GFIA comments on Ecuador's new regulatory and supervisory regime and the impact on the reinsurance marketRelease Date: 03/13/2015 Staff Reference: Janice Hilchie
Mr. Patricio Rivera
President, Monetary and Financial Board
Av. Diez de Agosto N11-539 y Briceño, piso número 8
13 March 2015
Subject: GFIA comments on the potential maximum cessions by kinds of reinsurance
Dear Mr Rivera,
The new Ecuadorian regulatory and supervisory regime through the Monetary and Financial Code (MFC), aims to improve the supervisory capacity and provide the supervisor with stronger more modern tools and additional powers. In addition, joining the supervision of the entire financial sector under one umbrella will help to bridge silos among supervisors of different sectors.
The Global Federation of Insurance Associations (GFIA) supports these stated objectives. However, the mandate given in the MFC to the Monetary and Financial Board to “enact regulations and will define maximum cessions by kinds of reinsurance” (Article 27 of the Code) has been met with less optimism.
The GFIA believes that such regulations could reduce the effectiveness of the Ecuadorian reinsurance market to support the development of the insurance industry, limit its ability to enhance the resilience of insurers and restrict the access to new modern international products and know-how. Limiting ad-hoc retentions could result in unwanted risk concentration in the Ecuadorian economy and a reduction of the risk management capability of the insurers. In addition, such regulations would result in the nonobservance of several of the Insurance Core Principles of Supervision (ICPs), stated by the International Association of Insurance Supervisors (IAIS).
The GFIA would like to establish a bilateral dialogue with the Monetary and Financial Board that you preside over to support the intentions of the MFC to create a better-regulated and modern insurance industry and thus avoiding negative unintended consequences.