BDS.- ¿What’s your opinion regarding the Latin American insurance market?
MICHAELA KOLLER.- It is a very promising market. Latin America has a huge potential, not only in the Life business but also in other lines. If you look at average penetration rates, you can see great growth potential.
BDS.- ¿What are the countries that pose more potential growth?
MICHAELA KOLLER.- I wouldn’t chose any specific country, because all of them have great chances to develop. This is why it is particularly important not to hinder this potential with protectionist regulation.
BDS.- ¿What is the main risk the Latin American insurance market has to face?
MICHAELA KOLLER.- A major challenge is the existence of protectionist behaviour in some countries. In recent years we have seen some governments creating discriminatory barriers against foreign companies that want to enter their markets, for example, in Brazil, Argentina or Ecuador.
BDS.- ¿Can you specify any of these barriers?
MICHAELA KOLLER.- Take reinsurance, for example; certain countries have rules that say that a minimum amount of business must be covered by local reinsurance companies, or have introduced limits to the cessions that local insurers can make to foreign reinsurers.
BDS.- From Europe, ¿are you worried at the barriers set for new actors?
MICHAELA KOLLER.- Indeed, mainly because we believe that it is important that markets learn from one another. It is good that new actors come into a market because this introduces new practices.
Besides, if you have all the risk retained in a single country, you may face concentration risk, because when a large loss event occurs all the damages would have to be borne by local insurers and reinsurers. However, if part of those risks are covered by foreign companies, the losses would be spread over a wider number of companies and, as a result, the local market would not be so severely impacted.
This was demonstrated in 2011, which had the greatest natural catastrophe-related losses in history. That year, the global reinsurance market paid out billions of dollars of claims, which enormously helped post-disaster recovery in countries such as Australia, Chile, Japan, New Zealand and Thailand.
A lot to learn
BDS.- Do you think the European and Latin American insurance markets can learn from each other?
MICHAELA KOLLER.- There are always many things we can learn from each other. You always try to see what has worked in one market and try to implement it in others. For example, in Europe, we have carefully studied the Chilean pension system. Also, although we have not yet implemented Solvency II, there are a lot of countries in Latin America that have developed local regulatory frameworks which are similar to Solvency II.
BDS.- Yes, the exchange of ideas enriches the markets …
MICHAELA KOLLER.- Certainly. When we share points of view we can learn how others have done things, what challenges they faced and try to avoid them. At Insurance Europe we work a lot with FIDES, and also with the Chilean association, the Mexican one, the Brazilian… We have a very active exchange of views and we have a lot of market practice exchange meetings.
BDS.- Focusing on Europe, ¿do you think the market has lost some strength during the crisis?
MICHAELA KOLLER.- Although companies are well prepared from a solvency point of view, the crisis has had an impact on us. We are now recovering the premium levels we had before the crisis. But, despite the difficult moments, the insurance market has proved to be very resilient. We have been a stabilizing force. While banks and capital managers left, insurance stayed.
BDS.- How do you see the impending implementation of Solvency II in Europe?
MICHAELA KOLLER.- We run regular surveys among our members to check the level of preparedness for Solvency II. Our last survey, which covered companies that account for 90% of European insurance premiums, found that a clear majority of firms were making good progress in implementing the first two pillars of Solvency II. Nevertheless, European insurers still face challenges. For example, we still don’t have the final reporting templates. This means that 150 templates have not yet been adopted by insurance companies because decisions have not been taken on the regulators side.
Not enough time
BDS.- So, according to this, it’s going to be difficult to be on time …
MICHAELA KOLLER.- Certainly. As an industry, we have been asked to implement a system that has not been finalized by the regulators. There are only two months for companies to finalise their reporting and it is not enough time. Nevertheless, insurers are making good progress.
BDS.- Then, next year will be one for testing and for solving issues …
MICHAELA KOLLER.- We go into this exercise with a very high level of confidence because we see that companies have taken it very seriously. But we think that the first year will be also a test for us, when we will still have problems. It is a huge change from quite a simple system to a very sophisticated one. It will be a very challenging year, also for regulators and supervisors, but we are at a very good starting point.
BDS.- What are the main challenges the European insurance market Hill have to face in the short and médium term?
MICHAELA KOLLER.- In the short term, no doubt, the reporting requirements and everything that has not yet been decided on the regulatory side and that needs to be finished. There will also be issues following implementation in January. Solvency II is a very complex system but, on top of that, we have a number of supervisors, both at European and national level, who are adding further rules. We will have to wait and see. In the mid term, everything will depend on how we treat long-term business.