International markets

Key regulatory and market access issues in relations with specific third countries

The USA, China, India, Russia and Brazil represent important markets for the German insurance and reinsurance industry due their premium volume, growth rate and potential. The German insurance industry faces a wide range of different trade restrictions in the aforementioned countries. These are briefly outlined with regard to each market.

The USA, China, India, Russia and Brazil represent important markets for the German insurance and reinsurance industry. This is due to their premium volume (e.g. USA: 1271 bn USD, China: 245 bn USD), their growth rate (e.g. China: 10.7 per cent; Brazil: 4.6 per cent) or their potential (insurance penetration premiums as a per cent of GDP: e.g. Brazil: 3.85, India: 3.96, China: 2.96, Russia: 1.33).

German and generally EU insurers are already operating in the respective markets. However, they could become much more active if trade barriers were removed and regulatory convergence was improved.

This would

  • create value for the consumers due to more choice and better prices through more competition,
  • strengthen financial stability as supervisory activities would be coordinated and coherent,
  • transfer knowledge and expertise to developing insurance markets,
  • protect the respective markets in case of major disaster due to wide risk allocation.

Therefore the German insurance industry welcomes the ongoing financial markets dialogues. We also support the EU negotiations for Free Trade Agreements and urge the negotiation parties to include substantive provisions to reduce barriers for insurance services.

With regard to the aforementioned countries, the following key issues are of particular importance for the German insurance industry. They correlate with the positions taken by the European Insurance Association Insurance Europe.

Markets at a glance
United States of America
– The GDV welcomes the ongoing regulatory dialogues which aim at better understanding each other’s regulatory system and supervisory procedures and at eventually creating a more coherent supervision. We believe that bilateral as well as multilateral fora (IAIS) are the right place to advance with this.
– The GDV has been very supportive of the inclusion of insurance issues in the negotiation for a Transatlantic Trade and Investment Partnership (TTIP) between the EU and the USA. We applaud the European Commission for its approach to focus on typical market access issues on the one side and, on the other side, to incorporate provisions for enhancing the ongoing regulatory cooperation without duplicating.
– The U.S. reinsurance collateral regime remains a discriminatory measure. We welcome the National Association of Insurance Commissioners’ adoption of a revised credit for reinsurance model law and regulation in 2011 and the adoption in several states. However, this model law does not eliminate collateral requirements in a uniform way as states can decide for themselves whether to implement reduced collateral rules and how to shape them.
– Insurers see problems arising from dealing with multiple regulatory jurisdictions in the USA. This increases costs and legal uncertainty.
– Foreign life insurers face several investment limitations in China: They have to establish operations in China in the legal form of a joint venture. Their shareholding is limited to 50 per cent. The number of domestic shareholders in a joint venture is restricted to one partner. Foreign insurers are also limited to one single engagement per branch of business.
– There are still market access barriers for specific products (like export credit insurance, prohibition of combining products), restrictions on distribution channels (e.g. the activities of foreign insurance brokers, geographic limits) and burdensome regional expansion requirements.
– Currently, the Chinese legislation does not distinguish between general insurers and specialty insurers, such as health insurers. As tailored legislation for special insurers does not exist, the penetration of these products is delayed due to excessive minimum capital requirements or investment limitations.
– Foreign insurers face an equity limit concerning the participation in insurance companies. The Indian Insurance Amendments Bill (the Bill) contains provisions which would at least raise the FDI cap in insurance from 26% to 49%. The GDV is supportive of this bill. We would welcome the adoption of the Bill in the Indian Parliament, preferably before the Indian legislative elections in May. The German insurance industry welcomes the European Commission’s support of this demand, particularly in the EU-India FTA negotiations.
There have been proposals to find a compromise by substituting a FDI increase for already invested insurers with allowing foreign institutional investors (FII) to take 23 per cent. We do not believe that this would be a solution, as a third party would complicate the management of the insurance companies.
– The Bill would also allow the opening of foreign reinsurance branches. The fact that it has not yet been adopted hinders the reinsurance market and the wide spread of risk allocation.
– The new bancassurance guidelines force all banks to operate as brokers. The consequence of this new regulation is that banks can no longer be the exclusive bancassurance partner for one insurance company only, but can place a maximum of 25% of the bancassurance business generated with one insurance company. For those joint venture insurance companies which have banks as a joint venture partner this would be a major setback since it effectively derails their entire business model, particularly in life insurance. These guidelines should not be implemented as they infringe legal certainty.
– Besides this, the new guidelines like other regulatory changes or a lack of changes are unpredictable for foreign insurance companies. There is a lack of transparent procedures and stakeholder participation.
– Under the Russian insurance law the regulator is given significant discretion in granting insurance licenses. This procedure lacks transparency and licenses are being refuted on grounds that are not always comprehensible. Besides clear procedures to challenge the decision of the regulator do not exist.
– As part of its accession to the WTO, Russia committed to allow branches from foreign insurance companies (life and non-life insurance and reinsurance) by 2020. We believe that this timeframe is excessive and that it should be attempted to see this commitment implemented sooner.
– Foreign insurance companies face discrimination when it comes to public procurement. Onerous requirements have to be met for the participation of foreign companies in the supply of insurance services for state and municipal needs as well as state corporations.
– Russia still sets a limit on investment for foreign insurers. Although the FDI cap has been increased, there is still a cap of 50 per cent which should be removed completely.
– Insurance companies face restrictions on affiliate’s transactions as Resolution 232 prohibits local (re)insurers to transfer more than 20% of the insurance premium on each coverage to related companies located outside of Brazil. The GDV welcomes that this trade barrier has been listed in the “Tenth Report on potentially trade-restrictive measures” and urges the European Commission to raise the issue in its regular dialogues.
– The Brazilian legislation (Resolution 225) requires compulsory reinsurance with local participants. Insurance companies must cede at least 40% of each reinsurance cession to local reinsurers. Before the introduction of this obligation in 2011, local reinsurers only had a “right of first refusal”.


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Position paper

Key regulatory and market access issues in relations with specific third countries