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VOLUME 4/ ISSUE 10/ DECEMBER 2013
Commercial Risk Europe
EUROPEAN INSURANCE & RISK MANAGEMENT NEWS
SIRC 2013:
At the Singapore International Reinsurance
Conference, leaders in the world of risk transfer
were refreshingly honest in assessing how the
industry must deliver better solutions ......... p11
ANRA 2013:
Highlights of the insurer debate from the
Anra Conference. Topics included innovation,
information exchange & the role of capital
markets in the corporate risk sector ..... p12-14
BEST OF THE WEB:
CRE’s round-up of the most popular articles
published in its electonic newsletter—
reporting the leading news of relevance
to the industry every week .................... p15
CAPTIVES
ECIROA warns EC that 80% of
captives at risk from Solvency II
close or shift offshore to escape the onerous
capital and reporting requirements
required by the directive.
ECIROA flagged up the problem in
a letter sent recently to Stephen Ryan,
Deputy Head of Unit, Insurance and
Pensions, DG MARKT; Lars Dieckhoff,
Policy Officer, Insurance and Pensions,
DG MARKT; Andreas Viljoen, Policy
Officer, Insurance and Pensions, DG
MARKT; Jarl Kure, Principal Expert,
EIOPA and Ana Teresa Moutinho,
Principal Expert, EIOPA.
Adrian Ladbury
[email protected]
[BRUSSELS]—EIGHT OUT OF TEN
European captives would fail to qualify
for simplified solvency capital treatment
under Solvency II as the directive
currently stands because they carry
liabilities underwritten for disposed
entities, according to the European
Captive Insurance and Reinsurance
Owners’ Association (ECIROA).
The association has written to the
European Commission and the European
Insurance and Occupational Pensions
Authority (EIOPA) to ask them to change
the rules and close the loophole.
If this change is not made the majority
of captives based onshore in the European
Union will effectively be treated in the
same manner as standard commercial
Günter Dröse
insurance companies rather than in the
proportionate manner intended by the
architects of Solvency II.
It is thought that if the rules are not
changed many captives will be forced to
‘NARROW DEFINITION’
The association, which is led by Günter
Dröse, former head of insurance at
Deutsche Bank, and represents many of
Europe’s biggest companies, said that it
appreciates the ‘frequent engagement’ it
has enjoyed until now with authorities
to ensure that captives are treated in a
OUTLOOK
Soft market to focus
insurers’ minds
on service in 2014
Stuart Collins
[email protected]
proportionate manner as demanded by
the original Solvency II Directive.
But it points out that, as currently
drafted, Article 13 of the directive too
narrowly defines captives.
This is because it places restrictions
on the types of captives that will be
allowed to use simplifications to calculate
their solvency capital requirements.
This goes against the principle of
proportionality for captive insurance and
reinsurance undertakings as called for in
the Solvency II Directive, pointed out
ECIROA.
“Limitations…are so strict that
they would effectively rule out at least
eight out of 10 captives from using
the simplifications for captives,” said
ECIROA.
The directive states that simplified
THE RELATIVELY SOFT INSURANCE
market for large European corporate
buyers is unlikely to
change significantly
in 2014, according to
brokers and insurers
interviewed
by
Commercial Risk Europe.
The influx of new
capacity and broker
Fredrik Rosencrantz facilities could put
rates under further
pressure for good risks at upcoming
renewals, they add.
As a result of the soft and competitive
market, risk managers can expect insurers
to focus more on service and data in the
coming year.
The prospect of another year of poor
investment returns has kept underwriters’
CAPTIVES: Turn to P16
MARKET: Turn to P16
M&A
RISK FRONTIERS—1
RISK FRONTIERS—2
Kiln and Tokio
Marine Europe
to merge
Ferma challenged to drive risk management in Latin America
Spanish risk
managers worried
about validity of
FI clauses
Ben Norris
[email protected]
[LONDON]—TOKIO MARINE HAS
announced that its Lloyd’s business
Kiln and London-based Tokio Marine
Europe operation are to merge into a
new combined international insurance
company.
The new operation will be named
Tokio Marine Kiln Group Ltd. Current
Kiln CEO Charles Franks will become
the company’s Group Chief Executive
Officer.
Yusuke Otsuka, Chief Executive of
Tokio Marine Europe, will assume the
role of Deputy Group Chief Executive
Officer of Tokio Marine Kiln.
NEW YEAR, NEW FIRM
The move, subject to regulatory
approval, will come into effect on
1 January, 2014. It will see the new
entity provide specialist and corporate
insurance products.
“The main purpose of this exciting
move is to address our clients’ needs
better by providing them with a
broader range of products, increased
M&A: Turn to P18
01_CRE_Y4_10_News.indd 1
By Rodrigo Amaral
[email protected]
[MADRID]—LUIS SAN JUAN, CLIENT
& Distribution Leader for Latin America
at XL Group, has called on Ferma and
national European associations to help
develop risk management in Latin America
and boost standards in the region.
Speaking at Commercial Risk Europe’s
Managing Global Programmes Risk
Frontiers seminar in Madrid, Mr San Juan
said Europeans risk losing an opportunity
to influence the development of risk
management in Latin America if they do
not reach out.
Guidance, training and knowledge
should come from Ferma rather than
the US Risk and Insurance Management
Society (RIMS), which is currently showing
more interest, he added.
“The quality of risk management
in some of the top Latin American
corporations is very high, but in most
countries and most companies it is in an
embryonic phase,” Mr San Juan said.
RISK MANAGEMENT DEAD ZONES
He pointed out that although countries
like Brazil and Argentina have had risk
management associations for some time,
important markets such as Chile and
Colombia have none. Other countries,
including Peru, have young risk
management associations that are still
learning the ropes and could do with help
and advice, he said.
Mr San Juan urged European risk
management associations, particularly
Ferma, to offer their hand.
“We have had requests from Colombia
and Peru to help with the training and
education of risk managers in their
markets,” he said. “We need to do more
to help develop risk management in Latin
America. As of today, it seems that there
is more support from RIMS than from
Ferma. I suppose that we, as Europeans,
would prefer to see a model closer to Ferma
being implemented in Latin America.”
Mr San Juan’s remarks were made
during a presentation in which he stressed
the varied and heterogeneous nature
of insurance markets in Latin America.
Luis San Juan
Their structures and make up are very
different, he said at the event sponsored
by XL and Aon.
For example, foreign insurance groups
hold about 73% of the property damage
market in Chile. By contrast, in Peru, two
domestic groups have an 80% stake of the
same business.
There is also little harmony in
insurance legislation across Latin America,
added Mr San Juan.
BROAD DIFFERENCES
The risk landscape facing European
companies varies greatly throughout
the region, often requiring a different
risk management approach to domestic
markets, he said.
Fellow speaker, Carlos Caicedo, Senior
Principal Analyst at risk consultants IHS,
said that despite a recent slowdown,
economic conditions are set to improve
next year in major Latin American markets
such as Mexico and Brazil.
Reforms of the energy sector in
Mexico and the successful oil and gas
concessions recently granted in Brazil
could help these economies bounce back
after a disappointing 2013, he gave by
way of an example.
However, along with other emerging
markets, Latin American economies will be
exposed to external economic factors such
as the end of loose monetary policies in the
US and over the long term an eventual
slowdown in China, said Mr Caicedo.
By Rodrigo Amaral and
Adrian Ladbury
[email protected]
[MADRID]—RISK MANAGERS HAVE
expressed doubts about the viability of
financial interest clauses used within
global insurance programmes to cover
the interests of parent companies when
subsidiary units suffer losses.
The clauses were a hot topic of
debate during the latest Risk Frontiers
seminar organised by Commercial Risk
Europe held in partnership with Spanish
risk management association IGREA and
Portuguese group Apogeris and supported
by XL and Aon.
Financial interest clauses are used
to avoid regulatory problems that can
be sparked when a policy is not issued
locally.
They work on the basis that if a local
subsidiary is not actually covered under
the global policy, they are not part of the
transaction and arguably therefore do not
violate the regulatory requirements to
RISK FRONTIERS: Turn to P18
6/12/13 18:41:54
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Countries where
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AIG13166_BrandNumbers_UK_A3.indd
1
02_CRE_Y4_10_FPA.indd 2
23/09/2013
11:55
6/12/13 14:50:47
NEWS Risk Frontiers, Stockholm 2013
3
Last month Commercial Risk Europe held its Emerging Risks, Global Programmes & Captives
Risk Frontiers seminar in Stockholm, Sweden. Sponsored by ACE and held in partnership with the Nordic
risk management associations SWERMA, Darim and FinnRima, the event attracted a good turnout of risk
professionals from the region to discuss these key topics. Below are some of the highlights from the event
Innovative solutions cover
reputation risk in supply chain
companies have rigorous business continuity
planning processes in place, particularly
governing their procurement strategies.
“If you cannot come up with business
continuity data around your procurement
department or tier one suppliers the appetite
to underwrite these types of risks is not there.
So getting business continuity planning data
is now a big driver in the risk assessment
process,” said Mr Teixeira.
While insurers may not be asking for
information on entire supply chains they
are keen to obtain increasingly detailed
information on top tier suppliers.
Ben Norris
[email protected]
[STOCKHOLM]—SUPPLY CHAIN INSURANCE
solutions, including protection against
reputational damage, are becoming more
sophisticated with insurers taking a more
pragmatic approach to data requirements of
insureds, according to Tom Teixeira, Practice
Leader, Integrated Risk Management at Willis.
Detailing an innovative development in
supply chain coverage, Mr Teixeira [pictured,
right] explained at CRE’s Risk Frontiers event
in Stockholm that it is now possible to cover
the financial consequences of reputation risk in
the supply chain.
This type of insurance solution, which
can be provided by underwriters such as Kiln,
provides indemnity for loss of sales volume
or profits following negative publicity at a
supplier.
‘PARAMETRIC TRIGGER’
The underwriting process predicates areas from
where such negative publicity could stem and
then links these ‘perils’ to a media event. The
ensuing loss of sales volume forms the basis
of indemnity. The coverage is triggered on a
parametric basis.
“The underwriters have used innovation.
They have analysed point of sales systems that
companies use; these systems are linked to all
of the tills which has enabled them to look at
particular events and correlate falloffs in sales,”
explained Mr Teixeira.
“People are waking up to this risk due
to recent events such as the UK horsemeat
scandal and the Bangladeshi clothing
manufacturing factory collapse, which caused
fallout of sales for supermarkets and leading
clothing brands respectively,” said Mr Teixeira.
“Companies are becoming more and more
interested in this type of solution,” he added.
More broadly, supply chain products,
including other non-damage business
interruption policies, are developing all the
time, said the broker. They are now a far
cry from ‘pretty clunky, expensive and less
sophisticated’ solutions that existed during the
Thai floods and Japanese tsunami in 2011, he
added.
