Reinsurers, their cedants and shareholders essentially want the same thing – stability. After that it’s a balancing act between the interests of shareholders who want maximum return on their capital and cedants who want secure, cost-effective risk transfer. Reinsurers find themselves in an interesting position balancing the interests of the two.

In an environment still shaken by the banking crisis and the overleveraging of risk for profit, there’s always a danger that the pendulum swings too far the other way. Forcing reinsurers to hold excessive capital reduces their return, making them unattractive to the shareholders who source the capital in the first place. It will also curtail or extinguish reinsurers’ “contingent capital” – the ability to turn to the capital markets to replenish capital after a market loss.

In general, insurers and reinsurers have a much better appreciation of risk than banks or hedge funds. Over the years, regulators have worked with insurers and reinsurers to increase their understanding of the risk they take. As an industry, our accounting is better; our capital base, by and large, is more secure and still intact in spite of the natural and financial crises of recent years and our risk management approach has been tried and tested. The insurers and reinsurers who got into trouble on the non-life side were those with an aggressive investment strategy and that behaved like banks.

There’s no doubt that in the coming years, banks and hedge funds will have to change the way they manage risk and ideally hold capital at levels approaching those required of the insurance and reinsurance sectors for similar risks. (Previously they were able to leverage their capital at a much higher rate than reinsurers.) This level playing field will likely open up new growth opportunities for reinsurers in the risk transfer marketplace.

The risk, in the current environment, is that reinsurers find themselves tarred with the same regulatory brush as the banking sector. Through their respective representative trade associations, it is imperative that insurers and reinsurers help politicians and regulators understand the distinctions between banking and reinsurance and in particular, that our risk management and capital models are not the same.

The news at the Monte Carlo rendez-vous last month that PartnerRe, alongside 10 other leading global reinsurers was forming a Global Reinsurance Forum (GRF) is significant in that it provides an opportunity for reinsurers to address, at a global level, changes to the reinsurance landscape brought about by regulation. By actively participating in the GRF, we will be promoting a stable, innovative and competitive reinsurance market environment on a worldwide basis.

Providing it’s done right, regulation means stability for our shareholders and a more secure, more cost-effective form of risk transfer for our cedants. And that’s good news for us all.