This message was given at the 2010 JLT Global Communications Technology & Media (CTM) conference in Salzburg that kicked off with a panel session including the CEOs of two leading European insurers, and the COO of another who discussed the topic, “Beyond the Crisis: Positioning for a New Decade.”
The insurers on the panel all agreed that the reason why the insurance industry weathered the crisis so much better than the banking industry, was because there had been a strong focus on the balance sheet on the asset side.
Andrew Kendrick, Chairman and CEO, ACE European Group, explained that understanding and preservation of the value of the balance sheet was the key, because the client is buying the stability of the balance sheet. “Also, I think communication is critical. Ensure that you communicate with the intermediaries and your client base and make sure that they understand exactly what is going on in your company, because at the end of the day, they have a counterparty credit risk with you as a company,” he said.
Axel Theis, CEO, Allianz Global Corporate & Specialty AG, Germany, pointed out that, “insurance is about providing capital, it is a substitute for capital, and we as an insurance industry can provide it more efficiently because we have a risk pool. But, at the end of the day, capital needs returns or it will not stay.”
The panel were then asked whether they thought the insurance market model was sustainable. ACE’s Mr Kendrick said that most insurers felt that insurance risk is being under-priced. “Unfortunately, there is confusion in terms of the message coming from insurance companies because earnings appear to be strong.”
But, he explained that many insurers are relying on reserve releases from past years, and if you look at current year fundamental underwriting, there is very little margin.
He added, “My concern is this. Are we now building a problem for ourselves as we go to the future in the event that the soft market continues?”
Ralph Mucerino, Chief Operating Officer of Chartis International, said, “We understand that at any given time, risk managers are under pressure to maintain costs, and I think that if we have the right relationship and the right understanding of what the risk is, we can work around that. We can work with customers to manage volatility, and there is an opportunity for all of us to create programmes that will sustain themselves.”
Peter Hacker, Partner and Executive Chairman, CMT Practice, JLT, said that the problem for many buyers in this sector is that their risk landscape is changing rapidly and it is now more about intangible assets rather than the old property/casualty classes. He asked the panel whether the industry was in a position to take on these new risk classes, and how will they be priced.
Mr Theis said that insurers were ‘absolutely prepared to look at these challenges.’ He pointed out that the soft market is driven by commoditisation of the products, so insurers must be prepared to look at these challenges and find answers. But, he also asked, “Are buyers prepared to pay for that?”