Mr Teixeira explained that insurers are also
taking a more pragmatic approach to data
requirements. They are focusing on detailed
information at tier one (direct) suppliers rather
than onerous requests for data all the way
down the supply chain.
TIERS FOR FEARS
“A couple of years ago when you looked at
supply chain products you had to nominate
critical suppliers as far down as tier six, for
example. Just the analysis around that and
the time that takes is very, very difficult to do.
Now when you look at the requirement you
GLOBAL ENVIRONMENTAL
RISK ON THE RISE
[STOCKHOLM]—THE LEVEL OF ENVIRONMENTAL
risk facing multinational companies continues to grow
with China, perhaps surprisingly, a potential hotspot,
Karl Russek, Senior Vice President, Environment,
ACE Overseas General told risk managers at CRE’s
latest Risk Frontiers seminar.
He also warned that there remain ‘shocking
dissimilarities’ within European and global environmental
liability policies that are confusing risk managers. But,
he added, as the market matures help is now at hand for
companies seeking multinational coverage.
“Outside of Europe it is a very interesting time for
environmental regulations. We are seeing demand bubble
up as simultaneously multinational companies everywhere
become more aware of the risk,” Mr Russek said.
Chinese environmental laws are now equally, if not
03_CRE_Y4_10_News.indd 3
nominate only the tier one suppliers,” he said.
Adding: “If you nominate a tier one
critical supplier and the problem occurs six
levels below the supplier and the resulting
interruption is felt through that direct
supplier, you are covered. So on the whole
the risk assessment processes become more
straightforward.”
Given the fact that Mr Teixeira pointed to
a recent study that found over 90% of supply
chain failures occur at tier one or tier two
suppliers, this approach seems to make sense.
He encouraged risk managers to therefore
focus on risk analysis at more immediate
suppliers.
Of course, the more supply chain analysis
a company carries out and can articulate to
insurers the cheaper the cost of cover.
Insurers are demanding proof that
more, stringent towards anything the insurer has seen in
Europe or the US. “On paper they can be as hard as any and
they are certainly catching up,” he said.
For many industries China now has compulsory
coverages in place. They vary from province to province and
are often serviced by local insurance pools.
Mr Russek also said that the environmental risk
landscape is changing in Latin America.
Increased enforcement of environmental regulations in
Brazil and compulsory coverages in Mexico, Peru, Ecuador,
Chile, Panama and across the Caribbean are all demanding
risk managers’ attention, he said.
In the US there is an ‘evolving patchwork’ of regulations
on a state-by-state basis, he continued.
“These worldwide developments are not all occurring
at the same speed but for multinational companies they are
definitely worth staying on top of,” said Mr Russek.
He also warned that inconsistent wordings in
environmental policies are causing coverage gaps for even
the largest organisations.
“I have seen very large multinational companies that
think they are covered but have some shocking gaps in their
WHERE, EXACTLY?
“I am seeing more and more requests by
insurers to include geocoordinates on the
policies. It is so important to really get a feel
for that,” said Mr Teixeira.
This process surely makes sense from a
purely risk management perspective. “If you
look at the studies there is no doubt there is
a need for a better understanding as to where
manufacturing facilities are actually located,”
said Mr Teixeira.
It is important to understand the precise
location of suppliers’ actual manufacturing
facilities to be able to accurately measure and
quantify the vulnerability and resilience of
supply chains, he added.
According to the broker, the calculation of
financial exposures should include the effect
of business interruption and additional cost of
working.
It is not just suppliers that should be
assessed. “In the projects I have been involved
in the greatest amount of risk accumulation
is often around logistical pinch-points such as
ports. Particularly if they are in areas of high
nat cat concentration,” said Mr Teixeira.
“At the end of the day it is about making
sure that the data is there to help you get
the balance right between risk retention,
how much you physically transfer out and of
what is remaining what best to transfer to the
insurance market,” he concluded.
coverage,” said the insurer.
He pointed to recent research by ACE that further
suggests confusion over environmental risk and cover.
The survey finds that around half of risk managers do not
have a policy while others do not fully understand what
environmental cover they have in place.
But solutions are now on offer for multinational
companies that are increasingly transferring environmental
risk via global progammes.
Over one third of ACE’s EIL business now involves
multinationals. It now has the capability to issue a local
master policy with local underlyers in up to 60 jurisdictions.
“Five or 10 years ago this was theoretically possible
but nobody in the environmental market was very good
at it…the business has now matured considerably to the
point where you can get a truly global programme specific
to environmental risk with environmental underwriters
that are adapted to the local market place. We now have
wordings in these local markets where five to 10 years ago
this wasn’t always the case,” said Mr Russek.
—Ben Norris
6/12/13 14:54:01
IRM—’Risk Leaders’ 2013
4
NEWS
Cultural risk under the spotlight
have suffered—the media, politicians,
healthcare workers and the police have
all hit the headlines in scandals that have
exposed unethical behaviour.
We are living in a ‘post ethical society’
in which people typically ‘park their ethics
at the door’, said Richard Anderson,
Chairman of the IRM and Managing
Director of Crowe Horwath Global Risk
Consulting.
Stuart Collins
[email protected]
[LONDON]—WHETHER IT’S AN
industrial disaster, a company failure
or a market crash, more often than not
human error and the wrong organisational culture are the root cause.
For many, problems in the subprime
market that five years ago caused the
biggest financial crisis since the 1930s
were clear to see, but bankers simply
turned a blind eye while regulators and
employees failed to speak up.
The often underappreciated role of
cultural risk in corporate failure were
brought into sharp focus at the third
Institute of Risk Management (IRM)
Risk Leaders event, held in London in
November. Speakers highlighted just how
important the human element of risk is
and the role risk managers could play in
identifying and mitigating such threats.
In a keynote speech, author and
businesswoman Margaret Heffernan
explained why it is that some business
leaders seem to suffer from wilful
blindness on certain risks. According
to Ms Heffernan, people in charge of
organisations can deliberately ignore some
very big threats, while the people working
for them typically fail to speak up.
Examples of ignored risks allowed to
fester include child abuse in the Catholic
Church, the collapse of Enron, the recent
global financial crisis and the safety record
of BP, which includes the fatal 2005
Texas City refinery fire and the 2010 fire
and explosion that sunk the Deep Water
Horizon rig in the Gulf of Mexico.
“Wilful blindness is not unique to
companies like Enron or the financial
service sector. It is a human characteristic
to ignore the information that we should
pay most attention to. But as we ignore
the danger we give it permission to grow,”
said Ms Heffernan.
Human nature is to look for answers
that most conform to our own worldview,
explained Ms Heffernan. Our experiences
create a physical wiring in the brain that
helps speed up decisions and tasks when
repeated. However, this mechanism
relies on assumptions and prioritises the
familiar—for example, we would be
more likely to surround ourselves with
likeminded people.
KEYNOTE
“Wilful blindness is absolutely part of the
human condition. We all carry with us a
risk of wilful blindness and it behoves us
to understand how it works,” she told the
assembled risk managers.
There are many aspects to how we
work that are inherently risky, explained
Ms Heffernan. Many important roles in
the workplace are reliant on brainpower,
and yet few people look after their minds
in the way they would maintain a critical
piece of machinery. Overworked and
tired safety personnel were a key cause of
the Texas City refinery fire that killed 15
workers, she said.
Ms Heffernan also drew attention to
the phenomena of ‘organisational silence’,
where difficult issues are never raised for
fear of speaking out. People naturally
take comfort from being in groups, but
the worrying side effect is that people do
nothing when they see things that are
wrong, she said.
Even senior management often fail to
raise concerns or issues, either through fear
04_CRE_Y4_10_News.indd 4
TOTAL WAR
“
Wilful blindness is not
unique to companies like
Enron or the financial service
sector. It is a human characteristic to ignore information we
should pay most attention to...”
MARGARET HEFFERNAN
of retribution or because they believe to
do so would be futile. “At an executive and
board level people know more than they
are prepared to share and that is a very big
risk,” she said.
However, speakers at the IRM event
believe that by understanding cultural
risks society and business can work on
ways to counteract related problems.
Risk managers have an important role to
play by putting the right structures in
place and by challenging strategies that
compound risk, said Ms Heffernan.
Companies should carry out ‘regular,
rigorous and forensic audits’ of their
culture, according to Paul Moore, former
Head of Group Regulatory Risk at HBOS
who famously blew the whistle on the
bank.
“You can have all the best processes
and governance in the world, but if it is
carried out in a culture of greed, unethical
behaviour and an indisposition to
challenge, then it will fail. No matter what
you write down on paper if the culture is
not right you won’t solve the problem,”
said Mr Moore, who took part in a panel
debate at the event.
“We all now agree that culture is more
important than process. Therefore it is
time to move on from the analysis and
research phase into what should we do
about it. That means thinking about what
we do in our organisations to ensure the
culture—in-so-far as risk, compliance and
internal audit—is 30% of what we do and
not just the 5% it is now,” said Mr Moore.
“It needs integrating into human
resources processes and policies. It means
recruiting people with the right cultural
indicators,” he said.
Speakers at the Risk Leaders event
argued that company values and ethics
are an important factor in risk, as
demonstrated by recent failings in the
banking industry, including the fixing
of the London inter-bank lending rate
(LIBOR) by certain prominent banks.
But it is not only the banks that
In recent decades the trend has been to
grow shareholder value at all cost at the
expense of other stakeholders and wider
society, he said. “A lack of responsibility
in the private sphere, government
outsourcing of regulation and the rise
of bonus schemes have all led to a state
where ethics are on the back burner.
Society only works when we take care of
each other—and we lost sight of that,” he
said.
The latest revision to the UK
Corporate Governance Code—over
which a consultation was launched in
November—includes a ‘much sharper
focus on corporate culture and ethics’,
said Mr Anderson. The shift in focus is an
opportunity for risk managers to further
demonstrate the value of their profession.
Risk managers have an important role
to help understand, evaluate and shape
the risk culture of an organisation, said Mr
Anderson. “The board will be looking for
support for making ethical, value and riskbased decisions as sectors look to rebuild
public trust. The role of risk managers is
to be a disruptive intelligence to pierce
the perfect places and arrogance of some
boards.”
According to Tom Tropp, Vice
President of Corporate Ethics at Arthur
J Gallagher, who also spoke at the event,
ethics are not the same as corporate
governance. Companies need to find the
right balance between fulfilling their duty
to create maximum value to shareholders
and their responsibilities to other
stakeholders, including society as whole,
employees, suppliers and customers.
