Commercial Risk Europe p1 & p16

Adrian [email protected]

[LONDON]—EUROPEAN AND INTERNATIONAL risk managers will be delighted to see little evidence of an overall market hardening in the global corporate insurance market provided by the fi rst slew of third quarter results from leading international insurers and specialty carriers.

The big US insurers and Bermuda market players (including those that were born in Bermuda but relocated to Ireland or Switzerland) report fi rst and did so at the end of October.

Almost all reported healthy profi ts and decent combined ratios boosted by relatively low losses. Investment returns remain low by historical standards but are showing signs of improvement.

A number of insurers again reported reserve releases to boost their combined ratios.

There therefore still seems little threat of a generally hardening market driven by the need for reserve additions because of consistently underpriced liability business. Though this will be dependent upon fi scal policy that can change rapidly.

Premium growth was not strong in most cases as insurers generally reported further reductions and fl at rates at best for most of the main lines. The main exceptions were

specialty lines that have suffered signifi cant losses such as the aviation market.

Generally speaking CEOs talked about disciplined underwriting in select markets in which they specialise.

This means that insurers are investing in specialist skills and services to win new business, which again can only be good news for risk managers.

The most exciting markets for growth remain so-called emerging regions such as Asia and Latin America where underlying economic growth is higher than mature markets and insurance penetration rates are rising for personal and business insurance.

The fact that the big corporate insurers continue to invest in these regions for growth is again good news for risk managers who seek multinational insurance solutions as their companies also expand to such regions.

BRAZILIAN BACKINGThe news that ACE, for example, has been given regulatory approval to complete a Brazilian acquisition and become the leading commercial insurer in that fast-growing nation can only be good news for corporate insurance buyers.

The CEOs did their best to talk up the market as ever. But it was interesting to note that a number of those insurers that have reported returned signifi cant slugs of capital to investors, suggesting again that they are

not that bullish about market conditions going forward.

The reinsurance market remains highly competitive and awash with capital provided by capital market investors as they seek returns in what remains a low yield environment worldwide.

It may be too early for the capital markets to consider trying their luck in the large corporate sector through direct risk transfer solutions for captives, for example.

But the continued glut of capacity at the top end of the market will surely entice

the big reinsurers to continue their recent strategy of expansion downwards into the corporate insurance market.

AIG reported net income of $2.2bn for the third quarter of 2014, up 1% on the prior year quarter. After tax operating income was $1.7bn, up 23% from $1.4bn in 2013.

AIG’s property casualty business increased pre-tax operating income by 2% to $1.1bn. Its third quarter 2014 combined ratio was 102%, a 0.4 point increase from the prior-year quarter. This was infl ated by AIG bucking the general trend and taking a $227m reserve addition, primarily in the primary casualty business.

AIG NUMBERSThese increases were partially offset by a $23m decrease in commercial insurance severe losses to $188m. Catastrophe losses were $284m, compared to $222m in the third quarter of 2013.

The company also said that it had authorised additional share repurchases of $1.5bn. It has bought back $3.4bn of shares during the year so far.

“The solid third quarter results were driven by consistent performance across our businesses,” said Peter Hancock, AIG President and Chief Executive Offi cer. “While no one quarter is a trend, our risk-adjusted return focus could be seen in various metrics

Corporate insurance buyers can expectrelaxed renewals based on initial Q3 data

FOCUS ON BROKERSLINK:BrokersLink is a network of over 60 brokers and 15 providers. It operates in 80 countries, boasts over 300 offi ces worldwide staffed by more than 7,000 risk professionals ....... p13-14

Commercial Risk EuropeEUROPEAN INSURANCE & RISK MANAGEMENT NEWS

www.commercialriskeurope.comVOLUME 5/ ISSUE 09/ NOVEMBER 2014

REPORT: MANAGING RISK IN COMPLEX ORGANISATIONSA major new report by the Institute of Risk Management looks at how increased compliance and a tick box approach to supply chain risk management will not prevent scandals and can actually increase vulnerability of extended enterprises .................................. p8-9

Commercial Risk Europe

Ben [email protected]

[ L O N D O N ] — E X P E R T S H AV E welcomed new guidance from the Financial Reporting Council (FRC) on risk management, internal control and related fi nancial and business reporting that forms part of the updated UK Corporate Governance Code (the code) as a major boost for risk management.

