By GRAHAM BUCK, a London-based writer covering European risk management issues
The Federation of European Risk Management Associations (FERMA), which this week is holding its sixth bi-annual Risk Management Forum in the Czech Republic capital of Prague, is nearing middle age. This year marks the 35th anniversary of its predecessor organization, set up back in 1974, when European companies were coming to grips with the crisis that stemmed from an OPEC oil embargo.
As FERMA President Peter den Dekker told Forum delegates, the most recent global crisis and near-meltdown in the financial services sector triggered concerns at the end of 2008 that this year's gathering might have to be cancelled. It was not, and around 1,100 delegates have assembled in Prague to hear speakers on the overall theme of the "global village" and how risk management will affect the world outlook.
Yet den Dekker, who took over the presidency in June, noted that one of FERMA's current concerns is a very European one--although he believes its implications could be global. He suggested that the Solvency II review of the capital adequacy regime for Europe's insurance industry could upset underwriting relationships.
In April, FERMA offered a cautious welcome for the proposed new supervisory regime after it was approved by the European Parliament. This translated into approval for the strengthened security that Solvency II offers to corporate insurance buyers across the European Union, offset by worries on its potential impact on the insurance market.
As den Dekker observed, "Solvency capital calculations will depend largely on modeling, which could shift underwriting decisions to a senior manager such as the chief risk officer or even the chief financial officer.
"That could affect the understanding developed over years between underwriters and their clients," he suggested.
Last month, Europe's insurance and reinsurance federation the CEA also expressed alarm at the potential impact of Solvency II on both the insurance industry and policyholders, having originally welcomed the initiative. It attacked the Committee of European Insurance and Occupational Pension Supervisors (CEIOPS) for "diverging from what has been politically agreed by the EU member states".
THE REAL-WORLD EFFECTS
At a press briefing, Jean-Paul Rignault, chief executive of France's Axa Corporate Solutions, said that, while his group welcomed Solvency II, its capital requirements meant that insurers would have to improve profitability. For property/casualty business, rates had been cut for four years in succession, and "we're now definitely at the bottom of the pricing cycle" while CAT events had become more frequent and more costly.
This had left rates some 30 percent to 35 percent below realistic levels, meaning Axa had slowed the rate on which it took on new business. It would also necessitate annual double-digit rate increases between now and 2012.
Rignault added that diversified insurers such as Axa, Allianz and Zurich could cope with Solvency II's capital requirements, but they would have a greater impact on monoline and specialist insurers. The implementation phase, during which insurers have to incorporate these requirements into their business decisions, would also take some time to complete.
BROKERS BACK ON THE AGENDA
A possible lifting of the 2005 ban on contingent commissions charged by major brokers in the United States has put the issue back on the European agenda. FERMA's president expressed irritation at the news.
"We thought we'd heard the last of it after the Spitzer breakthrough," den Dekker commented.
"I hope in two years' time at the next Forum, broker remuneration will not be an issue. We are working together with the broker associations to get a sensible outcome and get this issue out of the way, so we can concentrate on more pressing issues such as Solvency II."
Having chosen Prague--shortly to mark its own anniversary of the November "Velvet Revolution" 20 years ago--for this year's Forum, FERMA has also confirmed the venue for the event in 2011. This will be the Swedish capital of Stockholm and marks the first time that a Scandinavian city has been chosen.
October 6, 2009
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