All rights reserved. First published in 2010 by PALGRAVE MACMILLAN® in the United States—a division of St. Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978-1-349-28938-7 ISBN 978-0-230-11737-2 (eBook) DOI 10.1057/9780230117372 Library of Congress Cataloging-in-Publication Data Global perspectives on insurance today : a look at national interest versus globalization / edited by Cecelia Kempler . . . [et al.]. p. cm. Includes bibliographical references. 1. Insurance—Forecasting. 2. Insurance—Marketing. 3. Insurance companies—Management. 4. International business enterprises. 5. Corporate governance. 6. Globalization—Social aspects. I. Kempler, Cecelia. HG8051.G56 2010 368.0068—dc22 2010014362 A catalogue record of the book is available from the British Library. Design by Newgen Imaging Systems (P) Ltd., Chennai, India. First edition: December 2010 10 9 8 7 6 5 4 3 2 1 Contents Foreword vii Acknowledgments ix Part I Global Overview of Insurance/Reinsurance Regulations 1 Expansion, Contraction, Consolidation, and Regulation 3 Patricia Guinn 2 The Future of International Insurance Supervision in Light of the Financial Crisis 11 Michel Flamée and Paul Windels 3 Improving Regulatory Capital Requirements: Developments in the United States 25 Therese M. Vaughan 4 Solvency II: A Balancing Act 37 Pamela Schuermans 5 Solvency II: A New Regulatory Frontier 53 Paul Sharma and Paolo Cadoni 6 The Move to Market Consistent Reporting for Insurers 69 Mark Freedman, Douglas French, Tara Hansen, and Therese Masiello 7 Toward a Global Approach to Regulating Insurers and Reinsurers 83 Raj Singh 8 Toward Global Reinsurance Regulation 91 Debra J. Hall and Jérôme Berset 9 Evolution of Insurance Group Supervision 107 Monica Mächler 10 The Role of Financial Conglomerates in the Globalization of Financial Services: Regulatory Complexities and the European Perspective 121 Michel Flamée and Paul Windels 11 The Architecture of Group Supervision 137 John Trowbridge vi ● Contents 12 The IAIS Multilateral Memorandum of Understanding: An Important Tool for Cooperation and Information Exchange between Insurance Supervisors 153 Peter Braumüller and Alexander Warzilek 13 Uniform Treatment of Creditors’ Rights: Fundamental to Global Insurance and Reinsurance Regulatory Advances 161 Peter Ivanick and Lynn Roberts Part II Industry Governance and Risk Management 14 Corporate Governance and Risk Management in the Insurance and Reinsurance Industries 171 Cecelia Kempler 15 Aggregating Global Risks Arising from Regulatory Disparities 189 Jerry M. de St. Paer and Michael E. Mathisen 16 Risk Culture 205 Prakash Shimpi and Heike Klappach 17 Incorporating Capital Requirements in Risk Management 211 Stephen P. Lowe 18 Securitization and Insurance 229 Marcelo Ramella 19 Structuring Catastrophe Bonds: A Functionalist Perspective 245 John Schwolsky and Matthew Stern 20 Growth and Diversification of the Captive Insurance Market 261 Peter Neville Part III Global Insurance Markets 21 Past, Present, and Future Insurance Markets and Regulations in China 277 Dongmei Chen and Xian Xu 22 Financial Services Firms in India: The Road Ahead and the Challenges 291 Anita Pennathur 23 Insurance Underutilization in Emerging Economies: Causes and Barriers 299 Rodolfo Francisco Wehrhahn Notes on Editors/Contributors 311 Index 317 Foreword T he title of this book, Global Perspectives on Insurance Today, reveals its con- tents. Chapters inform the readers of global complexities in balancing glo- balization and national interests in the insurance and reinsurance industries (collectively, the industry), and also suggest possible solutions to related challenges. The industry encompasses direct and reinsurance businesses, as well as financial structures that expand capital available to the industry through modern risk trans- fer vehicles that allow participation by non-industry investors. The contributions are authored by some of the most highly regarded experts from global companies, professional organizations, and supervisory authorities working with the industry and policy makers to enhance the industry’s role in assuring financially sound markets for absorption of routine and complex risk exposures. Each of our contributors agrees on the need for global regulatory coor- dination to assure realization of this goal. Their recommendations are based on their respective expertise and unique perspectives. Part I (Global Overview of Insurance/Reinsurance Regulations) begins with an overview by a leading actuarial and risk consultant serving companies and regula- tors throughout the world. Her insights explain how the industry’s landscape is being reshaped by globalization, increased natural catastrophes and new man-made catastrophes, changing demographics, and other factors that are influencing the industry expansion, certain contractions, consolidation, and regulatory change (Chapter 1). These insights are followed by a discussion, seen through the eyes of European industry regulatory experts, on the necessity for regulatory adaptations in light of the financial crisis, by shifting from a historic micro focus on regula- tion—which has proved inadequate in the modern universe of financial services—to a macro regulatory approach to understanding causes and consequences of finan- cial institution failures and actions, to prevent such failures through deployment of appropriate expertise for each task (Chapter 2). A former U.S. Insurance Commissioner, now Chief Executive Officer of the U.S. National Association of Insurance Commissioners (NAIC), explains the current