Politics matters-Comment

It was interesting to see, for example, that Munich Re chose the need for a common European fiscal strategy and budget as the key theme for its press conference in Baden-Baden, the annual meeting of reinsurers, brokers and reinsurance buyers where the talk is normally dominated by the price of coverage at year-end. This press conference was held of course against a backdrop of rapidly worsening macro financial conditions in Europe driven by the real prospect of Greece defaulting and bringing Italy, Spain, Portugal and everyone else along with it. The European Union has come up with a short term fix of course and now that the Greek Prime Minister appears to have failed to push through the referendum that will likely proceed.hideThis will hopefully provide the financial markets and governments with some breathing space to try and work out how to fix this muddle in a more lasting fashion and avoid a collapse in the Euro that would not do anyone any good. The rating agencies say that the big insurers and reinsurers are not that exposed to the Greek situation and it does not appear likely currently that sovereign exposure will force insurers to suddenly fill their coffers with badly needed revenue via much higher underlying premiums. But it is another pressure. During Commercial Risk Europe’s Risk Frontiers seminar in Frankfurt November 2 the talk was again dominated by regulation and politics as we focused on Solvency II, captives and global programmes. There is of course a big worry among captive owners about the impact of the new risk-based regime on them and more clarification is urgently needed on how the principle of proportionality will be applied by national supervisors. Karel Van Hulle of the European Commission assured CRE that captives will be properly dealt with and their simpler structures and business models accounted for in Pillar I capital requirements and Pillar II reporting and management requirements. But perhaps the bigger worry is the overall impact of Solvency II upon the insurance industry in general for, despite the assurances from Mr Van Hulle, that the catastrophe charges for example will be more accurately reflected and capital charges toned down and that the market now has more time to prepare, it is obvious that the insurers will use this as an reason – real or imagined – to ramp up rates and possibly withdraw capacity from the industrial insurance market. And as Standard & Poor’s announced shortly after the Frankfurt meeting insurer balance sheets have come under pressure in the third quarter despite the seemingly endless stream of better than expected news from the sector hit by such a stream of big catastrophe losses up till now. It said that the fall in credit quality of banks and sovereigns and economic decline has been amplified by a sharp fall in interest rates depressed equity markets and higher volatility in a mark to market world to cause concern. These trends are compounded, in S&P’s view, by the potential impact of industry-wide projects, such as Solvency II, the International Accounting Standards Board’s Phase 2 insurance accounting project, and the Financial Stability Board’s designation of globally systemically important financial institutions (G-SIFIs), now expected in 2012. So the insurers are under pressure and will therefore inevitably find it more difficult to meet industrial insurance buyers’ complex needs in key areas such as innovation in contingent business interruption. Add to this the rising confusion and uncertainty in key emerging markets such as Brazil and Argentina that were the hot topics at our Latin American Risk Frontiers seminar in Madrid November 8 and it becomes clear that actually politics does matter a lot to the risk and insurance management profession. As we have stated before that is why bodies like Ferma and IFRIMA really do need the active support from national associations and individual members and why it is important to turn up at events like our Risk Frontiers seminars to discuss these matters properly with peers and service providers rather than closing the office door and hoping it all goes away.

Politics matters-Comment

Want to read this article?

Read Next

Insured losses from Storm Boris rise to €2.19bn: Perils

Beazley meets renewable energy demand in Iberia with new hire

Health and safety top risk for D&Os in WTW survey

Europe hosts 77% of global corporate insolvencies: Allianz Trade

Lloyd’s premium up 6.5% despite rates levelling off

Insured losses from Storm Boris rise to €2.19bn: Perils

Beazley meets renewable energy demand in Iberia with new hire

Health and safety top risk for D&Os in WTW survey

Europe hosts 77% of global corporate insolvencies: Allianz Trade

Lloyd’s premium up 6.5% despite rates levelling off

Keep yourself informed

Sign up for Commercial Risk’s newsletters

Want to read this article?

Read Next

Insured losses from Storm Boris rise to €2.19bn: Perils

Beazley meets renewable energy demand in Iberia with new hire

Health and safety top risk for D&Os in WTW survey

Europe hosts 77% of global corporate insolvencies: Allianz Trade

Lloyd’s premium up 6.5% despite rates levelling off

Related Articles

Keep yourself informed

Sign up for Commercial Risk’s newsletters