PD-7 ReinsuranceInternational Supervisory Developments

CIA Seminar for theAppointed Actuary

Sept. 17, 2009

David Oakden

Reinsurance

• IAIS Guidance Paper on Mutual Recognition

• Collateral Requirements– EU– Switzerland– US– Australia

• Part XIII– AAR Concerns– DCAT Concerns

Mutual Recognition

Purpose

Facilitate the international supply of reinsurance

Foster efficient & effective international supervision

Mutual Recognition

Benefits

• Encourages geographical diversification• Reduce duplication of efforts by

supervisors• Facilitate market participation• Enhance group supervision• Better supervisory response to

complexity of modern reinsurance market

Mutual Recognition

Supervisory Considerations

• International assessments (IMF WB)• Terms of MoUs• Legal frameworks

– Insolvency laws

• Technical competence• Treatment of confidential information• Transparency of regulatory system

European Union

• Single passport• No collateral within EU• Members can impose collateral for non-

EU countries– e.g. France

• Reinsurers must be regulated in some EU countries– e.g. Germany

Switzerland

• No reciprocal rights with EU• Most companies will use an EU

subsidiary

USA / Reinsurance Regulatory Modernization Framework

• Reinsurance Supervision Review Department– Establish criteria for evaluation of regimes– Needs federal regulation

• Not expected soon

• Port of entry / Home state assigns a rating (1 strongest to 5 vulnerable)– Collateral depends on rating

USA / Reinsurance Regulatory Modernization Framework

Rating Non-US US

1 0% 0%

2 10% 0%

3 20% 0%

4 75% 75%

5 100% 100%

Australia

• New capital requirements for non-authorized reinsurance (2009)

• Factors apply on second annual balance sheet date after the event (see next slide)

• Unless supported by collateral• Reinsurance must be subject to Australian Law • Disputes must be heard in Australia• More explicit consideration of reinsurance

recoverable by AA• Reinsurance risk management framework• 100% capital change for recoverables past six

months

Australia

Rating Capital Factor

1 20%

2 40%

3 60%

4 100%

5 100%

Part XIII / Reserving Issues

• Business in Canada may change effective January 1, 2010

• First quarter results (2010) will be based on change in reserves based on the new requirements

• Advisable to prepare two valuations– December 31, 2009 - old– January 1, 2010 - new

• Identify any data issues early

Part XIII / DCAT Issues

• 2010 Results will be based on the new definition of business in Canada

• DCAT reports prepared in 2009 must project 2010 on the new basis

• Registered reinsurance ceded from Branches needs to be checked– This applies to Canadian companies as well as

branches

Questions