Experts review impact of protectionism in diversification of risks, investments in emerging markets

Protectionism in the global insurance and reinsurance industry is often described as a hindrance to both emerging and mature market development, and despite the EU/U.S. covered agreement and other positive regulatory changes across the world, protectionism remains a challenge for industry players.

Protectionism Protectionist measures in the insurance and reinsurance industry were recently highlighted by international law firm Hogan Lovells in its 2018 Insurance Horizons report, which explores protectionism in emerging markets, the UK’s impending departure from the EU, and the EU/U.S. covered agreement, among other trends.

Earlier this year, Lloyd’s of London Chairman Bruce Carnegie-Brown described protectionism as the “one barrier that could stop this future in its tracks,” warning that protectionist measures in the Latin America marketplace could threaten the growth prospects of insurers and reinsurers.

The threat protectionism brings to insurers and reinsurers around the world was also highlighted by Lloyd’s Chief Executive Officer (CEO) Inga Beale, who said in an interview with Reinsurance News that certain protectionist measure threaten reinsurers’ diversification needs, calling on the market to work against the rising tide.

Concerns were also raised by global insurer Markel’s Asia unit, which warned in early 2017 that growing protectionist measures and regulatory changes that support protectionism, could hinder the reinsurance industry’s ability to transfer and diversify risk.

While protectionist measures in the insurance and reinsurance industry aim to limit the amount of premiums that exit a jurisdiction’s market, essentially keeping the risk in the country, this naturally increases the volume of risk concentration within the jurisdiction’s economy, as opposed to spreading the risk throughout the global re/insurance markets.

This was something underlined by Insurance Europe last year, which noted such measures in African, Asian, and South American markets, and which highlighted the benefits of opening up markets in order to improve their domestic markets, and ultimately the economy.

Hogan Lovells notes certain protectionist measures in the re/insurance industry in emerging markets, citing regulations such as rights of first refusal and the imposition of withholding taxes from on internationally ceded premiums and collateral requirements.

“Rules requiring the cession of risks to local insurers and reinsurers apply in China, India, Indonesia, many African countries and in Brazil, Ecuador and Argentina. Between 2013 and 2015, London’s premiums from emerging markets fell from $10.5bn to $9.3bn, against strong growth in those markets,” says Hogan Lovells.

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