London continues to attract major international insurers. Sue Copeman discusses with Benito Pagnanelli the reasons why Generali chose to establish its global head office in London last year and how he sees the major international business lines developing.
While all the largest European international insurance groups are naturally well established in their home territories, where do they choose to focus their international activities? Some, like Allianz (Munich), Axa (Paris) and Zurich Financial Services (Zurich) have their national and global head offices in the same city. Winterthur has adopted a different approach, with its regional operations, where group parent companies are located, handling their international activities. Assicurazioni Generali was in no doubt as to the best location for the head office of its Generali Global operation. Last year, it set up its global head office in London and from there co-ordinates the activities of its regional global offices - currently in Frankfurt, Paris, Madrid, Miami and Tokyo, to which will be added Milan and Vienna. Under the Generali Global umbrella come services for multinational clients, as well as international lines of business that include aviation, space, marine, engineering and directors and officers liability. The London head office also co-ordinates the activities of Generali's commercial branches and affiliated companies in these areas.
Why London? Explains Mr Pagnanelli, “We believe that it is easier to take care of our large clients from London than in Trieste. This is the financial centre where the major brokers are significantly represented. Quite simply, it is better than any other European location. I think that London is still ‘privileged' in terms of insurance and risk matters. The presence of the major international groups justifies this belief.”
The move itself required co-ordination. As well as bringing some key underwriters from Trieste, the company moved executives working in other parts of the world to London. Once the office was established, it also recruited experienced underwriters from the London market.
Mr Pagnanelli admits that Generali Global's move to London - and the re-naming of some of the group's companies around the world - has much to do with visibility. “With a network dedicated to multinational and international clients, you need visibility. Visibility was one of the problems we faced in the past because such clients require a co-ordinated service around the world and we had - and have - a number of companies operating in different locations that do not use the Generali name. We have made an effort over the years to better identify each company as part of the group by changing its name.”
The focus of Generali Global's operations - international and multinational companies - has undergone significant changes. Says Mr Pagnanelli, “ Our largest clients are looking at some retention of risks which did not happen many years ago, for example, setting up of captives. They are also looking for multiline multi-year contracts. These factors make the results for insurers not so positive because premiums are shrinking while losses are standing at the same level as in the past.”
The thrust towards greater self retention of risks throws up new challenges for the market. Mr Pagnanelli stresses the need to manage self retained risk. “Some brokers, insurers and other companies are looking to provide services here, managing claims and deductibles and providing a service that is not purely insurance-oriented. We have a need to extend our activities here as well or we will be under attack from our major competitors.”
In connection with some of the other areas in which the company specialises, Mr Pagnanelli anticipates market changes. For example, he deplores the rate cutting that has occurred in the aviation market. “The exposure is very high. In general, airlines buy cover up to $2 to $3 billion for liability with premium renewals costing between $600 and $700 million up to maybe $1,200 million. The number of airlines has decreased substantially because of mergers and acquisitions. Some insurers offer lower rates for larger fleets but I believe that this is, technically speaking, wrong. Some players will discontinue to write this business.“I believe that, in the end, airlines will form an association even bigger than those we already have in order to form some sort of mutual in which they can retain $100 million up to $500 million and insure in excess of this. This will result in some insurers withdrawing from the market. There is no justification in my view to having so many people underwriting airline fleets at a very cheap price because I believe that the cost for the insurer to run this sector of business is excessive in respect of the premium level and the results.”
In some international forums, Mr Pagnanelli is known as “the satellite man”, a reflection of Generali's involvement in space risks. He certainly advocates a pro-active approach in this area - one which was discussed during the group's biennial conference in Florence last year and has since been taken up by others in the market.
The approach involves an initial project financing by insurers, launching their own satellite(s) to service clients whose launches or satellites fail. Explains Mr Pagnanelli, “In the case of loss of a satellite during the launch or later, the insurers could offer use of satellites which are already in place to minimise or totally reduce the cost. Total loss of a satellite results in a significant business interruption loss for users. If we can offer another satellite which is up there and performing, there is indirect salvage - no loss and giving time to the owner to launch the pick up.
On the marine side, Mr Pagnanelli advocates a view that many insurers share. “I strongly believe that the safety of some ships should be better controlled. Some disasters possibly could have been avoided. Insurers should be closer to the authorities who are in charge of looking at the details of each ship.”
Whether these market predictions and views will be realised remains to be seen. In the meantime, Generali stands by its stance that the London market is the place to be. In Mr Pagnanelli's words, “The advantages are that we are in a market in London - this in my view means all. When you have a market, you have better relations, better knowledge and become better known. Information comes earlier. This is the market which is still the most important for insurance.”
Sue Copeman, freelance insurance journalist and writer, talked to Benito Pagnanelli, chief executive, Assicurazioni Generali S.p.A - UK Branch.