From climate change risk to the very topical subject of mergers and acquisitions, we report back on all the hottest reinsurance issues debated at the World Insurance Forum
The 2010 World Insurance Forum (WIF) opened on a glorious Sunday evening in the Tucker’s Country Club, Bermuda. The audience of some 200 read like a ‘who’s who’ of reinsurance, with a host of speakers including chairman of the WIF advisory panel and RenaissanceRe chief executive Neil Currie, Marsh president Brian Duperreault, Swiss Re chief executive Stefan Lippe, Lloyd’s chairman Lord Levene and XL Capital chief executive Mike McGavick.
The floor was no less well-attended, with the head of Berkshire Hathaway’s reinsurance division Ajit Jain and chief executive of Max Capital Marty Becker among those lending their ears.
Two days of lively debate and relaxed networking resulted in a number of conclusions that will set the agenda for the industry in the months leading up to the next Monte Carlo Rendez-Vous.
M&A was at the forefront of everyone’s minds, with the conference opening just days after the announcement of the merger between Max Capital and Harbor Point. Taxation and regulation were never far away from the debate either, but while Bermuda increasingly comes under the spotlight, the consensus remained that it was still a great place to do business, with a long and lucrative future for the many businesses domiciled there.
Bermuda’s deputy premier and minister of finance, Paula Cox, opened the conference with a promise that the jurisdiction would remain competitive. “Complacency is not an option and we are not asleep at the wheel,” she said. She also promised that the government would press ahead with current plans to give the Bermuda Monetary Authority (BMA) the power to supervise firms on a group basis. This theme was developed in a number of later debates, with speakers agreeing that it will be a great boon for the BMA to be able to act as a lead regulator for group companies based in its jurisdiction.
Solvency II – leave it be
Conversation inevitably turned to Solvency II, with secretary-general of the Geneva Assocation, Patrick Liedtke, issuing an uncompromising message to European authorities in his keynote address. He echoed warnings that the financial crisis, weathered so well by the industry, must not be used as an excuse to tighten the screws on Solvency II.
“The very sensible approach to Solvency II [before the financial crisis] is now being hijacked by people who want easy solutions,” he said. “Suddenly, regulators feel that this industry requires more capital. To do what? To survive exactly the kind of real-life stress test that we have just passed with flying colours.”
He added that the industry created some of its own problems, saying: “We are not realising our full potential. We are not exploiting our strengths enough – there are many more opportunities for creative solutions and new products, and to work more closely with governments.”
He said the industry also needed to work harder to promote itself to graduates and other potential employees.
The highlight of the programme was the star-studded debate chaired by Currie, with guest speakers Levene, Lippe, Duperreault and Liberty Mutual chief executive Ted Kelly. In an engaging five-way chat, they explored the big issues facing today’s leaders. M&A was, of course, top of the agenda.
Kelly warned that the biggest cost of any acquisition could be bringing the cultures in line. Duperreault, who has plenty of first-hand experience of integration, added: “The cultures have to match from the start. If there is some different value you see in their culture, you are going to end up destroying it.”
Duperreault was speaking in light of widespread speculation that further M&A activity in Bermuda could follow the merger between Max Capital and Harbor Point. Currie joked: “Everyone’s looking for the next deal – we have investment bankers lurking behind every storefront.”
As well as M&A, the delegates were keen to discuss tax, with Duperreault quick to point out that what had driven many companies to set up in Bermuda in the first place
was not low tax, but the speed of access to market it offered. Levene spoke about the mismatch between globally standardised regulation – in other words Solvency II – and tax, and asked what a fair level of tax was.
There was talk, particularly among the Americans, about the role of government. Ted Kelly said the US flood programme was an example of how the government getting involved in insurance made everyone think there was no risk, and warned against the “moral hazard created by government intervention”.
In a session on risk management, BMA chief executive Jeremy Cox said that, like the industry as a whole, the BMA had set aside significant sums of money to recruit highly skilled workers in risk management. “We are moving into this realm where supervisors too must really be good evaluators of risk.”
Axis chief executive John Charman added: “There has been a revolution about how we approach enterprise risk management over the past 10 years; it’s not just a top-down exercise.” He said that it was crucial for the chief executive of any company to be central to the risk management framework, but that a separate board-level director should have responsibility for implementing it.
Offering the cedant perspective, HCC chief executive John Holbeck talked about risk modelling and its failure to prevent the financial crisis, but suggested its value needed to be understood alongside its limitations.
Climate change – staying ahead
In a thought-provoking session on climate change, industry leaders were keen to note that reinsurance has led the way in responding to this new risk. Munich Re’s head of geo risks research, Professor Peter Hoeppe, said: “No other industry has had such an influence; and that’s not through lobbying, but through providing expert advice.”
Fellow panellist, Swiss Re’s head of sustainability and emerging risk management, Dr David Bresch, agreed: “I think sometimes we have been two steps ahead of the crowd.”
The panel also discussed the opportunities arising from climate change – for example, microinsurance – and the potential liabilities that might arise. Van Ness Feldman partner Kyle Danish, said: “We are always asked if this is the next asbestos: well, the answer is not yet, but time will tell.”
Never too big to fail
In the closing debate, industry bosses joined Arch Capital Group president, chairman and chief executive, Constantine Iordanou, to discuss the increasingly blurred line between public and private sector in the assumption of risk. XL Capital’s Mike McGavick criticised the US government’s continued support of AIG, warning that there have been unintended consequences for the entire market.
He claimed that the doctrine that some financial institutions were ‘too big to fail’ was flawed. Of the government’s intervention in AIG, he said: “It might have been the right reaction at that particular period of time. But now I am frustrated to know that we have a government-owned competitor. I’m very jealous of them being able to call the Treasury to refuel their reserves.”
The conference ended with Currie thanking his fellow organisers, speakers and delegates for a fascinating and rewarding few days. It’s a long wait now until the next conference in two years, which Currie said he would like to see return to Bermuda. See you there. GR