Wednesday, 8 June 2011

Insurance Banana Skins 2011 - PWC and CIFI

A regular publication (free from PWC at this link (fill out short form)), the 2011 Insurance Banana Skins document contains some extraordinily candid insights into the thoughts of the Insurance industry across the globe, with a heavy Solvency II and ERM flavour this year. My summary points on the rankings and quotes below;

  • 490 responses, 190 from UK (two from my stomping ground on the Isle of Man!)
  • Regulation and Capital fairly in my view occupy number 1 and 2 respectively
  • Actuarial assumptions incredibly low at 12, bearing in mind how much they will need to be documented, challenged and validated in the ORSA process under Solvency II. It is higher in non-life companies, and more intriguingly, in Regulator's views!
  • Talent is a new entry, and is certainly reflective of the consulting industry
  • Highlights fear that Solvency II is not just expensive, but takes smart professionals away from their day job (an excuse used by the Irish Banking industry with Basel II in the recently published inquest). They cite a CRO at a major UK insurer noting it could be "to the detriment of oversight of the commercial challenges" of the industry.
  • Risk management well down the rankings, after Insurance outperformed Banking in this respect - I would note that the CEA/Geneva Association et al lobbying on Insurers being classified as SIFI's by the G20 is still ongoing.
  • Fantastic consultant quote that "Those entities which do not hold high quality capital and have poor risk management tend to be overly critical of Solvency II" - it wasn't me incidentally!
  • Prudential Financial Risk director quoted as saying there is "significant risk" that the industry could "platinum plate" models, rather than company-specific versions, though this isn't substantiated
  • Solvency II "Largely pointless" to one Lloyds underwriter
  • Comment from Axa COO in Asia that "...some lines of business will suffer due to missing capital"
  • On Actuarial Assumptions, divergence shown with quotes like "Are actuarial models...becoming the main operational risk", versus "I'm not sure why this [actuarial assumptions] is a risk".
  • Quality observation that "generally, the world is moving increasingly quickly, and so the validity of assumptions is falling" - needs substantiation, but is a salient point
  • Aon analyst notes that with the focus on internal models, "risk managers and underwriters may start to place more reliance on the model, and less on judgement".
  • Neglected area of reputational risk highlighted by an Australian respondent, who looks at the industry reputation damage caused by procrastination, sneaky clauses, exclusionary language etc, which I really liked (easy to focus on single entity reputation).

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