European Insurance Forum 2010

MEDIA COVERAGE OF EIF2009

SOME EIF2009 MEDIA COVERAGE

Solvency II will cut insurer competition
Solvency II will lead to higher costs, reduced capacity, poorer service standards and fewer lead carriers for larger insurance buyers, a prominent risk manager has warned.

Richard Banks, Editor, Insurance Day

Reinsurance to reset to survive challenge
The Reinsurance industry has the opportunity to reset itself but faces some significant capital challenges if it is to survive. That was the stark message from a panel of prominent industry figures at the European Insurance Forum in Dublin. Mike O' Halleran, executive chairman of Aon Benfield, told delegates: "We have the opportunity to reset the game and the rules of the game."Central to that would be better understanding of credit quality and security and the fundamental knowledge of risk, he said. I'm of the opinion we're already seeing a classic reinsurance market turn," O' Halleran said. "Its going to have to keep turning for survival. [The industry] needs more capital and it is going to have to figure out a way to get it.

Speaking on the same panel, AXIS Capital's president and chief executive, John Charman, predicted the current economic crisis would have fundamental impact on the reinsurance industry. "Historically markets have moved because of liability issues," he said. "This is the first time the industry has been affected by the asset side to the extent it has been in the last eight to ten months."

Richard Banks, Editor, Insurance Day

Regulation demands closer relationship with outsourcers, says Pearl Group director
The current regulatory oversight environment demands a closer relationship between the customer and outsourcing service provider, Ciaran McGettrick, managing director at Pearl Group Ireland, said at the European Insurance Forum 2009 in Dublin. He said that organisations should treat the relationship with the outsourcing service provider like a heart transplant. "It's not a window cleaning contract."McGettrick added that from a regulatory perspective, customer treatment was critical. "Customer experience can be driven by the product situation. It is no longer appropriate to take a blanket approach."

He recalled a case of a general insurer that took on blocks of policies but found that the groups of customers had different expectations. "It was critical to ensure that customer expectations and regulatory requirements met." He said that treating customers fairly might mean different things, which could vary from the contract. "Regulators, I know, would take this position." Fergal O'Shea, consulting actuary at Watson Wyatt, said: "Solvency II is a failure regime. People in this room look higher than that to customer excellence."

Alex Davidson, Complinet

Watchdogs finding crisis is helping them to recruit
"Solvency II: evolution or revolution", Colm Fagan, chairman of the International Financial Services Centre insurance sub-group on Solvency II, explained: "Regulators will need to upscale significantly. That will be an area of real concern."

The challenge will be particularly acute for the smaller regulators, such as Ireland's, which Fagan said was "not at the races in terms of skills" when compared with bigger counterparts such as the UK's Financial Services Authority (FSA).

Richard Banks, Editor, Insurance Day

Insurers need to evolve to make it out of crisis...... Experts at European Insurance Forum say change is necessary

DUBLIN, Ireland--Insurers that emerge from the global financial crisis in the best shape will be those that quickly boost intellectual capital, strengthen management and offer a diversified book of business, market experts say. During the next two years, insurers will change greatly, said John R. Charman, president and chief executive officer of Pembroke, Bermuda-based AXIS Capital Holdings Ltd.

"I see the emergence of companies that are going to be very, very different--not necessarily in their structure, but in their efficiency, focus, controls and management," Mr. Charman said during a panel discussion at the European Insurance Forum 2009 sponsored by the Dublin International Insurance & Management Assn. For the next 24 months, insurers must endure "problems on the asset side, which will force their way onto the income statement, or the fact that there has been a reasonable amount of loose underwriting on the primary side over the last three years," Mr. Charman said.

Investment income is unlikely to be much help, he said. "Companies that come out of that 24-month period are going to have to evolve quickly," Mr. Charman said. "They are going to have to have greater intellectual capital," with strong management and diversified books of business, he said.

Tougher times for monolines

Monoline insurers are unlikely to make it through the financial storm, Mr. Charman said. Michael O'Halleran, executive chairman of Aon Benfield, a unit of Aon Corp. in Chicago, agreed that changes are afoot. "I feel good about where we are, but we've got to get better at what we do," he said. "It's not the strongest and the biggest, but the ones that adapt better to their circumstances" that will survive, said Dublin-based Costas Miranthis, CEO of PartnerRe Global, a unit of Pembroke, Bermuda-based PartnerRe Ltd.

