At first glance, the Italian reinsurance market is like every other in Europe – facing the triple challenge of bountiful capital, competition from new entrants and pricing pressure. But lift the lid and there are some significant differences that have encouraged Liberty Mutual Re to make a strategic investment here, even as others pull back. Massimiliano Fantini, Liberty Mutual Re General Manager, Reinsurance, explains.
Italian businesses, consumers and home-owners have faced a number of challenges in recent years, ranging from severe earthquakes and hail storms to repeated cyber attacks. But unlike many countries in Europe, insurance penetration, particularly for natural catastrophes, remains relatively low (around 2 percent for homeowners, for example).
Against this backdrop, a combination of rising consumer interest, plus legislative intervention designed to stimulate the market and shift the burden of restoration costs from the public to the private sector, is expected to drive selective growth in the direct market, and therefore reinsurance.
Legislative intervention driving growth
From 1 January 2018, the government has waived insurance premium tax, reducing the cost of direct natural catastrophe insurance by 22.5 percent. At the same time, it made 19 percent of insurance premium costs tax deductible – effectively lowering the cost of insurance by over 40 percent. By making insurance more affordable, the government hopes to drive the development of the direct market.
Further stimulus to reinsurance was applied on 28 February, 2018, with the clarification by EIOPA (the European Insurance and Occupational Pensions Authority) on the Delegated Regulation (EU) 2015/35 on how insurers should calculate Solvency II capital requirements (CAT Module) under the Standard Formula regime. The guidance confirmed the necessity to use sums insured (and not policy limits) for the calculation of natural catastrophe scenarios, in line with market practice. This is expected to mean that capital levels will need to increase and will drive more reinsurance purchasing.
The professional indemnity market has also come under scrutiny with the implementation of the Law 24/2017 requiring healthcare professionals compulsory cover and a Decree from the Ministry of Justice also set minimum standards for the professional have liability insurance for lawyers, which came into force in November 2017.
But perhaps the legislative intervention likely to have the most significant market impact overall is the introduction of legislation in June 2018 to supplement the EU GDPR (General Data Protection Regulation).
GDPR exposes companies to fines up to 4 percent of global turnover if they do not comply with the regulation. With the average cost of a data breach globally now estimated at $3.86mn, rising to around $118mn for breaches where over 1 million records are lost , it is of little surprise that concerns are growing about risk aggregation, which is focusing attention on reinsurance.
These legislative interventions are significant and together, have the potential to transform the Italian market, where Liberty Mutual Re will be keen to play an important role in this delicate transitional phase.
Liberty Mutual Re has significant appetite across the board for Quota Share, Excess of Loss and Solvency ll solutions on the right technical terms and conditions. The company is keen to bring to bear its global reinsurance experience as it works with clients to provide cover in lines where there may be an absence of useful, historic local market data.