“Risk managers need to make
decisions on where their companies are
in that spectrum,” he said. Companies
also need to be flexible and move along
the ethical spectrum, said Mr Tropp. If
an organisation overly focuses on external
stakeholders it risks becoming ineffective,
but if it focuses only on shareholders it
could lose public respect and community
support, he said.
Richard Anderson of the IRM
6/12/13 14:53:53
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6/12/13 15:23:16
14:53:47
COMMENT
6
New Year resolutions
A
board member’s foolhardy decisions in the past.
So be bold but tread carefully.
2 — How do I make sure that promotion to
CRO means I do less work?
Whenever I got promoted in a huge publishing
company I used to work for, everyone told me that
it should mean I do less work because I can delegate
more. This never seemed to work out and I winded
up doing twice as much work every step up the
corporate ladder. This was because I was rubbish
at delegating. You need to learn how to delegate
experience. So older risk and insurance managers
and once the holiday frivolities are
who have worked their way up to their current
over attention inevitably turns to
position through hard graft and shop floor
what the New Year has in store.
experience will hopefully not have to start from
Risk managers will presumably
scratch. Some will argue of course that this is not
be preparing presentations to their
fair and will degrade the certification. It is therefore
bosses and perhaps the main board about what they
crucial that the group of experts charged with
will focus on in 2014 to make sure their company is
devising and implementing the scheme carries out
calamity free. Some will also be keeping one eye on
due diligence and makes informed decisions every
their prospects for promotion in 2014.
step of the way.
Making firm predictions about the year ahead
4 — Should I hand over insurance management
may not come naturally to most readers of
to someone else when I get the CRO job?
Commercial Risk Europe as risk managers aren’t
Tricky one this. It is a simple fact that
really designed to make bold forecasts without
board members do not really care about
endless caveats.
insurance until a big loss occurs and they
So we thought it might be useful to
will then moan that the indemnification
make some predictions for you based on
takes too long and ask what on earth
was all that premium investment for in
evidence we have gleaned from hundreds
the first place. So, from this perspective,
of interviews with risk managers and
industry experts over the last 12 months for our
better. Find those risk champions that a number
it’s probably a good thing to rapidly ditch
weekly newsletter’s stories, our monthly newspaper,
of CROs who took part in this year’s Global Risk
direct insurance management responsibilities once
Commercial Risk Africa and International Programme
Frontiers survey said are essential. Convince them
you get the big new job. But, and it’s a big but,
News publications, European and Global Risk
that being a risk champion is a great career move,
think about what happens when some bright
Frontiers surveys and, of course, discussion at our
train them, set up a nice fancy and transparent risk
spark on the board actually asks: ‘What exactly
own events and risk industry meetings worldwide.
reporting system and give them accountability and
does this bloke do for his €300,000 a year salary?’.
So here we go, some big questions that you may
responsibility for their risks. Then remember to
If you are comfortable with the CEO responding
find useful to consider as you draw up your personal
mention if things go horribly wrong that you did
by saying ‘Well I think he identifies the risks we
and professional plan and set resolutions for the
everything you could to empower them and cannot
are running, runs lots of scenarios and committees
New Year.
be blamed for their daft decisions!
and works out how to manage them,’ and are
1 — How do I get promoted to Chief Risk
3 — Do I really need to go back to school
confident that he or she will not then quickly
Officer this year and earn loads more money?
and gain a certification in risk
work out that is what they are supposed to be
Based on our research it seems inevitable that
management to help win promotion?
doing, then ditch the insurance. If you think that
a number of our readers will be promoted to CRO
Not really but it wouldn’t do any harm. We
at least directing the negotiation of insurance
this year. So how do you make sure that you are one
know of plenty of former insurance and risk
ensures that you can prove that you do something
of them? Firstly, you have to convince the board
managers who have been promoted to CRO
tangible and are therefore more difficult to sack
that they need a CRO if your company doesn’t
without any professional qualifications. Also it
then stick with it.
already have one. To do this you need to show them
looks like the Ferma certification project will allow
5 — If I stick with the insurance role, what can
that the function will add real value and improve
so-called ‘grandfathering’ that takes account of
I tell the boss it’s going to cost next year?
the bottom line. To achieve
Well that is an easy one
this you will need to find a risk
isn’t it? Clearly it will cost
that manifested itself last year
whatever the loss experience
EDITORIAL DIRECTOR
ART DIRECTOR
and show how a more holistic
of the last five years and
Adrian Ladbury
Alan Booth—www.calixa.biz
Tel:
+44
(0)7818
451
882
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M
]
Tel:
+44
(0)20
8123
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]
approach to risk management
investment that you have
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(carried out by you) would
made in loss prevention and
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have prevented it from
risk management dictates.
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occurring. Preferably choose
If, however, for some insane
Hugo Foster
Ben Norris
a big incident that cost the
reason the cost of the
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[email protected]
company a lot of money and/
coverage is based on factors
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or reputation and make sure
that are totally unrelated
it’s a risk that you did not take
to your actual exposure and
REPORTERS: [email protected]
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experience such as insurers’
UK/IRELAND: Garry Booth, Stuart Collins, Tony Dowding, Nicholas Pratt FRANCE/SPAIN: Rodrigo Amaral
GERMANY: Anne-Christin Groeger, Friederike Krieger, Herbert Fromme EDITORIAL ENQUIRIES: [email protected]
and manage. Explain that had
investor expectations, level
you been CRO it would not
of capacity in the reinsurance
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7
Granard
Business
Centre,
your homework. The structural
suggested last year and it just
written agreement from the publisher
Bunns Lane, Mill Hill, London NW7 2DQ
failing that led to the incident
did not happen. But logic
Whilst every care has been taken in publishing Commercial Risk Europe, neither the publisher nor any of the contributors accept responsibility
in question may well have been
surely dictates that it will
for any errors it may contain or for any losses howsoever arising from or in reliance upon its contents. Editeur Responsable: Adrian Ladbury.
a direct result of one of your
happen this year, doesn’t it?
06_CRE_Y4_10_Leader.indd 6
S THE YEAR COMES TO AN END
6/12/13 14:53:30
07_CRE_Y4_10_FPA.indd 7
6/12/13 14:53:13
8
Governance, Risk & Compliance Conference, RMIA, Melbourne
[MELBOURNE]
T
HE RECENT GRC
(Governance, Risk and
Compliance) Conference
held by the Risk
Management Institution
of Australasia (RMIA)
and the GRC Institute in
Melbourne, Australia may
have marked the end of collaboration between
the two associations but provided much food for
thought for risk professionals in the region and
wider afield.
On the one hand attendees were told that risk
management and risk transfer are proven to add
tangible corporate value and discussion focused on
the likely positive impact that the recent influx of
alternative reinsurance capital will have for buyers
of primary insurance.
But there was also much talk about how risk
and insurance professionals can better engage with
board members and the importance of softer skills
in maximising performance.
In his keynote speech, Dr Ernesto Sirolli,
Chairman of The Sirolli Institute, said risk
professionals must develop empathetic listening
skills, not technical knowhow, to release the
full potential of their colleagues and become a
cherished business facilitator.
GOING LOCAL
The Sirolli Institute is a non-profit organisation
and social enterprise that teaches community
leaders, governments and corporations how to
establish and maintain enterprise facilitation
projects in their community.
Its chairman stressed to the gathered
governance, risk and compliance professionals the
importance of becoming a ‘facilitator, listener and
most cherished helper,’ rather than an expert who
believes they know better.
“Knowhow without passion is useless, it
is like an engine without any petrol,” said Dr
Ben Norris
[email protected]
Sirolli. “You need to release the passion by
respectfully listening to people. They will tell
you what they want to do and then it is easy,
they create the energy.
“You have to believe that the people you are
working around right now are great people. Don’t
fake it. Try to see their world, try to see for once
what they are going through, what your CEO is
going through,” he continued.
Non-executive director Sandra Birkensleigh
had a clear message for risk professionals when
communicating with their board—keep things
simple and ensure you understand its values,
function and style.
Ms Birkensleigh, Non-Executive Director at
the National Australia Bank (NAB)/MLC Life,
also encouraged risk and compliance professionals
to help boards drive and deliver strategy, as well as
prepare for emerging and black swan threats.
“The challenge for GRC (governance, risk
and compliance) professionals that present board
papers is to think am I really giving meaningful
information here or am I just producing document
after document,” said Ms Birkensleigh.
Keeping things simple is key, she stressed.
Board report executive summaries should be just a
page long, not a ten-page summary followed by a
50-page document, she added.
Reporting to boards, or other functions such
as risk and audit committees, represents GRC
professionals’ ‘big chance’ to influence their
organisations, said the non-executive director.
Therefore the information supplied needs to be
‘relevant, timely and digestible’, she said.
In order for GRC professionals to fully engage
with the board in an appropriate manner they
must first understand its values and purpose, said
Ms Birkensleigh.
“You all need to understand this if you are
going to communicate with them effectively.
If you don’t and you don’t listen, then often
what gets presented is not going to be listened
to, and that is tragically often what happens in
“Knowhow without passion
is useless, it is like an engine
without any petrol. You need
to release the passion by
respectfully listening to people.
They will tell you
what they want
to do and then
it is easy, they
create the energy...”
Dr Ernesto Sirolli
Chairman of The Sirolli Institute
08_CRE_Y4_10_BTN.indd 8
REPORT
boardrooms,” she said.
It is also important for GRC professionals
to help boards get the right balance between
conformance and performance, she continued.
Risk and compliance professionals must
therefore shift away from thinking solely about
risk management and compliance programmes
towards helping directors formulate and drive
strategy, said Ms Birkensleigh. This latter role is
critically important, she said.
Building on the theme of communication
and ensuring board buy in, a panel debate at the
event focused on how to engage the board on risk
financing.
Experts agreed that explaining to boards
that risk management and risk financing is
fundamentally about protecting share price is key.
To better engage boards, risk and insurance
managers must also explain everything they
do through the prism of an organisation’s risk
appetite and understand what drives individual
board members, they added.
Speaking at the conference’s Insurance & Risk
Financing workshop, John Saunders, Senior Vice
President of Marsh Pty Ltd, told delegates: “What
we all are doing in this risk financing and risk
management area is protecting the share price of
the organisation because if there are unrealised
risks that come to fruition it hits share price. Once
we can get that message over to the board they are
engaged.”
Explaining the role that risk financing plays in
meeting risk appetite and tolerance is another key
tactic, he added.
Kerry McGoldrick, Enterprise Risk Manager
at Woolworths Ltd, said educating the board on
risk and insurance is challenging, not least because
boards have different perceptions about risk.
“It is difficult to talk about risk and risk
appetite in a uniform way. I have seen a whole
spectrum of perceptions on risk management from
a bung-covering tool to an absolute vital strategic
input. Meeting the various needs and expectations
can be quite challenging. I think risk financing
is another example of that—they (boards) have
different expectations and perceptions. It is a
question of focused education. There is not a need
for them to know everything but rather a need for
particular information relating to key decisions,”
he said.
