New and upcoming regulations, such as Solvency II, are having a profound impact on reinsurers, according to Guy Carpenter.
In its report entitled Regulation: A World View, which added that although it is primarily aimed at larger, global re/insurers, the changes are expected to impact medium and small re/insurers too.
Re/insurers face new costs and pressures in their efforts to manage the regulatory landscape, impacting balance sheets and risk management practices.
The broker explained that the most significant changes are occurring on the international front, where new solvency frameworks are evolving at the global level.
This includes Solvency II in Europe, Own Risk and Solvency Assessment (ORSA) in the US and China’s new C-ROSS framework.
“The costs associated with compliance and disclosure will continue to rise as insurance regulators and rating agencies increase their scrutiny of the industry,” said James Wrynn, vice-chairman of Guy Carpenter strategic advisory (US) and a managing director.
“In addition to the increased administrative cost of compliance, higher risk-based capital requirements often reduce the strategic flexibility of insurance company operations and ultimately lower returns.”
Mark Shumway, a managing director and co-head of Guy Carpenter strategic advisory (Asia Pacific), added: “Given the broad spectrum of economic and regulatory sophistication across the region, the approach to insurance regulation has varied on a country-by-country basis as each regime adapts solvency principles to its own needs and political realities.”
Guy Carpenter, Regulation, Solvency II, C-ROSS, ORSA, North America, Europe, Asia-Pacific