Reinsurance for financial management in Asia: a primer

As the low-growth and low-yield environment persists, many regulators in Asia have been introducing economic solvency regimes for the insurance industry. This is leading to an increase in insurers’ capital requirements and as a result, demand for customised financial management solutions has also increased.

Reinsurance for financial management (RFM) is one such solution. RFM solutions transfer risk from insurer to reinsurer and help ceding insurers to better manage their capital requirements and financial status. In doing so, RFM allows insurers to provide protection for more risks and to more businesses, which ultimately also benefits the local economy.

This report includes five practical applications of RFM across Life & Health (L&H) and Property & Casualty (P&C) insurance. The examples illustrate the motivations, function and benefits of RFM solutions, and demonstrate that risk transfer is the key utility in each case.

We believe that under the correct circumstances, RFM can benefit local market development. For this reason, in this report we also offer some policy recommendations to encourage regulators to accept RFM solutions within existing solvency frameworks.

Swiss Re advocates that regulators rely on the IFRS 17 definition of risk transfer. Through adherence to this definition and with the approval of either the appointed actuary or an outside auditor, RFM should be duly accounted for as reinsurance.