New risks, new world

The annual gathering of the French risk and insurance management community for the AMRAE conference in Deauville is arguably the biggest and most successful of its kind in Europe.

No other national risk and insurance management community can boast a turnout of some 1,500 people at their annual conference.

Perhaps more importantly, on top of that big number AMRAE still manages to attract a very high proportion of risk and insurance managers as opposed to those who serve the market such as insurers, brokers and lawyers.

The event, of course, is not quite the closed door event that it used to be just 10 years ago with no exhibition stands and little occurring outside of the debates between the members in the conference hall.

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The association has managed to introduce a little more commercial input with meeting points rather than formal exhibition stands and without ‘dumbing down’ the content of the event, as so often happens when the commercial doors are opened up.

The association seems to have struck the right balance between the integrity of the proceedings and a mature recognition of the need for the involvement of the service providers to some extent.

The decision not to allow the insurers, brokers and others take over the event has it seems also served to create a Monte Carlo style effect that I have certainly not witnessed at any other similar event in Europe.

In Deauville, the conference takes place at the typically functional conference centre on the sea front. But across the road there are two very large and very plush hotels that the big insurers use to host meetings and receptions.

And within walking distance of this hub of course there is the casino and a host of decent bistros and restaurants of the highest quality that one would of course expect of this playground for the Parisians.

The weather is nowhere near as pleasant as in Monte Carlo in September. But everything else seems to work just fine and one wonders whether AMRAE just may decide to hold their event here every year, rather than rotating with another French town each year and coming back to Deauville every two years.

The talk at Deauville this year was that the event would indeed be held again here next year, and given the high level of serious meetings that took place around the formal event, that would make sense.

But, while the gatherings in the bars, restaurants and meeting rooms of the hotels may have focused on the more immediate business of insurance terms and conditions and perhaps ongoing claims and service levels, the debate in the main hall focused upon a much wider topic of new world, new risks.

It was a very broad theme for such a gathering and, as with any such macro-level debate at a risk management gathering, threatened to drift into a rather pointless debate about a lot of big topics that really has little relevance to the daily job of the risk and insurance professional.

To help focus the debate, leading French risk managers, insurers, brokers and even a philosopher were given the podium and asked to help identify the best strategies for managing the ever-rising range of new risks faced by corporations in the post-credit crunch world by Gérard Lancner, President of AMRAE and Corporate Risk Officer at Groupe Yves Rocher.

Gilbert Brat, Vice-President of AMRAE and Director of Group Insurance at Groupe La Poste, summed up the general feeling at the conference when he told Commercial Risk Europe: “Every time you enter the water you find it has changed. Change is permanent and normal. Every day business changes. After the crisis, this is a new era.”

Mr. Brat chaired a debate on the ‘Nouveau monde: nouveaux risques’ theme but made it perhaps a little more relevant by also discussing the role of the insurance market along with Stanislas Chapron, CEO of the French arm of broker Marsh S.A.

Mr. Brat pointed out that the insurers reacted better than the banks to the crisis and said that, apart from AIG that was bailed out by the U.S. government, no insurers were forced to go grovelling to the thinly-stretched capital markets or their governments for emergency funding. “This was reassuring and good news,” he said.

Like most risk managers in recent months, Mr. Brat said that the crisis stressed the need for insurers to stick to their core business.

Conservative

“Insurance companies have been warned not to focus too much on profitability and on financial performance. ‘Don’t play with your clients’ money” is the demand from customers. From the risk managers’ point of view the money that we have given to the insurance company is there for the long term and not to play complex tricks with. Banks exist to finance speculation and risk and entrepreneurship, invest in new markets and growth. Insurers exist to pay claims and bring the company back to where it was before the claim. There is a very clear distinction between what a bank does and what an insurance company does and we do not want to see insurers behave more like banks. Risk and technology is ever faster and more complex and we have to remember that banks are there for investment and insurers to rectify damage.”

But, like many of his peers across Europe, Mr. Brat is worried that the politicians and central bankers do not really understand this fundamental difference between banks and insurers.

