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Gianmario Afeltra The South African Insurance Industry Survey 2016 | 41
Senior Manager, Disruptions in the
Financial Risk Management
Tel: +27 63 682 0045 reinsurance market
Email: gianmario.afeltra@kpmg.co.za
The global and local reinsurance market is facing a number of disruptive forces including
regulatory change, provision of alternative capital, intermediary capabilities and roles,
and emerging risks. Elements of the traditional reinsurance value proposition such as
risk transfer, balance sheet protection and provision of technical expertise may have a
diminished worth in the face of these disruptions.
Regulatory change Reinsurance market competition and Implications
In a South African context, the level playing fields was one of the It should be expected that locally
outcome of the Solvency Assessment principles that informed the review of incorporated reinsurers will face
Management (SAM) reinsurance the framework. In order to create a level pressure in writing to their available
regulatory review is likely to affect playing field, the impact on cedants’ capacity under increasingly competitive
how market participants select their solvency assessment and the prudential terms, conditions and pricing following
reinsurance partners, structure their requirements applied to the various a greater supply of international
contracts and manage the level and participants will differ according to the capacity. However, the proposed
mechanism of risk transfer. prudential risks inherent in the mode of treatment of reinsurer credit ratings,
reinsurance. in particular, within cedants’ solvency
A key proposed reform following the assessments may act to mitigate the
review relates to reinsurance market Another key proposed reform relates to placement of business with foreign
participants. The operation of foreign conduct of reinsurance business. Limits reinsurers - branched or cross-border.
reinsurers on a branch basis will be will be placed on the amount of business Non-proportional cover is expected to
allowed and the treatment of cross- to be ceded - as measured by premium - be favoured over traditional proportional
border supply of foreign reinsurance will with the intention to prevent fronting. In arrangements in order to comply with
be revised under the new framework. addition, the benefits brought by the use limits on cession rates. Reinsurer
This is expected to enhance reinsurance of financial/finite reinsurance will need contribution margins may therefore
capacity, competition and the spreading to be carefully weighed up against the be squeezed due to lower premium
of risk. lack of recognition of this cover within volumes.
the Solvency Capital Requirement (SCR)
calculation.
