The repatriation of funds will be even larger if we compute the amount over a longer period. Such arrangements are extractive in nature, and will have longer term implications for the development of a strong domestic industry. We need higher reinvestment by insurers to support the protection and risk management needs of our population and businesses. Intra-group reinsurance arrangements have also resulted in unnecessary outflows when such risks are well within the capacity of the onshore market. A handful of insurers have continued to disregard arrangements that have been put in place to optimise onshore capacity, ceding large amounts to group reinsurers. This is not an acceptable behaviour. It must change. Going forward, we expect insurers to review these practices and fully support optimisation arrangements. In parallel, more must be done to develop domestic underwriting expertise, especially in specialist risks. More must be done to create high income jobs. More needs to be done to improve remuneration packages at entry and middle levels, to attract young talents and retain expertise. The data we collated is stark. It is a clear conclusion. The data points to a prolonged underinvestment in talent, with fewer than 1 in 10 of the industry workforce today having any form of professional qualification. From another angle, the industry has yet to realise its potential, in part due to a lack of long-term commitment from domestic shareholders. The industry needs domestic shareholders that have a long term outlook and can support the deepening of our market.
In the Czech Republic, depositors very soon started searching for higher interest rates, or higher yields, in smaller “saving unions” with inherently riskier business models, as these institutions are also covered by the DGS and suddenly became to a given limit riskless for savers due to the disappearance of co-payment. Some of these institutions had to leave the market recently, eating up large sums from the pre-paid funds of the domestic DGS. I’m fairly sure that without this moral hazard behaviour induced by the harmonisation of the DGS rules the impacts on the system would not have been so pronounced. Or take another example. The regulatory debate on financial benchmarks in the world (and within the EU) influences sometimes adversely the willingness of banks to contribute to the benchmarks also in the markets where no improper behaviour of contributors has been proven or even detected so far. So it is great to harmonise and to coordinate. But you always have to bear in mind that you should not harmonise and coordinate towards rules that are riskier than the previous uncoordinated rules were on average. The third constraint is the one Claudio Borio of the BIS calls the “time inconsistency of financial stability policies”.