state of the NAIC and of U.S. federal government initiatives to deal with the challenges and complexities of industry globalization, and makes a strong case for the NAIC’s perspective on the importance of rules to set threshold standards for prudential oversight, which could support an overlay of principled prudential industry supervision (Chapter 3). A discussion of the complexities inherent in balancing prudential oversight under viii ● Foreword Solvency II and its implications for the industry operating under its mandate is presented by an administrator of the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) (Chapter 4). A discussion by two leading U.K. Financial Services Authority supervisors offers a valuable resource on the development of Solvency II and what it has added to fundamental prudential oversight (Chapter 5). Leaders in industry accounting and risk management con- sulting explain the impact that Solvency II market consistent reporting require- ments could have on non-European Union (EU) global industry companies (Chapter 6). The Chief Risk Officer of one of the world’s leading reinsurers addresses how Solvency II advances the need for holistic risk-sensitive regulation, and explains the critical need for the United States to accelerate regulatory modernization, which, in his view, requires material U.S. government involvement because of the global nature of the reinsurance business (Chapter 7). Two U.S. reinsurance experts sup- port the proposition for reinsurance regulatory modernization, offering their views on why U.S. federal legislation that reconciles differences between Solvency II and current state approaches to reinsurance regulation is urgently needed to maintain vibrant reinsurance markets (Chapter 8). The foregoing chapters are followed by three important chapters on financial conglomerate group supervision, which presents core challenges in balancing national interests and global industry regulatory coordination. A leading non-EU member regulator addresses the evolution of group supervision and its relevance in a modern global financial services environment (Chapter 9). The role of financial conglomerates in the globalization of financial services, and their impact on regu- lation, is also addressed (Chapter 10). A senior Australian supervisor discusses the main difficulties in regulating and supervising insurance groups and offers a pro- posal for action (Chapter 11). A discussion of memoranda of understandings pro- vided by the chair and an expert of the International Association of Insurance Supervisors (IAIS) illustrates the current means by which regulators can cooperate (Chapter 12). Finally, experts in industry insolvencies and U.S. bankruptcies address why globally uniform treatment of creditors’ rights, an issue not resolved by Solvency II, is critical to the harmonization of global industry regulation (Chapter 13). Part II (Industry Governance and Risk Management) offers the perspectives of legal, consulting, and business experts on corporate governance and enterprise risk management (Chapters 14, 15, 16, and 17). This section also offers excellent sum- maries from U.S., Bermuda, and European experts on the important industry risk management tool of diversifying and expanding sources of capital through alterna- tive risk transfer mechanisms and captive insurers (Chapter 18, 19, and 20). Part III (Global Insurance Markets) contributors look at the past and, more importantly, the future of the industry and financial services markets in China and India (Chapters 21 and 22). Finally, a senior insurance expert at the World Bank provides an overview of opportunities in emerging economies (Chapter 23). We hope that readers find the book to be a valuable and practical resource. Acknowledgments F irst, we would like to thank our contributing authors who honored their commitments to us, despite enduring one of the most intense periods of vol- atility in global financial services history, which broadly affected responsi- bilities of supervisory authorities, the insurance and reinsurance industries, and their consultants. The book’s contributors are leaders in their respective fields in each of the foregoing categories. We are most grateful for the time they have dedi- cated and the quality of their work. We would like to thank our publisher Palgrave Macmillan for recognizing the value of aggregating the thinking of experts at this most critical juncture in the accelerating pace of global financial services in devel- oping and emerging markets, and in future regulation of the businesses operating in financial services conglomerates. Cecelia Kempler would like to thank Dennis Coates, Dean of the College of Business, Florida Atlantic University, as well as philanthropists Carole and Barry Kaye, without whose support the program of Risk Management at the College of Business would not have existed. In addition, we offer our gratitude to Eileen Schneider and Joan Schlossberg, who provided organizational support despite the fact that this project was outside the scope of their job descriptions. Michel Flamée expresses his gratitude for the support of his assistants Patrick Massin and Ann Devos. He also benefited greatly from inspirational discussions with his colleagues in the global and regional supervisory organizations, the IAIS (represented by its Secretary General Yoshi Kawai) and CEIOPS (represented by its Secretary General Carlos Montalvo). PART I Global Overview of Insurance/Reinsurance Regulations
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