Fin Re returns?

I have recently returned from Asia, where it was great to catch up with so many old faces and meet some new ones at the 19th Singapore International Reinsurance Conference. It was fascinating to delve deep into the APAC (re)insurance market, which is clearly facing some fantastic growth opportunities over the next decade given projections of continued population expansion and economic growth. 

Sure, it’s not going to be an easy sell-in on all fronts (casualty growth I think will be a lot harder than on the property side) but I’ve no doubt that, done right, the (re)insurance market can continue to be a trusted partner of the continuing Asia success story.

While there, I was keen to follow up on a phrase I have heard bandied about quite a bit recently- ‘structured solutions’. Apparently these are very much back in vogue. To a seasoned hack like me, this phrase sounds very wooly, so what, I enquire, does it really mean?

Ok, so different brokers and carriers have different definitions of what they mean here, but a good working definition is becoming clear to me: structured solutions are equivalent to financial reinsurance. 

As no-one the right side of 40 (!!) will need reminding, Fin Re has been around since at least the 1960s, when Lloyd’s syndicates started sending money overseas as reinsurance premium for what were then called ‘roll-overs’ – multi-year contracts with specially-established vehicles in tax-light jurisdictions. These deals were legal and approved by the tax-authorities. 

However, and I quote, “they fell into disrepute after some years, partly because their tax-avoiding motivation became obvious, and partly because of a few cases where the overseas funds were siphoned-off or simply stolen”. 

Fin Re developed over the years, and eventually regulators also became really wary of such deals, especially where no risk transfer was involved and they were a pure capital management tool. Reinsurers acting as banks, really.

More recently, of course, the high-profile bankruptcy of the HIH group companies brought all of this in sharp focus and led to a Royal Commission. If you don’t know about it, look it up… eye-opening!

Are we set to see the return of dubious practices again? My heart says no, my head, attuned to the cyclicality of all that is both good and bad in life, says yes…

Marcus Alcock,

Editor, Emerging Risks