Swiss Re expert view on the changing regulatory landscape - Philippe Brahin

The Chief Risk Officer Assembly, a joint initiative between Swiss Re, the Geneva Association and the CRO Forum, provides a unique global platform for re/insurance CROs. Swiss Re recently hosted the 7th annual Assembly at our Centre for Global Dialogue, where the subject of regulatory reform was high on the agenda. Philippe Brahin, Swiss Re’s Head of Governmental Affairs & Sustainability, provides his perspective on some of the regulatory topics discussed at the event.

We just witnessed the CRO Assembly where discussion on regulation highlighted the current speed and volume of regulatory reform. Is this overwhelming for the industry?

We have definitely entered into a new phase of regulatory reform for the insurance and financial services industries. It is an ambitious period which was triggered by the 2008 to 2010 financial crisis. In the wake of the crisis there was a huge wave of new regulations and rules, and these are now becoming more and more concrete. In 2011 alone we have seen an impressive number of regulations come out of the US and Europe, and many of them have rules which come into force in 2013. 

Is this a concern for the industry?

Well, the speed at which this has occurred means that the insurance sector has only had limited to time to engage in their development, as well as to assess their impact. It is true that sector-specific impact studies have been carried out – like the Quantitative Impact Studies we participated in for Solvency II – but these new regulations do not operate in a vacuum and there has only been limited work conducted to assess the cumulative impact of these reforms.

But recently we have seen some studies by the IMF and the Bank for International Settlements?

Yes, that is very helpful. Swiss Re supports looking at both the cumulative impact of reforms and their cross-sectoral implications. It is for this reason that we participated in an important study by the IIF this year on the implications of Solvency II and Basel III on the long-term investment portfolios of insurers.

Why it that so important?

The aim of all of these efforts is to protect and preserve the fundamentals of our business model, which are based on risk- and capital-pooling, as well as our ability to operate globally and invest long-term to manage our liabilities. We need to make sure that the reforms will not deteriorate the risk capacity of the industry, while trying to prepare for and prevent the next crisis.

And right now you see the fundamentals threatened?

I see many opportunities in the upcoming regulatory reforms to strengthen the resilience of our sector and promote the fundamentals of our business. But at the same time, regulators need to find the right balance – they must not overshoot or give-in to political pressure.

Can you give us some examples?

Sure, Solvency II is truly about recognising the economic reality of insurers, but the crisis came along during its development and supervisors started to diverge from the economic principles of the Directive. Another example is the ComFrame initiative – this should improve international cooperation and convergence, and it is important that this does not turn into a new layer of supervision.

What would you suggest that regulators and policymakers could do better? 

In order to find the right path in developing sound regulatory principles, I would look at best practices in enterprise risk management and develop incentives to reflect them and promote them in the regulations. Many of these aspects are already reflected in the Swiss solvency regime – or Swiss Solvency Test – and will be implemented in Solvency II, which I find very encouraging. But regulators should not become the external CROs of companies and be intrusive in the business steering of companies. Instead, the right dialogue and understanding needs to be established between regulators and risk managers.

Published 24 November 2011

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