SWEET MUSIC
In what will be music to the ears of risk and
insurance professionals worldwide, Jason
Disborough, Managing Director—Global at
Aon Risk Solutions Australia, used his
presentation to state that risk management is
proven to add value, detail the cost benefit of
risk retention vehicles and suggest that an influx
of convergent capital is unlikely to see the soft
commercial insurance market harden anytime
soon.
According to Mr Disborough, research
carried out for Aon’s Maturity Index, developed
in conjunction with the Wharton School of
Business at the University of Pennsylvania, finds
that risk maturity delivers shareholder value and,
specifically, more stable financial performance
over time.
“The Index shows that organisations are
increasingly recognising the wide range of
benefits achieved through making substantial
investments in risk management—particularly
in the areas of delivering improved shareholder
CONTINUED ON PAGE 10
6/12/13 14:52:39
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09_CRE_Y4_10_FPA.indd 9
6/12/13 14:55:51
10
Governance, Risk & Compliance Conference, RMIA, Melbourne
CONTINUED FROM PAGE 8
value and returns on investments,” said the broker.
“Those organisations that are demonstrably more
risk mature will perform better than those that
are less mature. Maturity improves stock price
and lessens volatility, thus justifying risk spend
and making a company more resilient moving
forward.”
“This is the holy grail of what you as risk
professionals are after. If you can show that
risk management activities actually increase
shareholder value then surely the existence of your
function and profession should not be questioned
in the foreseeable future,” he added.
ERM WORKS
Mr Disborough noted that Aon’s Australasian
Risk Survey, now in its eleventh year, shows
that the median Total Cost of Insurable Risk
(TCOIR) is lower at organisations with formal risk
management and risk financing departments.
The 2013 survey found that TCOIR was $2.58
less per $1,000 of revenue at those organisations
with a dedicated risk management function. Or to
put it another way, TCOIR is 46% higher for those
organisations without a formal risk department.
Mr Disborough then moved to discuss the
benefit of risk retention vehicles.
According to Aon’s latest Australasian
Risk Survey, the use of such vehicles returned
an improved median TCOIR of $5.24 per
$1000 of revenue, compared to $5.92 for those
organisations not using retention options.
This equates to 13% higher TCOIR for those
organisations without a risk retention vehicle,
including a captive.
“Our survey finds that in four of the last
five years the median cost of insurable risk has
been less for those organisations that have a risk
retention vehicle. This is statistically significant
and demonstrates that they do add value even in
soft market cycles,” said the broker.
Mr Disborough also said that an influx of
new capital from investors in search of better
yields in the low interest environment is driving
fundamental change in the insurance industry,
which suggests soft market conditions are here
to stay.
INTEREST RATES
This trend has ‘substantially increased in the last
12 months, potentially changing the world of
reinsurance forever’, said Mr Disborough.
Some of the additional capital will come
through as traditional reinsurance, which will
lower the cost of treaty cover for insurers and
‘probably put downward pressure on rates over the
long term’, he explained.
However, this convergence of capital is
‘jumping the firebreak between reinsurance and
insurance’ and will potentially not only deliver
08_CRE_Y4_10_BTN.indd 10
a continued soft market, but more innovative
solutions for buyers of primary insurance, he
added.
If the risk industry can use the new capital
smartly, long-term solutions to tricky risks can be
delivered, he said.
“For you as primary insurance buyers I think
this signals a very exciting time. Potentially it
might mean that insurance pricing will stay
relatively flat as competition for your business will
increase. But if this capital that comes into the
market can’t do anything quickly in traditional
insurance lines it will probably exit. This means
it will probably look to underwrite new and
emerging risks, which presents an opportunity for
risk advisers and most importantly for buyers to
explore new and emerging risk categories where
solutions may become available,” said the broker.
“I see it as a wonderful opportunity to use this
capital more innovatively around emerging risks
and try and design solutions that are more relevant
to organisations,” he added.
A panel of experts from the world of risk
transfer noted that harnessing the new capital to
ensure it stays in the insurance market will not be
easy, adding that top management is likely to be
wary of transferring risks via a potentially transient
form of capital.
“There is a question as to the extent to
which that capital will remain available,” said
Woolworth’s Mr McGoldrick.
This raises questions over how organisations
will perceive the alternative capital and use it in
risk transfer.
“The nature of the risk transfer then becomes
pivotal. For a long-term programme I think the
board and executives might be concerned that the
capital will move at some point, so I suspect they
will be less enamoured with that option than they
might be for capital that is required over shorterterm risks of one, two or three years,” added Mr
McGoldrick.
John Nagle, Chief Executive of Lumley
Insurance, agreed that the potentially flighty
nature of the alternative capital might be an issue
for top management and board members. But he
added it could be used creatively, particularly if
core risks are covered by traditional insurance.
“It depends what you are looking for out of
this new capital. Maybe you can prove to the
board that your core programme is covered with
safer and traditional insurers and that you have an
opportunity to try something different with this
new capital,” he suggested.
The 2nd GRC Conference was also notable
because it will be the last jointly held by the RMIA
and the newly named GRC Institute, previously
the Australasian Compliance Institute (ACI). The
RMIA confirmed to Commercial Risk Europe that
it is now in the process of reestablishing its own
brand and identity and will next year hold its own
risk management-focused conference in Brisbane.
This news follows a unanimous vote in June
REPORT
2013 by the RMIA board not to merge with
the ACI after consultation with members that
suggested dissatisfaction over growing links with
the compliance profession to the detriment of risk
management.
The RMIA’s president, Mr Whitefield, told
CRE: “The board made the decision not to
merge—but based on member feedback. There
was a feeling that the RMIA and our big yearly
conference was getting too far away from risk
management and the needs and desires of our
members.”
He conceded that the RMIA has lost members
as result, which in part explains why he was keen
to step in as the institution’s president in July.
“I felt the organisation was at a tipping point
and did need some calm and cohesive leadership
to steer it back to where it should be. I feel it
needed this now,” said Mr Whitefield. “I believe
collectively our board knows what our members
need and want.”
The repositioning of the RMIA is intended
to give risk the focus it deserves, added
Mr Whitefield.
WE ARE ENABLERS
“The point being that risk is not a compliance
function. Risk management is about risk-based
decision-making and the RMIA’s role is to develop
risk professionals to help all managers and all
organisations make the best decisions. It’s about
realising what we are and saying our members are
not compliance people but rather we are enablers
within the business,” he explained.
As part of its repositioning and to help
members become business enablers, the RMIA
has a new mission statement. It is simply ‘better
decisions, better outcomes, developing risk
professionals’.
With the rebranded GRC Institute now
moving into risk management and the US-based
Risk and Insurance Management Society (RIMS)
recently launching an Australasia Chapter, the
RMIA exists in a competitive space.
But Mr Whitefield believes there is plenty of
room in the market for more than one organisation
with an element of risk focus.
“Many GRC Institute members are generally
from compliance but want to know more about
risk and sometimes have responsibility for risk so
it makes sense for them to supply that service. But
we want to solely focus on risk. So we will exist
together,” he said.
On RIMS’ controversial move into Australasia
he said: “RMIA has already reached out to the
RIMS Australasia chapter to explore synergies
where we can work together to service the needs of
risk professionals. For RMIA, it is all about the risk
profession and providing a broad range of service
and support to our members and the organisations
they serve. If that means collaborating with other
organisations, we will.”
6/12/13 14:52:51
REPORT Singapore Internation Reinsurance Conference 2013
11
Singapore Marina Sand
Risk transfer industry concedes
work to be done on innovation
Ben Norris
[email protected]
[SINGAPORE]—SPEAKING AT THE 12TH SINGAPORE
International Reinsurance Conference (SIRC) leading players
from the world of risk transfer were refreshingly honest when
assessing that their industry must better deliver solutions to
emerging threats and protect intangible assets.
Roger Bickmore, Group Business Development Director
at Kiln Group, told delegates that enterprise risks facing
organisations today are much greater, more difficult to
predict and continually evolving. This is dramatically altering
insurance buying needs and habits, he said.
The response from the insurance industry is ‘at best a
mixed picture’, he conceded.
“On the one hand insurers have been more innovative than
perhaps they have been given the credit for. But on the other
I guess we haven’t been sufficiently radical to truly tackle this
emerging new risk landscape. From a client’s perspective most
disappointing of all, I think, is that the shortcomings in our
existing products are becoming increasingly obvious,” he said.
TRADITIONAL DEFICIT
He added: “Traditional products that we sell are not really
doing the job I would say and if anything insurers seem to be
retreating from what is really required.”
Insurers’ reaction to the Thai floods of 2011, whereby
they restricted and removed contingent business interruption
coverage, was exactly not what clients wanted, he said by way
of an example.
He also pointed to the UK horsemeat scandal where as
far as he is aware not a single claim was paid because the issue
related to mislabeling of products, rather than a health scare,
and thus was not covered by insurance policies.
11_CRE_Y4_10_BTN.indd 11
“It is a personal belief but I think the risk of losing or
impairing real assets is probably declining in importance
for our clients and instead intangible assets like brand and
reputation are today seen as equal, if not more, value than
real assets. We have seen at Kiln that firms seem to want to
protect revenue flows and profits as much as they do items on
the balance sheet,” said Mr Bickmore.
“All this has big implications for the insurance industry
because it could suggest we are actually focusing on the wrong
things,” he said.
Fellow speaker, Torsten Jeworrek, Member, Board of
Management, Munich Re, said: “The products of tomorrow
have to look different than the products we have offered over
the last 100 to 150 years.”
Long-term global trends, such as changes in technology
and demographics, will influence the risk landscape and
change the demands of customers, he added.
Many large companies, such as Google and Apple, have
intangible assets that are not currently covered by traditional
insurance, he said. “The insurance industry must respond to
remain relevant.”
Mr Bickmore said issues such as insufficient data, risk
accumulation and Solvency II make innovation difficult for
insurers.
But he urged his industry to become more client-centric,
increase investment in expertise, and develop, along with
vendors, better modelling capabilities.
Crucially the industry also needs to offer more capacity for
these emerging risks, he said. “We need to offer a lot bigger
dollar capacity. Clients that are interested in buying these
(new) products are very large and need to see some bigger
commitment from our industry in terms of the amounts we
are prepared to put up.”
Alastair Speare-Cole, CEO, JLT Re, was in agreement.
Customers want relevant capacity to cover their intangible
assets, he said.
But, said Mr Speare-Cole, because of fundamentals in the
way the reinsurance market operates this represents a ‘big
challenge’.