He is therefore worried about the reaction of the global financial regulatory community to the crisis and, in particular, the knock-on effect it may have upon Solvency II, Europe’s planned new capital adequacy system, that will be tougher than originally planned as governments adopt a safety-first attitude.

“In France and elsewhere the banking and insurance supervisory authorities were merged to create unified authorities. But, unfortunately this still did not help and, since the crisis, we have had a pendulum effect whereby the lack of regulation is leading to an overreaction. The situation is now even worse than it was before,” he said.

Mr. Brat urged regulators to go back to basics. “The starting point for any solvency regulation is the need to pay claims. Will this regulation help us to receive claims payments? Will it ensure that insurance companies are solid enough to deal with the new risks? The banks have shrunk. The financial sector has pulled out of unprofitable lines. There is a fear that this may happen in the insurance industry. Risk managers fear that it could become more difficult to find high risk coverage,” he said.

Stanislas Chapron told Commercial Risk Europe in an interview following the debate that the new world of risk demands a more rigorous approach from all involved in the risk management and transfer chain.

“As advisers to the client we must analyse the risk first, not identify the product first before we understand the question. The analysis needs to be both quantitative and qualitative. You need both because you need the numbers. Through that exercise you can then tailor a solution or program that meets the needs of the client. It is then our job to find the proper insurers and reinsurers that can have the balance sheet to support the risk and the expertise,” said Mr. Chapron.

Many risk managers in France and Europe are worried about the apparent inability of insurers to react to emerging risks with new products and capacity (see interview with Johnny Merlot). Mr. Chapron said that insurers need to remember that they are risk-takers.

“Also underwriters have to be entrepreneurs. They have to be prepared to underwrite the future unknown. In the past with new risks someone took the risk even though they did not fully understand the risk. This is not gambling. One of the lessons of the crisis is that the models are not 100% right and you cannot fully rely upon them,” he said.

The realities of the current corporate insurance market and outlook for terms and conditions for the coming year were not really formally debated during the event but were certainly a hot topic in the meeting rooms at the hotels.

CRE carried out its own poll of a number of senior executives with leading insurers, reinsurers and brokers of French business and found that, overall, buyers of corporate insurance coverage in France need not worry too much about a hardening market in 2010.

Credit rating agency Standard & Poors warned in mid-January that the French insurance market would experience downgrades unless rates improved this year as combined ratios among French insurers are nearing 100%.

French insurance buyers, along with most buyers in Europe, are worried that relatively poor, albeit rapidly improving, investment returns experienced by the insurers and preparations for the arrival of Solvency II could force a tightening in capacity and rates.

But, the general feeling at the AMRAE conference was that, while a further overall softening is unlikely, buyers can expect a stable market this year as competition remains high among insurers.

Mr. Chapron of Marsh said: “There is still competition for large risks and the effect of Solvency II has not yet been felt. Therefore for 2010, 2011 and 2012 I still expect competition and there is still room for price reductions for risk managers who are not tied into long-term arrangements. Substantial price reductions can be observed. The middle market is different and some of the more substantial clients in this sector have clearly seen increases. These are not big increases but more of a stabilisation. In 2010 overall, I expect to see more stabilisation. But, there is plenty of capacity,” added Mr. Chapron.

Thierry van Santen, Chief Executive Officer of Allianz Global Corporate & Specialty (France) agreed as he said: “Everyone was talking about an increase in the market and it did not come for various reasons. There was some naive new capacity and few significant losses and so the rates remained under the technical tariff. But it has still been a profitable year for us. In the French market there are many long-term agreements so there is not always a huge amount of remarketing of programmes. There have been some tough battles among insurers for business. But, also some customers, who thought they would win improved terms by marketing their programmes, were disappointed.”

Mr. van Santen said that some accounts saw reductions and some saw increases depending upon the quality of the business. “I expect it to remain flat throughout 2010. It may increase a little, but, it will depend on the loss experience,” he added.

