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By GRAHAM BUCK, a London-based writer covering European risk management issues

There has been a feeling among delegates at this year's Risk Forum held by the Federation of European Risk Management Associations (FERMA) in Prague that lengthy discussions on Europe's forthcoming Solvency II regime and debates on broker remuneration have elbowed aside other pressing risk management issues.

The WEF set up the Network in 2005 to identify and assess key current and emerging risks and their effect on markets and industries worldwide. The risk report is produced at the start of each year ahead of the meeting of world leaders in Davos, Switzerland.

The 2009 report identified 36 global risks and ranked the top five as fiscal crisis, asset price collapse, gaps in global governance, resource challenges and pandemic risk.

It also included an extensive section on access to clean water resources. As Merkovsky observed, there is a strong possibility that future disputes and wars will result from this issue. Nearly half of the world's population already lives in water-stressed areas, and many regions are currently experiencing a prolonged period of drought, or only recently emerged from one.

Increases in energy demand, coupled with the need to develop "cleaner" alternatives to oil and coal, are likely to worsen the situation by driving countries around the world "down a more energy-intensive path." Merkovsky cited a planned clean energy development planned for the Nevada desert that was now put on hold due to its intensive use of water.

The 2010 report, due in less than three months, will also have a greater focus on pandemics. The H1N1 virus had yet to develop into a significant threat when the 2009 report was prepared, but the pandemic is expected to spread to around 2 billion people over the next couple of years. Around half of the population of the United States will be affected at some point, and while the number of deaths expected should be relatively low, the economic impact will be significant.

GRILLING THE PANEL OF SIX

FERMA delegates were also offered a panel debate in which six leading insurance industry figures were grilled: Gregory Case, president and CEO of Aon Corp.; Dan Glaser, chairman and CEO of Marsh Inc.; John Keogh, CEO of ACE Overseas General; Victor Peignet, CEO of SCOR Global P&C; Axel Theis, CEO of Allianz Global Corporate & Specialty; and Mario Vitale, CEO Global Corporate of Zurich Financial Services.

It was put to them that the most pressing issue to arise from this year's Risk Forum was that of security and the assurance sought by insurance buyers that their carriers would still be in business when a claim arose.

Case and others argued that the insurance industry has emerged well from the financial crisis of the past two years, having demonstrated its capital adequacy and stability. However, session moderator Herbert Fromme, a veteran industry correspondent for the Financial Times' German edition, retorted that the industry had hardly performed well when such a major carrier as AIG had to be rescued from collapse.

The group of six also came under fire from the sharp contraction in the market for trade credit insurance, which in Europe has seen cover withdrawn for many companies in their hour of need.

Peignet responded that the market had remained open and accessible during the crisis, but with claims totaling $6 billion in the space of a year, it evidently could not continue to offer cover on the same terms and conditions as before.

Some European risk managers are concerned that the prospect of massive directors' and officers' (D&O) liability insurance claims against financial institutions will spill over and impact other classes of insurance. Here opinion was divided--Keogh expressing confidence that any major hit would be limited to the D&O market, while Theis confirmed that Allianz has already increased its reserves on financial lines despite its relatively limited exposure in North America.

FERMA's goal is to widen and raise the culture of risk management throughout Europe. Its Risk Management Forum conference is held every other year.

October 8, 2009

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