“This is a structural problem. For the reinsurance industry
to commit big aggregate capacity without any guarantee
that over a period of time they will get income to serve that
capital has been a chicken and egg problem for this type of
insurance,” he said.
This relates to a lack of willingness amongst primary
buyers and their insurers to embrace new covers when
reinsurers produce new solutions.
JUST TOO MUCH
As Munich Re’s Mr Jeworrek said: “Very often there is an
announced demand but when it comes to negotiations to
structure insurance products very often there is no willingness
to pay.”
Risk managers often tell Commercial Risk Europe that this is
because the new coverages are prohibitively expensive.
Mr Speare-Cole pointed out to his gathered profession that
risk managers want to see a competitive market before they
devote budget to a new class of insurance.
On this issue, fellow speaker, Emmanuel Clarke, CEO,
Partner Re Global, said you can lead a horse to water but may
not be able to make it drink.
“The question here is the perception (of risk) versus the
price to pay for it,” he said, using the burgeoning cyber
risk market as an example of a new and innovative class of
business.
Christian Mumenthaler, Global Reinsurance CEO, Swiss
Re, said that the reinsurance industry has always responded
well to new risks but that products need time to take off.
As such, several new classes of business, such as cyber, are
in a natural state of transition but will soon start to see more
transactions and then capacity will follow, he said.
6/12/13 14:52:18
ANRA 2013—In Search of Solutions
12
REPORT
INNOVATION:
Expect evolution not revolution
Commercial Risk Europe’s editorial director ADRIAN LADBURY recently hosted the insurer debate at the Anra conference
in Milan. The topics—set by the Italian risk management association to challenge the insurers—included innovation,
exchange of information and the potential role of capital markets in the corporate risk sector. The insurers acquitted
themselves well but, as ever, the risk managers would like to see more concrete evidence of real progress, now.
Following are the edited highlights of what proved to be a lively debate at the biggest Anra conference to date...
[MILAN]
M
OST LARGE COMPANIES THAT
carry out a proper ERM analysis
find that insurable risks actually
represent less than one third of the
total estimated exposure faced by
their business.
This is supported by recent
research among risk managers across Europe and
worldwide by CRE.
Many participants in our annual Risk Frontiers surveys
have expressed frustration at the apparent inability of the
insurance community to invest in expertise to find solutions to
uninsurable risks.
Some top insurance industry executives, notably Mike
McGavick of XL, have publicly acknowledged in recent times
that their industry runs the serious risk of becoming irrelevant
in the fast-moving modern economy if it strictly adheres to the
‘rear view’ underwriting approach.
But with dormant core markets in Europe, seemingly
endless soft markets, poor investment returns and dwindling
reserves, now does not look like the best time to take a punt on
new markets.
The question inevitably asked during the Anra debate was
therefore: How can this particularly tricky nut be cracked?
Andrew Kendrick, President of ACE European Group,
conceded that if the insurance market’s rate of growth is
compared to the growth of gross domestic product (GDP) it
clearly fails to keep up.
He also noted that global exposures faced by corporate risk
managers have become more important for larger companies as
they expand in search of growth.
Mr Kendrick said insurers need to recognise and respond
to this evolution in exposure more rapidly. Exchange of
information is key, he added.
“When you do not have the right level of information it
is difficult to analyse the risk. It is about data gathering and
analysis,” he said.
The other key factor is for insurers to constantly improve
their knowledge and skills and hire more experts. “We are
hiring more industry experts to help understand the exposures
better,” he said.
But customers cannot expect miracles and have to
contribute to the learning process themselves, continued Mr
Kendrick.
“Some risks you have to concede are not transferable.
Though, in my view, most things are insurable so long as a
reasonable margin is available. Customers have to be prepared
to pay for the investment we make,” he said.
But experts are not cheap of course and require new
investment. With insurance prices so stubbornly flat in most
12_CRE_Y4_10_BTN.indd 12
lines and investment returns still poor, insurers do not have
loads of cash washing around.
Mr Kendrick agreed and said it is crucial therefore that
investment made generates true returns and results.
“If you invest in new expertise, risk analysis and the like
then you need to create new products and generate sales.
Something tangible needs to come out of it at the end of the
day beyond discussion,” he said.
Fredrik Rosencrantz, CEO, Global Corporate Europe at
Zurich, said it is important to appreciate that innovation does
not happen all at once as ‘one big waterfall’.
“Innovation is evolving too. Also, do not forget that
arguably one innovation is the track record of this industry to
deliver on its promise. The insurance sector has proved reliable
at a difficult economic time and this is a blessing for risk
managers in itself,” he said.
Dr Christian Hinsch, Deputy Chairman of the Board of
Management of the Talanx Group and Chairman of the Board
of Management at HDI-Gerling Industrie Versicherung,
the industrial insurance arm of Talanx, pointed out that the
corporate risk landscape has changed dramatically over the past
two decades and all parties need to work hard to keep up.
NOT JUST OLD RISKS
“We are not just talking about the old traditional risks.
Reputational risk is on the corporate boardroom agenda.
All these risks that were dealt with separately are being dealt
with increasingly as a whole, in a holistic way. This is not a
completely new development but it has intensified,” he said.
Dr Hinsch said that he does not think that insurers should
expand out of their core areas into different areas of risk such as
banking. But he does see big opportunities in fast developing
markets such as cyber and environmental.
“These are areas where the insurance industry should move
into because they are not fully covered yet. Every risk is an
opportunity,” he said.
Dr Hinsch added that exchange of risk information is
critical.
Information is king in risk analysis and it is the risk
manager who holds that information. Even when information
has been divulged to assess the risk often customers are simply
not prepared to pay the price for transfer when coverage options
are in their infancy, he explained.
“I agree with Andrew [Kendrick] that some industry
discussion blames the insurers for not being ambitious enough,
which is not fair. Often this comes down to more or less a
discussion about price because in my experience we offer
industrial coverage for industrial risks that are evolving and it
takes time for a market to mature and establish an accurate risk
assessment and therefore price. It is just like cars 100 years ago
when they were new and so the risk was difficult to model and
price,” said Dr Hinsch.
The German insurer also said that it is too easy to accuse
the insurance industry of failing to invest in quality people.
The truth is that the big insurers are staffed with many skilled
professionals, said Dr Hinsch.
“Our company is the house of 100 professions. We have
engineers, lawyers, accountants, business people, doctors, all the
professions and experts. So I do not agree that we do not have
the right people. If an industry develops such as IT and cyber
then yes you have to invest in new people to understand the
risk and you have to do this for underwriting as well as claims
handling,” he said.
Anthony Baldwin, Managing Director, Country Operations
and Distribution, EMEA, at AIG, stressed the need for true
partnership in innovation.
“In my view, clients need to become an integral part of
the innovation cycle. At AIG, we recognise that this can only
happen if we collaborate more closely with our clients and share
our intelligence and learning as part of the process. We have
therefore taken a firm-wide decision to invest in innovation and
view it as an integral part of the way we do business,” he said.
Mr Baldwin said that AIG has two areas that are
particularly focused on innovation. These are its Science Office
and Global Risk Solutions.
“A key job for science is to provide us with the big data,
along with accurate analysis and predictive modelling to
empower the right decisions. Only then can we consider
emerging risk, look at the insights offered by the big data and
look to give intelligence back to our clients via innovation, and
eventually help to mitigate losses,” he said.
Like the Science Office, Global Risk Solutions is not linked
to any one product line, but instead works with clients on a
broad basis. “This unit identifies risks that customers see as
difficult and outside traditional insurable areas, providing
solutions to problems. One example would be brand protection
for a food and beverage company in the case of a recall. We
have to view risk outside of the conventional if we are to remain
relevant in a changing world,” he said.
It is clear that the big insurers are making efforts and
positive strides forward to try and tackle the difficult area of
innovation. The problem is inherently structural because the
industry simply cannot underwrite new risks blind. It needs
data and it needs experience to arrive at a fair assessment and
price that works for customers.
The logical solution is for insurers to hire the right people
to identify and analyse the risks in the first place and adopt the
latest technology to ensure that happens as quickly as possible.
Couple that with a more bespoke, customer-focused approach
and the nut will surely be cracked.
The participants in this panel debate certainly agreed that
they are on the right track. But unsurprisingly, and probably
justifiably, the customers in the room would like to see them
head up that road a little faster and with a little more urgency.
6/12/13 14:51:58
REPORT ANRA 2013—In Search of Solutions
MORE WORK NEEDED IF
CAPITAL MARKETS TO ENTER
CORPORATE RISK ARENA
T
HE MAIN BOARDS
of large listed
companies worry about
all potential risks that
may affect their organisation’s net
financial position, outlook and
stakeholder value—so not just the
traditionally insured risks.
There is currently a record
level of capacity on offer from
the capital markets for the risk
transfer industry—catastrophe
reinsurance in particular.
The reinsurers in Monte
Carlo did not rule out the
possibility. Those with dedicated
large corporate business units
such as Swiss Re, Munich Re and
SCOR said that they are looking
into the options, notably in the
captives arena.
But the capital markets like
catastrophe reinsurance because
it is short tail and thus easy to
enter and exit. It is also relatively
easy to measure on a parametric
basis, giving the added attraction
of relative certainty of loss.
Complex industrial risks,
particularly on the liability side,
can take years to manifest and
settle and indeed can be difficult
to define in the first place.
These are not the kind of
risks that hedge funds like to
take on. Pension funds by their
nature carry uncertain long tail
risks so presumably the potential
for correlation is not that
appealing.
13
The panel of insurers at the
Anra debate were asked how they
and brokers could attract some
of the new capital to help cover
broader corporate risks and plug
coverage gaps.
PROBLEMATIC
This is not an easy question
to answer, but, again, seems
largely based on data, said
Paolo Vagnone, Head of Global
Business Lines at Generali.
“Financial capital is risk
averse to my thinking and
will only commit to a risk
when there is existing capacity
and experience. I cannot see
worldwide capacity for new and
emerging risks. If it did arise
then the risk would be very
volatile and the capacity would
soon disappear,” he argued.
“I think investors are
naturally cautious and need
models to quantify the risks.
For this reason we need more
people gathering data and
carrying out the analysis. But,
as mentioned earlier, this
represents a cost that you need to
manage. Having said that, when
this can be done cross-border, on
an international basis, as we do,
then it is more efficient and likely
to be successful,” he said.
PROBLEMATIC
The glut of hedge and pension
fund capital in search of returns
in the international catastrophe
reinsurance market raised
questions during the Monte Carlo
Rendez-Vous in September about
whether it could somehow be
attracted to wider markets such
as corporate risk.
Cultural shift
underway
according
to insurers
R
ISK MANAGERS REGULARLY
bemoan the apparently inflexible
structures and attitudes of
insurance company staff when dealing
with complex corporate risks and feel
that a shift in culture is needed to tackle
emerging risks in the modern economy.
