Feb 14, 1990

INSURANCE: WEST AND EAST AGAINST SOUTH ON REINSURANCE SECURITY.

GENEVA, FEBRUARY 12 (BY CHAKRAVARTHI RAGHAVAN)— Industrialised countries of the West have blocked efforts of Third World Countries at the UN Conference on Trade and Development to secure an element of reinsurance security for their insurers, and thus for their public, by requiring information reinsures and reinsurance brokers wishing to do business with their country to provide relevant information to their supervisory authorities governments who in turn would make them available to insurers.

The UNCTAD Committee on Invisibles and Financing related to Trade (CIFT), which on February 9 concluded a one-week meeting devoted to insurance and reinsurance matters, found itself unable to agree on some very modest recommendations in this area.

An UNCTAD secretariat report had brought out the absence of adequate information to ceding companies of the Third World who had little bargaining power, the multiplication of reinsures and reinsurance brokers in recent years attracted by the availability of investible funds and the fact that brokers are no longer independent to provide their clients sound independent advice but are themselves connected with reinsures.The G77 draft resolution which the OECD group of countries opposed and blocked emphasised that better availability of relevant information regarding financial soundness and reliability of reinsures and reinsurance brokers would improve the transparency of markets for such services and help ceding companies of the Third World to make a better informed choice of their reinsures, contributing thus to an improvement of reinsurance security for ceding-companies.

The draft encouraged relevant authorities of Third World countries to request reinsurance companies and brokers who want to acquire business in their countries to provide the authorities with the necessary appropriate information, and recommended that the relevant authorities in turn bring such information to the attention of ceding companies of their countries.

The OECD countries opposed these provisions on the ground of "freedom of reinsurance".The ICs, and the major ones among them, including in such upholders of "freedom of reinsurance" like the UK and the USA, themselves have extensive regulatory measures relating to reinsurance companies and reinsurance brokers.

All that the OECD countries were prepared to accept was a requirement that reinsures and reinsurance brokers could be called upon to provide "published information" about their assets and business.Another provision that the OECD countries strongly opposed and blocked was one reaffirming UNCTAD-I consensus recommendation that ceding companies require their reinsures to maintain technical reserves and deposits with the ceding companies.

These provisions too are found in the regulations and practices of the OECD countries, but was opposed on the ground that the demand for maintaining reserves and deposits with Third World insurers interfered with rights of profitable investment.

Another Third World observer said that the attitude of the ICs could best be summed up as: "Do as we say, not as we do".Little of the real battles on this issue, conducted in private consultations and negotiations over the G77 draft, came out at the final plenary meeting on the night of February 9.Third World participants could not explain why they did not put the issues on record at the final plenary, but provided some information on the attitudes of the OECD group of countries, with support from the Socialists. that blocked the very modest G77 efforts.

"West and East are now joining hands against the South and the new converts to the 'market' are more vehement than the old", one participant commented.

Individual countries of the South, the participant said. do not have enough clout to force reinsures and reinsurance brokers of the North to conform, but collectively the South has some clout.But this clout could be exercised only if the majors among them joined hands to take measures within their own domestic jurisdiction, and in fora where insurance and "trade in insurance services" are being discussed and negotiated, such as the Uruguay Round, and insist that governments of countries wanting to exercise "rights" on behalf of their enterprises should also accept obligations for their enterprises.

The participant noted that unlike in the past, and perhaps of what perestroika and glassnot and changes sweeping through East Europe could mean for the South, the OECD group of countries got some support from the Socialist group, whose spokesman in insurance was the Soviet Union.

The Soviet Union itself is a reinsurer. But in the past its attitude was different. For example, when the Western reinsures sought to punish Egypt in the 50’s over the Suez Canal actions and declined to provide reinsurance cover, the Soviet Union stepped in and accepted reinsurance risks up to 90-95 percent.The only resolution that the CIFT was able to adopt was one urging Third World countries to continue to intensify their efforts to promote and consolidate their domestic insurance sectors and consider measures to increase the financial strength of their companies in their markets and the role and effectiveness of their supervisory

Other parts of the resolution sought to enhance cooperation among Third World countries with a view to increasing business exchange in the field of insurance and reinsurance as well as improving insurance, supervision and training.At the final plenary, the Chairman of the meeting, Alexander Thuranira Kaminchia of Kenya said while it had not been possible to find a common approach, the discussions and negotiations on reinsurance security had been "instructive" and "highly interesting".Speaking for the Group of 77, Mohammad Rifaah of Egypt said the G77 draft had not been a "maximalist" position but had been drafted keeping the interests of other groups. During the negotiations the G77 had not also hesitated to make further concessions, but no agreement could be reached.Rifaah however chose to view the outcome not as a failure but as a lack of consensus, and that a step forward had been made towards a mutual agreement at a later stage.Xu Wenhuao of China said the discussions on reinsurance had brought about a better understanding of the respective positions of all groups, a view that was also echoed by John Kemp of the U.K. for the OECD countries.Stanislav Koshin of the Soviet Union, speaking for the Socialist group of countries, said the approach to reinsurance security had become "more realistic and pragmatic" and added that his group did not want to support anything that would not lead to practical measures or result in concrete actions.