Watchdogs to help reinsurers

International insurance watchdogs are to safeguard reinsurers when they are hit by major catastrophes such as hurricanes, the International Association of Insurance Supervisors said in its annual report.

"Resilient major reinsurance companies are crucial in order to absorb any major external shock," said the IAIS in its fifth annual report on the reinsurance industry.

The IAIS said an early warning system, which was proposed by the head of insurance supervision at German watchdog BaFin last year, could help build trust among market participants in different countries following a big loss, thus bolstering financial stability.

"In the aftermath of a catastrophe, (the) data would be immediately available to assess the shock absorption capacity of the industry by providing an aggregated estimate of the total exposure," the IAIS said.

The report also assesses reinsurance market stability as well as the impact of the current turmoil on the reinsurance sector. It is based on data submitted by the world’s largest reinsurers.

Over the years, this annual overview has evolved from providing general reinsurance related data and analysis to including up-to-date coverage of market trends and developments. This year’s report includes coverage of potential vulnerabilities from a systemic perspective.

Following record losses in 2005 and despite some major catastrophes due to winter storms and hurricanes, both 2006 and 2007 were profitable years for reinsurers.

2007 was an especially profitable year for reinsurers, with some reporting the best results over the past five years. As a result, the reinsurance industry has a solid financial base to face the challenges of the continuing financial crisis, the IAIS said.

However, as the impact of the financial crisis grows in scope, reinsurers may be faced with difficult market and credit conditions.

Peter Braumuller, Chair of the IAIS Executive Committee, said: “Amid the ongoing financial turmoil, the global reinsurance market has proven relatively robust and resilient against direct shocks thus far, which has contributed to both the stability of the global insurance markets as well as ultimately the security of individual insurance customers”.

Established in 1994, the IAIS represents insurance regulators and supervisors of some 190 jurisdictions in nearly 140 countries and has also more than 120 insurance professionals, insurers, reinsurers and trade associations as observers.