Ann Charon, Country Manager of RSA in France said: “The market is quite soft still unfortunately. We expected rates to go up more but, it was not the case. Obviously business is rated on a case-by-case basis and most French insurers often agree two or three year long-term agreements with customers so there is not always a lot of business available at the same time.”

Like most of her rivals, however, Ms. Charon said that, despite the soft or flat market, opportunities still exist for growth if insurers can specialise. “We enjoyed a good renewal and retained 93% of our French book and won some excellent new business that was underwritten on a case-by-case basis. You can still win good business in this market if you target well. We specialise in retail and property investment business for example and focus on service. We do not want to be seen as a cost-cutter,” she said.

Paolo Ribotta, Branch Manager at Zurich Global Corporate France, said that he believes the bottom of the market has been reached. “I would challenge the market comment that the market will remain soft in 2010 based on the year-end renewals. There are still some softening tendencies, but, we are today at the bottom of the market and the customers and brokers recognise this. More often we are closer to the real price of risk and customers are not just interested in price but also relationships, the quality of the risk and loss prevention and control. When you combine these three factors, I see more stability than a softening.”

Nicolas Aubert, General Manager for Chartis France said that he expects a hardening this year but concedes the market remains pretty flat. “We have seen the early signs coming from the large general carriers that are slightly pushing the mid market. This is the beginning of the hardening, but, I am surprised that terms and conditions did not harden more at the year-end. We expected to benefit from more overall price increases, but this was not the case. The market is currently flat,” he explained.

Mr. Aubert (click for interview) and a number of delegates at the AMRAE conference commented that AXA Corporate Solutions was one of the first of the leading insurers to recently take a stand against the soft rates.

Philippe Rocard, Chief Executive of ACS, told CRE that he sees light at the end of the tunnel during an interview shortly before the AMRAE conference about the outlook for the French and wider European corporate insurance market.

“I think most of the decreases we have seen in recent years are behind us. For AXA Corporate Solutions and the market as a whole we are seeing the beginning of the hardening in the market in most lines of business. Airlines coverage was the first to jump. Personal lines business in France is also increasing in almost all cases. Corporate insurance has not jumped as in 2002. But we do feel signs of a hardening,” he said.

Manuela Zweimuller, Director General of Munich Re in Paris said that the January 1, 2010 renewal for France satisfied her expectations, was particularly good for its facultative business and that the reinsurer is thus confident about 2010. But, she said that the gulf between reinsurance and primary insurance rates continues to widen and insurers will need to act soon. “There is ample primary insurance capacity in the French market with new companies still entering for example in the casualty market. Standard & Poor’s recently announced that credit ratings of insurance companies in France could deteriorate this year if combined ratios climb above 100% and this is possible because prices for primary business are too low when set against costly and more frequent P&C claims in 2009. There is a big gap between the prices charged for primary business and reinsurance business and we are really concerned about the primary market. It cannot continue in this way for much longer. Rates need to stabilise,” said Ms. Zweimuller.

Service Focus

Mr. van Santen, the former risk manager for Danone and former President of AMRAE and FERMA, said that such a competitive market demands an improvement in service from insurers rather than more price cuts. “I don’t want to take an aggressive position when the price is below the technical rate. The key is to find opportunities to keep the portfolio. As a former risk manager I would like to see everyone focus on client service and improve our position through improved service. When the customer is happy they do not tend to try and change for a 10% or 20% saving,” he said.

Other big topics were debated at AMRAE this year including negotiations to improve the rating of mandatory terrorism coverage, concerns over counterparty risk, solutions for the rising threat of reputational risk and of course the imponderable problem of broker remuneration. For more detailed news from the event click here for CRE’s AMRAE Report.

For this observer, however, the big message to emerge from this year’s AMRAE was that this is a risk and insurance management community that is in a rude state of health, despite the challenging economic circumstances, and one that feels confident enough to challenge its key service providers, insurers in particular, to meet its ever-growing needs. Whether the insurance market is up to the task as it seeks to satisfy those other equally important stakeholders, investors, remains to be seen over this year.