As Swiss Re New Markets issues the reprint of Integrating Corporate Risk Management, Global Reinsurance meets its author, Prakash Shimpi.
IIn his introduction to the recently reprinted Integrating Corporate Risk Management, Prakash Shimpi, managing principal at Swiss Re New Markets in New York, starts with the premise, “risk is the lifeblood of a corporation.” It is this belief which runs through the book, challenging the often fragmented attitude many organisations display towards risk management. “The line manager in a manufacturing company minimises the risk of interruption in the production process ... the treasurer ... manages the firm's exposure to foreign exchange risk ... yet another manager determines the pension liability that the corporation undertakes.” The test for successful management is to bring all these different types of risk into a single risk framework simple, according to Mr Shimpi, though “the devil is in the detail.”
Mr Shimpi, however, is good at detail. The son of an actuary, Mr Shimpi holds a BSc in Economics and Statistics and an MSc in Operational Research from the London School of Economics. He took actuarial exams as “a hobby on the side,” did a stint with Eagle Star then went on to an MBA in Finance & International Business at the University of Chicago. His credentials for detail are impeccable.
Wall Street beckoned in the form of Drexel Burnham Lambert as vice president and manager of the Insurance Portfolio Strategies Group, which, he says, spurred him on to completing his actuarial studies. Chase Manhattan Bank came next, where he was managing director in the Global Insurance Corporation Finance Division and became involved in derivatives business.
This combination of experience caught the eye of Swiss Re's Lukas Muhlemann, who in 1994 was looking for “interesting people to do interesting things.” Mr Muhlemann had noted that the banking community was limited in dealing with certain aspects of the insurance industry, and he wanted to put together a team at Swiss Re to explore the possibilities from the re/insurance side.
Subsequently, Walter Kielholz took over the project. “He had the grand vision to put the elements together,” says Mr Shimpi, combining capital markets, financial products and reinsurance disciplines to create what is now recognised as Swiss Re New Markets. “We needed to have a platform to construct a solution in a form which made sense to clients,” he explains. Using the banking model of a client-orientated attitude, Swiss Re aimed to create an environment in which it became closer to the client, better understanding the client's needs. “The challenge for us (as reinsurers) was to explain to the clients that we were not selling a product, that we wanted to learn directly from them what they wanted to achieve and use that as a basis,” Mr Shimpi recalls.
“The brief was very specific,” he says. “From the start, we had product templates in mind, ideas that needed somebody to take them to the next stage.” The first initiative was insurance risk securitisation, followed by derivative products with insurance triggers.
In 1996, Lukas Muhlemann moved out of Swiss Re to head up the Credit Suisse Group and Walter Kielholz moved up, and the unit was pumped up. This was about the time that alternative risk transfer (ART) started hitting the conference circuit as the next big thing, though talk did not seem to be transferring into much perceptible action, and the senior management at Swiss Re decided the market needed leadership to make it happen.
Five years later, that decision has translated into a developing ART market with Swiss Re New Markets as one of its luminaries, the “investment bank to the reinsurance industry,” as Mr Shimpi likens it.
This fundamental shift in attitude towards risk and its management is beginning to pervade the market as a whole, and is modifying accepted practice as views on the efficient use of capital and risk management become ever more sophisticated. In particular, since the book was first issued in 1999, corporate governance has become a major issue for organisations, with the role of the ‘chief risk officer' – a composite of CFO, treasurer and insurance risk manager – gaining prominence. “From an evolutionary standpoint, it hits a familiar note with all three areas,” explains Mr Shimpi. “All see the opportunities, but they recognise that they don't have all the pieces individually. That is the next step – creating the global perspective on risk.”