Participants of the Anra debate
were asked whether serious change is
needed, particularly to weave together
the front, middle and back offices more
effectively. The insurers said that they
are aware of this need and are already
on the case.
Christian Hinsch of HDI said: “This
is not just about technical expertise
but also wider awareness, especially in
the front office which needs to clearly
identify what the industrial customer
needs and not just carry out the
business the way it has always been
done. To adequately deal with emerging
risks our management has to strike the
right balance between curious people
with entrepreneurial spirit prepared to
test new coverages and conservative
internal forces focused on well-known
risks and efficient processes,” said Dr
Hinsch.
Andrew Kendrick of ACE said it is
important to note that the delivery of
solutions to complex risks normally
requires a team approach.
“Claims will be more complex in
emerging risk areas and it is important
that we and the customers understand
clearly how claims will work. You
can never have too much intellect in
a company but you need to work out
who is best to be in front of clients so
that results can be achieved. It is about
achieving a balance,” explained Mr
Kendrick.
Frederick Rosencrantz of Zurich
Global Corporate stressed the
importance of attitude: “I always say
that you should hire someone based
on their attitude primarily and can use
training for skills. I always focus on the
attitude side.”
12_CRE_Y4_10_BTN.indd 13
6/12/13 14:52:08
ANRA 2013—In Search of Solutions
14
Risk managers demand more data security
R
ISK MANAGERS ARE INCREASINGLY
asked to provide insurers with
sensitive and confidential information to help
tackle difficult risks. This has been a big
topic of debate all year at risk management
conferences.
During the insurer panel debate at this
year’s Anra conference insurers were asked
if they really know what to do with this
information, how risk managers can be sure
such information is kept confidential and
what kinds of confidentiality agreements and
security measures should be used to ensure
this occurs.
Paolo Vagnone of Generali conceded
that the industry is ‘hungry’ for information
due to all of the reasons noted above. But
he reassured customers that his company
at least does all in its power to protect that
information.
“We sign non-disclosure agreements
or whatever it takes to ensure utmost
confidentiality and we are constantly seeking
to improve internal processes to ensure that
customers are comfortable with this,” he
said.
Andrew Kendrick of ACE reminded the
customers in the room that basic levels of
trust remain very important in the insurance
market.
“Any exchange of information needs a
level of trust. The client is transferring a risk
to us and using our balance sheet. The more
information they pass over the better the risk
presentation in the first place. Therefore I
say that, as an industry, the better we share
information the better the products will
become.”
Mr Kendrick also pointed out that
this kind of constructive exchange can be
done on a grander scale and that market
cooperation to seek new transfer solutions is
not impossible in the modern world.
For example, the Lloyd’s Market
Association, which represents the Lloyd’s
managing agents’ community, has created a
cyber working group to collectively improve
what is on offer for customers, he pointed
out.
An important question that keeps
cropping up at risk managers’ meetings and
during CRE’s Risk Frontiers survey is could
and should the risk management associations
increase their role in the market by taking the
lead in such collective efforts?
Alessandro De Felice, Chief Risk Officer
of Prysmian Group and board member of
both Anra and Ferma, is a supporter of this
concept.
“For us to challenge the insurance
REPORT
market to establish such standards is
sensible. But we need to ensure that the
information we share is secure. We live in an
era in which industrial espionage is common
and maybe the best place to start if you
are looking for secrets is on the desk of an
insurer in the evening! The creation of an
industry standard for the communication of
such information would be a good place to
start, but this is a challenge,” he said.
Dr Christian Hinsch of HDI-Gerling
pointed out that firms share secrets with other
service providers all the time and agreed with
Mr Kendrick that trust remains critical.
“As a company you share information
with many parties such as auditors,
regulators and tax advisers and if a leak
occurs from an auditor or tax adviser then
you are penalised. It really is a question of
trust that needs to be built up over time. If
you have a long-term relationship it works.
I do not see any other way of solving this
other than trust backed up by confidentiality
agreements,” said Dr Hinsch.
“At the end of the day if a customer
wants a better price for their risk because it
is well managed then they have to exchange
information,” he concluded.
THE CYCLE:
NOT QUITE READY
FOR THE SCRAP HEAP
T
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LM'CNEB:GÃLF:EM:
GLOBAL RISK FRONTIERS
EVER EXPANDING RISK HORIZONS
One and half days of practical case studies, expert panel
debates and challenging keynote speakers addressing:
■
■
■
■
■
GLOBAL PROGRAMMES— CONSISTENCY, COMPLIANCE & CAPACITY
CAPTIVES & THE EFFECTIVE MANAGEMENT OF GLOBAL RISK
GLOBAL RISK MANAGEMENT AND TRANSFER
RISK REGULATION
THE RISE OF THE CRO & RISK EDUCATION
SAVE THE DATE!
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PPP'<HFF>K<B:EKBLD>NKHI>'<HF(F:EM:<HG@K>LL+)*>fZbehnk>o^gmFZgZ`^k:ggZ[^ePabm^¿Zpabm^9\hff^k\bZekbld^nkhi^'\hf
12_CRE_Y4_10_BTN.indd 14
HERE HAS BEEN MUCH TALK OF
late about the supposed death of the
underwriting cycle. Scientific modelling,
risk-based capital allocation and regulation,
as well as experience-based underwriting on
the back of high competition, has knocked
the stuffing out of the beloved cycle, so the
argument goes.
But is the cycle really dead, or just
dozing on a feather bed of excess capacity
that will be blown to the four corners of the
earth when the next big hurricane hits?
This question was posed to the
participants at the Anra debate and the
overall consensus was that while the ride
may be much smoother than in the past,
there is life in the cycle, or cycles, yet.
Anthony Baldwin of AIG stopped just
short of saying the cycle has disappeared
completely but believes it is on the wane.
He said: “The cycle as we knew it in the
past is dead because we have far better
analysis, underwriting and pricing of risk
at renewal.”
Dr Christian Hinsch of HDI-Gerling
enigmatically postulated that the cycle is
partially dead.
“In some areas it is dead, in others it
is not and it will ever be the case. Some
specialty risks are definitely on the way up.
If you look at industrial risk generally I
think that the hardening is happening. But
there are many cycles nowadays and they
are all different,” he said.
Dr Hinsch added that one of the
reasons for the flatter cycle may be that risk
management efforts are better reflected in
prices than in the past.
“It is a much more complex process
than it used to be and the price also
does depend on the quality of the risk
management carried out by individual
companies,” he said.
Andrew Kendrick of ACE subscribes
to the dozing theory. “I think the cycle is
sleeping and may not wake up for a while.
There is a lot of capacity and results are
good. We do see small spots of hardening
but there is a not a wholesale movement.
We do need to get better at mapping and
understanding risks because we still need
more clarity,” he said.
Frederick Rosencrantz of Zurich
Global Corporate Europe said that
insurers have simply had to improve
their underwriting because of the lack of
investment income and this has affected the
shape of the cycle.
“The market is not as it used to be.
Risk maps are better than in the past and
insurers have to be better at underwriting
because of the lack of investment income.
This is, however, offset by the glut of new
capital that has arrived, particularly on the
reinsurance side,” he said.
Paolo Vagnone believes the cycle is
alive and kicking and driven, as ever, by
capacity. “I don’t believe the cycle is dead.
Capacity is abundant,” he concluded.
6/12/13 18:43:38
E-NEWSLETTER
15
» THE BEST
OF THE WEB
Commercial Risk Europe reports the leading
news stories of relevance to Europe’s risk and
insurance managers every week in its electronic
newsletter. Below is a round-up of the most
popular articles published last month. To sign up
for the free CRE weekly newsletter please go to:
http://www.commercialriskeurope.com/
more-information/newsletter/sign-up-here
» FERMA WELCOMES
SII DEAL BUT REMAINS
CAUTIOUS OVER
CAPTIVE TREATMENT
Ferma has welcomed the trialogue agreement
reached on Omnibus II that paves the way for
the introduction of Solvency II in 2016 but
remains cautious about certain measures—
particularly the treatment of captives under
the capital adequacy regime.
Speaking to Commercial Risk Europe,
Julia Graham, President of Ferma, said the
agreement between the European Parliament,
Council and Commission takes ‘us out of
uncertainty for the time being at least’.
“It creates a momentum and brings some
stability for all the stakeholders involved
in Solvency II: insurers, policyholders and
investors. The timeline is now clear: vote
before the election in May 2014 and January
2016 as the ‘go live’ date for Solvency II,”
she said.
As the deal was struck on 14 November,
the EU Council said changes to Solvency
II laid out in Omnibus II now need to be
endorsed by EU member states next year.
If passed they would allow Solvency II to
become operational in 2016.
As Ms Graham explained, the agreement
paves the way for the Commission to prepare
Solvency II implementing measures for the
15_CRE_Y4_10_BOW.indd 15
summer of 2014, detailing how the regime
will work in practice. But she noted this is
‘quite a short period of time’.
“Ferma will remain cautious about
the outcomes of these Level 2 measures,
especially regarding the treatment of
captives,” she added.
—Ben Norris
» AIG NAMES XL’S
SERAINA MAAG AS
CEO OF ITS EMEA REGION
AIG has poached XL’s Seraina Maag to be
President and Chief Executive Officer of its
Europe, Middle East, and Africa (EMEA)
region. She took over the reins on 11
November from Nicholas Walsh who has
served as the region’s interim head since
April.
At XL Ms Maag was Chief Executive,
North American Property & Casualty and
also held global responsibility for Excess
Casualty and Surety.
With AIG she will be based in London
and report directly to Peter D Hancock, CEO
of AIG Property Casualty.
Mr Walsh will resume his role as Vice
Chairman, AIG Property Casualty and will
continue to hold his existing positions on the
boards of AIG Europe Ltd, AIG Asia Pacific
Pte Ltd and Tata AIG.
Ms Maag, who has held commercial
insurance underwriting and finance roles
in Europe, the US and Australia, over a
career spanning more than 20 years, will
oversee AIG’s insurance businesses in the 47
countries that make up its EMEA region.
—Ben Norris
» EU DATA PROTECTION
RULES WILL BURDEN
BUSINESS—MARSH
A vote in October by the European Union’s
Committee on Civil Liberties, Justice and
Home Affairs (LIBE) to back far-reaching
changes to data protection regulation will
likely lead to significant compliance costs
for companies and their risk management
departments, Marsh has warned. But
the broker added that the costs of noncompliance could be far higher and urged
organisations to start preparing for the new
rules.
The proposed regulation is designed
to respond to the evolving technological
environment in which EU citizens live and
work and give individuals far greater control
over use of their data.
European risk managers will have to step
up communication efforts with IT, HR and
marketing departments to ensure that they
are fully aware of the coming new rules and
avoid costly damage to reputation and heavy
fines if they breach the regulation.
