The lack of certainty in regulation is one of the biggest challenges facing the global insurance and reinsurance industries, Lloyd's Chief Executive Richard Ward warned here.
Indeed, regulatory reform efforts in the wake of the recent financial crisis–both in Europe and the United States–could bring "changes in the [insurance] industry just when we don't need them," Mr. Ward said in his keynote speech at the PricewaterhouseCoopers LLP briefing during the annual Monte Carlo Reinsurance Rendezvous last month.
"We need regulatory certainty and stability," he added.
He said the industry needs to respond to regulatory challenges, and called for his counterparts to take an active role in ensuring that insurers and reinsurers are not inappropriately or unfairly hit by new regulations–especially in light of the financial crisis and the focus on bank oversight reforms.
Other sources in the industry confirm Mr. Ward's concerns.
A recent report by Aon Benfield–"Evolving Criteria: Keeping Pace with Rating Agency, ERM and Regulatory Developments"–notes that the lack of guidance on proposed new regulations has been a "primary difficulty" for insurers.
"The key themes [of regulatory reform efforts] include more robust capital requirements, trend toward internal capital modeling, trend toward de-risking of the balance sheet and fair value approaches, and additional government oversight," the report noted.
Meanwhile, a new Swiss Re sigma study–"Regulatory Issues in Insurance"–concludes that placing tough capital requirements on insurers because banks were undercapitalized during the financial crisis would be "misguided."
"While, at first sight, more stringent capital requirements appear to create additional safety for policyholders, in fact, they may give rise to distortions that ultimately hurt policyholders," the Swiss Re report warned.
The sigma study suggests that insurers and regulators should improve their monitoring and understanding of liquidity risks.
"While the bulk of traditional insurance business does not give rise to liquidity risk, some non-core activities during recent periods of severe market stress suddenly required additional liquidity," according to the report.
Mr. Ward said the reinsurance industry should work with regulators now, as rules are currently being crafted that will govern the financial services industry in the future. 
Lloyd's, he added, has spent ?200 million ($308.5 million at current exchange rate) to gear up for the new regulatory regime set to be implemented toward the end of 2012, so "we need to make sure that Solvency II benefits the marketplace, or it will be a waste of money."
The industry, he said, is at a critical point with regulators implementing significant changes, adding that he hopes the United States will remove discriminatory collateral requirements against "alien" insurers such as the Lloyd's market.
He also pointed out that the insurance industry has weathered the global crisis well. "We are not the banking sector, and we need to continue to show leadership in reminding governments of the positive role we play. These are points that the industry has been making throughout the post-crisis period, but we need to keep making them."
Mr. Ward also observed that there are challenging market conditions ahead and that 2010 is indeed turning out to be a "difficult year."
"The industry has too much capital, there is downward pressure on rates, and governments are trying to shift risk to the private sector," he said, adding that claims frequency is also rising as a result of the economic recession.
(Additional reporting by Phil Gusman.)
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