"We are going to see capital constrained" and regulation will become more intrusive, Mr. Miranthis said of challenges facing insurers. "It is a new world; the credit crisis has changed things," he said, and insurers will have to rethink their operations on the underwriting and asset sides of the business. "I think the insurance and reinsurance industry still has quite some way to go," Mr. Charman said. "I don't think we are going to be allowed just to survive. Otherwise, we will be replaced by some other form of capacity."

Crisis brings ideas

The availability of intellectual capital may be less of problem thanks to the economic turmoil, said James Vickers, London-based chairman of Willis Re International, who also was part of the panel. "If we look back, the insurance and reinsurance industry traditionally has not been seen as one of the most exciting and interesting places" for people to begin their careers, Mr. Vickers said. "One of the things the current crisis will produce is a lot of very clever people wondering why, in the face of all these difficulties, our industry is surviving and prospering reasonably well."

Those people, "who maybe have a slightly different view but have a great intellectual capacity," will help the insurers that recruit them find creative ways to survive and prosper, Mr. Vickers said. As the insurance market deals with worldwide financial turmoil, it is hoping there are no large catastrophes this year and next year because capital could be hard to replenish, the panelists said.

"It's a scenario that we don't like to think about," said Mr. Miranthis. "I think it would promote risk financing solutions from other sources," he noted, and that likely would mean government-funded coverage. Mr. Miranthis said if capital were to dry up from catastrophe claims, there would be public pressure to establish government pools or other mechanisms funded with taxpayer money to provide coverage.

"We have to manage our own risks," Mr. Miranthis said of insurers and reinsurers. "This is not just about making money in the short term; this is about the brand of the insurance and, especially, the reinsurance industries." Buyers need to see value in the product and be assured that insurers and reinsurers have managed their risks to survive catastrophes, said Mr. Miranthis. "And we need more capital."

"It's an undercapitalized industry relative to the risks it takes on," Mr. O'Halleran said of the insurance market. "The reality is that we need more capital today, before the event, as opposed to when the event occurs." "If (a large catastrophe) happens next year, without changes in the marketplace and the economy, the answer is going to be the government," Mr. O'Halleran said. "If we don't do it, if we can't do it, then the governments must do it."

Michael Bradford, Business Insurance

Regulators cop out from Solvency II, warns Transamerica International Re CEO
Solvency II could be compared to the Titanic and international regulators were largely copping out, according to Stephen Devine, Managing Director at Transamerica International Reinsurance Ireland. "On Solvency II, I'd ask whether we've created something for the purpose in global markets. I'm sceptical of the IAIS [International Association of Insurance Supervisors]. Seeing what was produced in the past, I think a lot of this is a copout". Devine said that the directive was like the Titanic about to face an iceberg. "In the life insurance industry, long-term risks and liquidity risks are not as in banking. I ask, is there enough scope in Solvency II to address such issues? Does level one have too much detail set down in stone?" The Titanic had its launch, which was wonderful, Devine said. "And then it went off, but when the iceberg hit, it couldn't turn around in time."

Alex Davidson, Complinet

Guenter Droese, risk manager for Deutsche Bank, added that larger buyers who use captives would find themselves impacted by Solvency II. Droese told the European Insurance Forum in Dublin that the new solvency framework was likely to lead to a reduction in capacity on what he called "high risk classes", although on the lower-risk categories capacity would be unlimited. "All these pressures, combined with the increased need for certainty in modelling means Solvency II will lead to a certainty of premium increases (for buyers).

Paul O'Connor, head of wholesale banking at the Irish Banking Federation, said that the industry had to prepare. "We need people to stand in the bows of the Titanic and not in the stern. We need more think tanks on the icebergs, and to see which icebergs may be out there."

Dick Tulloch, director, actuarial services at Deloitte, noted that regulators would have to get used to the standard model. "Not everyone has to use the internal model. There is a standard model and most companies, the smaller ones, will use it. Yes, there are technical issues with it, but most people have got the skills if they've worked in the industry, and it's a matter of getting used to it."

Richard Banks, Editor, Insurance Day