According to Marsh, the new regulation
will result in complex technological, process
and governance challenges for organisations
across Europe.
As well as redesigning their IT systems,
companies involved in the collection
and processing of personal data will also
be required to update their compliance
procedures.
Stephen Wares, Marsh’s Cyber Liability
Practice Leader for Europe, the Middle East
and Africa (EMEA), warned this week:
“The cost to business of implementing the
changes required to comply with this piece
of regulation may be significant, but the cost
of failing to comply could be far greater. It is
clear that there is a strong will from the EU
to give national regulators increased powers,
with the suggested fining structure acting as
an effective deterrent for non-compliance.”
The reforms are set to enter into force
in 2014 but clear deadlines are yet to be
announced. However, Marsh believes firms
should take action sooner rather than later.
“While the deadline for implementation
next year remains fluid, organisations should
start considering the effect of the regulation
on their operations and begin a process for
ensuring compliance. Firms should also
consider the effectiveness of their existing
insurance arrangements and whether there
are other alternatives that could more
adequately provide the protection needed to
reflect their changing risk profile,” said Mr
Wares.
—Ben Norris
» IRM CERTIFICATION ON
TRACK FOR 2014 BUT
INSTITUTE STILL OPEN
TO TALKS WITH FERMA
The Institute of Risk Management (IRM) is
pushing ahead with plans to begin certifying
risk managers next year, although it remains
open to discussions about cooperation with
the Federation of European Risk Management
Associations (Ferma) over its scheme to
develop pan-European certification.
Ferma had been in discussions with
the IRM at the start of the year over a
certification scheme, however the federation
announced in October that it has opted to
pursue its own plans, the details of which are
to be hammered out by a steering group next
year.
The IRM has since accelerated its
certification scheme and will announce details
early next year with a view to launching in
the first half of 2014.
With a number of organisations currently
vying to certify risk managers, the IRM is
likely to be the first to launch.
In addition to Ferma’s initiative, the
UK-based Chartered Insurance Institute is
planning a Chartered Risk Manager status,
much like its existing professional badge for
insurers.
It is understood that the IRM’s own
certification will involve a recognised
minimum level of qualification, experience
and continuing professional development
(CPD).
Unlike the IRM’s current professional
qualification, certification can be awarded
to risk managers holding equivalent
qualifications offered by other educational
bodies, as well as its own.
The minimum level of qualifications
and experience will be of a standard
commensurate with other professions, such as
engineering, accountancy and law, explained
Steve Fowler, CEO of the IRM.
There are smaller bodies already
certifying risk managers but only after a few
days or weeks of training, he noted.
However, a chief finance officer would
expect a certified risk manager in his
employment to meet comparable minimum
levels of qualifications and experience to other
certified professionals, he said.
The emergence of competing risk
management certification schemes may
confuse employers of risk managers, said
Mr Fowler. However, there are plans to
harmonise standards in different regions.
The IRM is to hold tripartite talks
in January with the international risk
management association Ifrima and USbased RIMS on whether joint recognition of
the different certification schemes would be
possible. “In the hunger to drive certification
in Europe, let’s not forget that the rest of the
world exists,” said Mr Fowler.
The IRM is also still open to talks with
Ferma to see if there is ‘scope’ for cooperation
in the future. “Our line is still open and we
talk to Ferma on a regular basis,” said Mr
Fowler.
Ferma president Julia Graham told CRE
that the federation intends to establish a
framework to allow certification of learning
programmes run by associations, commercial
education bodies, institutes and universities.
The Ferma certification stamp of approval
will boost the standing of eligible education
offerings, she said.
The IRM is not closed to the idea that it
could be one of those education providers.
Mr Fowler told CRE this week that the
IRM is the natural home for certification and
could carry out that role on behalf of Ferma.
“If Ferma approached us and asked if
we could run a certification scheme on their
behalf, we would certainly look at it to see if
it were feasible,” said Mr Fowler.
Despite concerns in some parts of
Europe that the IRM is an overly UK-centric
organisation, the institute is an international
educational body for risk management, said
Mr Fowler.
“IRM is launching a global certification
scheme, not a UK scheme. It is designed for
risk managers regardless of their background
and will work for any sector, anywhere in the
world,” he said.
6/12/13 14:51:45
NEWS Continued from Page One
16
CAPTIVES: Liabilities held for disposed units are problem
CONTINUED FROM PAGE ONE
solvency calculations are specifically
available to captive insurance and
reinsurance undertakings as set out in
Articles 84 SCRSC2, 148 SCRS3, 158
SCRS4 and 171 SCRS5.
ECIROA stated this means that
insurance and reinsurance captives
should be considered ‘as proportionate
to the nature, scale and complexity of
the risks they face’.
But as the rules currently stand
this will only apply so long as all
insured ‘persons and beneficiaries’ are
legal entities of the group to which the
captive belongs.
The fact that insurance obligations
of the captive and the insurance contract
supporting the reinsurance obligations
must not be for compulsory third
party liabilities is a further limitation
in the application of proportional
treatment.
These issues present a problem
for 80% of captives currently owned
by European captive owners, claims
ECIROA.
“The problem with the current
wording arises because in today’s world
major corporate group structures
experience frequent changes,” it
pointed out.
“This is because major corporations
(the captive owners) tend to have active
mergers and acquisitions activities.
This means that legal entities that
are part of the group today might not
be part of the group in two or three
years,” it continued.
ECIROA
informed
the
Commission and EIOPA that a group
insurance policy covers all group
affiliates. According to insurance law,
these entities remain covered under the
group’s occurrence-based Third Party
Liability Insurance (TPL).
“Therefore, where legal entities
are sold, the coverage remains a ‘group
risk’ cover in line with the captive
definition under Article 13 of Solvency
II. Note that the captive is not insuring
any new risks of the entity once it has
been sold,” pointed out ECIROA.
CAPTIVE IMPORTANCE
“Given the importance of captives as
a risk management tool for Europe’s
largest multinational corporations, it
is essential that Article 78 SCRSC1 is
appropriately amended to reflect how
the captive business model operates
under the Article 13 definition and to
ensure proportional treatment,” stated
the association.
ECIROA said that, based on
consumer and claimant protection
requirements, it understands and
appreciates the reasons why the
Commission wants to exclude
compulsory third party liability
insurance by a direct insurance
undertaking from making use of the
simplifications.
It therefore suggested an
amendment to the directive that caters
for this, but also allows proportionate
treatment for the majority of genuine
parent company captives.
ECIROA pointed out that for
reinsurance captives that write TPL
policies, a commercial insurer provides
the necessary claims handling via
fronting policies.
If a direct insurance captive writes
non-compulsory TPL this should not
lead to complaints from and discussions
with consumer protection agencies
because corporations are not obliged to
insure their liability risk as long as it
is not a legal local requirement, stated
ECIROA.
“There are companies which
don’t insure their liability risk due
to a sound positive claims experience
and a sophisticated risk management
activity,” pointed out the association.
SIMPLE MECHANICS
ECIROA said that commercial insurers
that front for captives ‘diligently’
check the counterparty risk and claims
paying ability of captives with their
own ‘experienced’ employees. “For
added comfort, they may request
further security measures such as letter
of credit, collateral or similar security,”
it continued.
“Beside this credit risk the
reinsurance policies between the
fronting insurer and the captive
contain insurance technical clauses
such as ‘Simultaneous Payment’ or ‘Cut
Through Clauses’,” added ECIROA.
The association’s suggested
amendment
reads:
“Simplified
calculations that are specifically
available to captive insurance and
reinsurance undertakings set out in
Articles 84 SCRSC2, 148 SCRS3,
158 SCRS4 and 171 SCRS5, shall be
considered as proportionate to the
nature, scale and complexity of the
risks they face where applied only to
captive insurance and reinsurance
undertakings as defined in Article 13
of Directive 2009/138/EC complying
with Article 77 SCRS1, except direct
captive insurance undertakings writing
compulsory third party liability
insurance.”
ECIROA concluded its letter
by stating it also looks forward to
further discussing the implementation
of Solvency II with the Commission
and EIOPA to clarify how the captive
sector will need to apply the directive’s
Pillar 2 and Pillar 3 provisions.
The association is keen to ensure
that captives are allowed simplified
management and reporting practices
along with capital requirements.
To many captive experts this is
perhaps an even more important
element of Solvency II.
ECIROA has written a paper
for the Commission entitled Pillar
2 Best Practice Paper For Captives
and provided a reporting templates
overview that it has already discussed
with EIOPA. It has also delivered
a letter with questions to fronting
insurers and a document with their
replies to help clarify the position of
the sector for the Commission and the
regulatory body.
OUTLOOK: Risk Managers can expect more bespoke service
CONTINUED FROM PAGE ONE
minds focused firmly on underwriting
discipline. But new capacity has been
attracted to the insurance market from
a number of sources—capital market
investors, portfolio businesses such as
the Aon Berkshire Hathaway facility at
Lloyd’s and insurers in emerging markets,
including the Middle East and China. This
has ramped up competition for corporate
risks and curtailed insurers’ desire for rates
increases.
Heading into 2014 and key renewals,
conditions are favourable for buyers, said
Ken MacDonald of insurance broker
Miller. “The more capital entering the
industry will inevitably support this
continuing. There is a wall of cash looking
for a home,” he said.
“Overall the market is soft to softening
with plenty of capacity,” said Emmanuel
Brulé, President of Commercial Insurance,
Europe, Middle East and Africa at AIG.
Although recent renewals have seen slight
increases for some cat exposed property
business and upward trends in primary
casualty, he added.
Figures from insurance broker Marsh
show that global insurance rates fell
marginally in the third quarter of 2013,
despite a near 2% price rise in the US.
“The insurance market is mostly stable,”
explained Charles Beresford-Davies, who
leads the Risk Management Practice at
Marsh in the UK. “Rates have experienced
some upturn in the US, but they are down
in Asia Pacific and in Europe—so in the
aggregate it washes up as a flat market,”
he said.
The over-supply of capacity means
01_CRE_Y4_10_News.indd 16
that insurers are risk managing their
business, said Mr Beresford-Davies. “For
good risks there is competition and there
are options, but if you have losses or issues
there will be discussions,” he warned.
“Competition remains fierce and we
don’t see that changing any time soon”
said Jeff Moghrabi, Regional President
for Continental Europe at ACE Group.
“Slim margins for insurers means that, in
general, they are now less able or willing
to cross-subsidise between different lines
of business,” he said.
MARKET SHARE IS KING
The soft market also means that
multinational insurance carriers are
looking more tactically at their larger
customers, developing client management
capabilities and looking to cross sell, said
Mr Beresford-Davies. “Everyone is looking
to leverage and gain market share,” he
said, noting insurers’ increased interest in
offering excess capacity.
Insurers have looked to leverage the
market in 2013 through broker facilities
that enable intermediaries to offer insurerbacked capacity in subscription markets
like Lloyd’s.
The influx of third party capital and
the creation of ‘follow the market facilities’
by the large brokers could increase the
trend towards commoditisation within
the insurance industry, warned Mr
MacDonald.
Potentially, broker facilities are an
efficient way of offering additional capacity
in markets such as Lloyd’s. But, given the
soft market conditions, broker facilities are
often in direct competition with insurers
on subscription business, reducing the
pool of premium available and putting
pressure on rates.
“As these brokers substantively move
into areas where they can control the
supply of insurance capacity and pricing
then this is likely to have a real impact on
our market. This impact can be argued as
good and bad, but history has shown us it
often ends badly,” said Mr MacDonald.
While new capacity is good for
buyers in the short term, it may not be
in their interest over time, said Fredrik
Rosencrantz, Chief Executive of Zurich
Global Corporate in the EMEA region.
“We see a lot of ‘homeless capital’
looking for investment opportunities, and
insurance is one of them. As much as we
would like to be in an attractive industry it
also creates unhealthy pressure on rates by
capital that is clearly not in the business for
the longer term, and which will go away as
soon as the returns are down. This is not
in the real interest of our customers who
must rely on the carriers to be there and
pay claims and provide services for many
years to come,” he said.
New capacity is likely to put pressure
on rates, but it could also potentially
bring instability to the market, according
to Mr Brulé. Some of the new capacity
is opportunistic and could withdraw
if interest rates rise or there are large
catastrophe losses, he said.
The influx of new capacity could see
the insurance market split into two camps
with ‘pure supporting capacity’ on one side
and service and expertise-driven suppliers
on the other, said Mr Brulé.
Multinational insurers like AIG are
investing in tools that support technical
underwriting, risk management, risk
engineering and claims, he explained.
“Customers can’t expect the same support
from new sources of capacity,” he said.
Service driven
While buyers might see their insurance
costs fall slightly in 2014, the competitive
insurance market is encouraging some
insurers to differentiate themselves from
the pack. Many are looking to improve
their service offering, client-facing
capabilities and increase their use of data
and analytics.
Multinational insurers have been
working hard on servicing in recent
years, according to ACE’s Mr Moghrabi.
For example, his company launched
Worldview this year, an online tool that
gives risk managers access to a wide range
of information on their insurance and
claims. The insurer has also invested in local
client-focused personnel to deal directly
with their multinational customers, as
well as developing its industry expertise
and engineering capabilities, said Mr
Moghrabi.
EFFICIENCY INVESTMENTS
Insurers have made big investments in
their back offices to drive down cost in
what has been an inefficient market, said
Mr Beresford-Davies. At the same time
insurers are also investing at the front-end,
looking to better use data and analytics to
drive pricing and better understand risks.
Data and analytics are areas where
buyers could see some progress in coming
years. Previously the industry has been
investing in technology mainly to improve
margins through efficiency gains and
risk management. However, the sector is
now waking up to the idea that data and
analytics could be used to better engage
and service clients, said Mr BeresfordDavies.
There has been a significant shift
towards brokers using data and analytics
to help their clients better understand
risks and make more informed decisions,
he explained.
“Clients are demanding greater insight
and the industry is listening. For example,
we hold claims data and are looking at
ways to mine it. And I am sure this is
an area that we will see developments in
coming years, but it will take time to work
through,” said Mr Beresford-Davies.
“Data and its use will not only
revolutionise society but also the insurance
world,” predicted Hartmut Mai, Chief
Underwriting Officer Corporate at
Allianz Global Corporate & Specialty.
“The amount of data is not that much of
a challenge anymore, rather it’s analytics
and what you do with it,” he said.
However, there are challenges in
making more use of data, added Mr Mai.
“It is clear that one would need to treat
the data of our clients with the greatest
amount of respect. Further, data needs
to be seen as a currency. Clients who
trustingly share this with us need to have
access to services which help them to
combat their challenges better or might
give them a competitive advantage in their
market space,” said Mr Mai.
“A lot of new thinking is needed to
channel these new opportunities in the
future,” he added.
6/12/13 18:42:09
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AIG13085_PRPTY_Glbl500_FP_UK_A3.indd
1
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17
23/09/2013
09:37
6/12/13 14:51:36
Continued from Page One
18
NEWS
M&A: New operation offers scale, distribution and expertise
CONTINUED FROM PAGE ONE
capacity and greater choice and
flexibility through Lloyd’s and a
Company platform,” said Mr Franks.
Currently the two businesses,
which are both part of the Tokio Marine
Group following its acquisition of Kiln
in 2007 for £422m, operate alongside
each other and Tokio Millennium
Re (UK) Ltd, a Tokio Marine Group
subsidiary company with an operation
in London.
Once the merger is formalised, Kiln
and Tokio Marine Europe will pursue
a common strategy under a single
management team to deliver growth in
Europe and beyond.
Tokio Millennium Re is not
affected by the move.
Giving reasons for the move, Mr
Franks said: “In an industry where scale
and financial strength are increasingly
important, we must take advantage of
our position as part of one of the largest
and strongest insurance groups in the
world. We have played a key role in the
delivery of Tokio Marine’s international
strategy for five very successful years,
and now is the right time to take
this proactive step and build on the
strength of that relationship.”
‘CREATE A LEADER’
Our intention is to create a leading
international provider of specialist and
corporate insurance, he added.
“While this is an important move for
Kiln, our commitment to Lloyd’s and to
our Names remains solid and our focus
on empowered underwriting will not
change. Furthermore, I am confident
that with our common values, strong
talent pool and shared vision, we will
create a leading international business
that achieves continued profitable
growth,” continued Mr Franks.
Tokio Marine Kiln will benefit
clients by providing them with increased
scale, a broadened distribution network
and combined capabilities, said
Mr Otsuka. “It will enable us to provide
enhanced flexibility and service,”
he added.
“I would like to thank our clients
for their continued support to date, and
reassure them that our commitment
to them remains unchanged as we
undertake this exciting step towards
growing our business,” said the
insurer.
Kiln has been in business since
1962. It reported a gross written
premium (GWP) of £1.5bn in 2012.
It underwrites a broad range of
specialist lines including property,
reinsurance, marine & special risks,
accident & health, aviation, enterprise
risk and life.
Its UK operating company, R J Kiln
& Co Limited, currently manages five
syndicates at Lloyd’s and, in terms of
capacity, is one of the largest agencies
trading in the Lloyd’s insurance
market.
Tokio Marine Europe reported
GWP of £262m in 2012 and writes
both Japanese-related and local-market
commercial risks, including property,
marine cargo, liability & personal
accident and travel insurance through
its European Company platform.
It has branches in France, Germany,
Belgium, The Netherlands, Italy, Spain
and the UK.
Tokio Marine Kiln’s London
headquarters will be based at 20
Fenchurch Street from 2015. The
company will be held under the
ownership of Tokio Marine & Nichido
Fire Insurance Co Ltd.
RISK FRONTIERS: Tax compliance may force a rethink
CONTINUED FROM PAGE ONE
place cover locally.
But financial interest clauses are
untested in law and no formal regulatory
opinions have been made on their use.
Experts think that regulators could
potentially view the clauses as an attempt
to evade local regulatory requirements.
There are also issues relating to
quantification of losses and tax liabilities
for internal transfer of funds.
During the event, leading Spanish
risk managers expressed concerns over the
lack of legal clarity surrounding the use of
financial interest clauses.
Cases involving financial interest
clauses are yet to reach the courts in Latin
American markets and even in Spain, said
insurance lawyer Jesus Iglesias, a partner
at Clyde & Co, during the seminar.
Participants noted, however, that some
encouraging signs have been identified.
They said that Brazil and Mexico are
examples of countries that have recently
recognised the legal validity of financial
interest clauses. New insurance codes in
countries like Ecuador also make reference
to the clauses, it was pointed out.
But it was also noted that the
rulings often refer to contracts signed
within Latin American jurisdictions that
cover operations of local firms in foreign
markets.
Risk managers said it is therefore
still not possible to work out whether
Latin American authorities will accept
the validity of the clauses when they are
attached to a master policy based abroad.
It is feared that even if regulators
accept that such clauses can be employed
by Brazilian or Mexican companies in their
global programmes, they may demand
that losses suffered by a multinational
group in Brazil or Mexico are paid in those
countries.
It was pointed out that this has
become a particular concern among risk
managers because governments are on the
lookout for any opportunity to raise tax
revenues and the clauses may also expose
companies to fiscal penalties.
“In non-admitted jurisdictions, the
authorities make no distinction between
the kind of clause that a company has in
its global programme,” said Daniel San
Millán, President of IGREA. “They say
that you cannot insure abroad a risk that
is located in the country, and that is it.”
Another
problem
highlighted
during the event is the fact that Spanish
companies with investments in Latin
America have often entered the region via
acquisitions.
As a result they have to deal with
local minority shareholders whose voice
cannot be ignored.
The situation is further complicated
by a lack of harmonised insurance
rules across the different Latin America
countries, or indeed worldwide, and the
fact that some insurance supervisors are as
keen as tax authorities to play hard ball
with multinational groups, it was noted.
Experts at the event agreed the only
way to ensure 100% compliance is to buy
all coverage in local markets.
But, in many markets the capacity is
simply not available and all agreed that
this is simply not cost-effective.
How do you
S TAY C O N F I D E N T
in a world where
change
is constant?
At HCC Global we maintain
a sharp focus on financial
lines insurance, providing our
clients the freedom to pursue
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Torre Diagonal Mar, Josep Pla 2, Planta 10, 08019 Barcelona, Spain
5th Floor, 36-38 Leadenhall Street, London EC3A 1AT, United Kingdom
A subsidiary of HCC Insurance Holdings, Inc.
HCC Global
hcc.com/global
HCC Global Financial Products, S.L. (UK Branch) is registered in England and Wales with company registration number FC022894 and branch registration number BR005839.
HCC Global Financial Products, S.L.- Sole Shareholder Company – ES B-61956629, registered at the Mercantile Registry of Barcelona, volume 31,639, sheet 159, page B-196767, is an exclusive insurance agency of HCC
International Insurance Company PLC Spanish Branch, registered with the Spanish General Directorate of Insurance and Pension Funds (Dirección General de Seguros y Fondos de Pensiones or “DGSFP”) in their
Register for Insurance Intermediaries, Reinsurance Brokers and their Senior Posts under the code E0191B61956629.
01_CRE_Y4_10_News.indd 18
6/12/13 18:42:01
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The material contained in this publication is designed to provide general information only. Please be aware that information
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