The new guidance makes clear that while risk managers may have day-to-day responsibility for implementation and management, it is the responsibility of boards to ensure that appropriate risk policies are in place, their understanding of risk is high, that risks are maintained within

tolerable levels and that risk mitigation is suffi cient.

To perform this task UK boards are going to have to rely on their risk management teams to provide them with the appropriate information, say experts. According to leading bodies including Airmic and the IRM this presents a real opportunity for the risk community to add value and will inevitably raise the profi le of the profession.

GOOD GUIDEAlthough the guidance is aimed at listed UK companies bound to follow the code all other types of organisations and their risk managers are advised to implement its recommendations.

The FRC updated the UK

Corporate Governance Code and published the accompanying Guidance On Risk Management And Internal Control And Related Financial And Business Reporting on 17 September. The revised code and guidance applies to accounting periods beginning on or after 1 October, 2014.

The changes to the code include the need for boards to include a forward-looking ‘viability statement’ in their strategic report to investors as well as develop new approaches to remuneration and, crucially for readers of CRE, risk management and internal control.

The code will continue to operate on a ‘comply or explain’ basis.

FRC.

New guidance from FRC is a shot in the arm for risk management

FRC: Turn to P16

RESULTS.

RESULTS: Turn to P18

Peter Hancock

Stuart [email protected]

[LONDON]—MULTINATIONAL COMP-anies are being urged to check supply chains and insurance cover as the Ebola outbreak in west Africa continues to pose a risk.

WORST IN HISTORYAccording to the World Health Organisation (WHO), at the end of October there had been almost 5,000 deaths from almost 14,000 cases of the Ebola outbreak. The vast majority of cases have occurred in Liberia, Sierra Leone and Guinea. Spain, the US, Senegal, Nigeria and most recently

Mali have experienced isolated cases.If left unchecked the Ebola disease

outbreak in west Africa has the pot-ential to be the most deadly infectious disease event since the 1918 fl u pandemic, according to modelling carried out by RMS. The catastrophe modelling fi rm estimates that the current outbreak will worsen and could reach as many as 1,400 new cases per day within a month.

Despite international assistance now arriving in the worst affected countries, the outbreak is expected to worsen—with the total number of new cases approximately doubling each month—until a tipping point is reached

EBOLA: Turn to P16

EBOLA.

Multinationals urged to check supply chains and coverage on Ebola threat

Corporate insurance buyers can expect



Commercial Risk Europep8-9

01_CRE_Y5_09_News.indd 1 12/11/14 16:17:51

From ground-breaking to sky-scraping.

Property insurance solutions on a new global scale.The AIG Global Property Division is a world leader in providing insurance, risk management and loss control services for commercial property and energy risks around the world. Now we’re thinking even bigger. With larger per-risk capacity, new resources and capabilities worldwide. Whether your needs are local, multinational or global, our industry specialists can coordinate consistent service from engineering to claims to risk transfer solutions designed to meet your specific needs. To learn more, visit www.AIG.com/globalproperty

Insurance and services provided by member companies of American International Group, Inc. Coverage may not be available in all jurisdictions and is subject to actual policy language. For additional information, please visit our website at www.AIG.com. AIG Europe Limited is registered in England: company number 1486260. Registered address: The AIG building, 58 Fenchurch Street, London, EC3M 4AB.

E152223 AIG13085_PRPTY_Glbl500_FP_UK_A3.indd 1 23/09/2013 09:3702_CRE_Y5_09_FAP.indd 2 4/11/14 16:25:09

InnovationNEWS 3

Ben Norrisbnorris@commercialriskeurope

[LONDON]

LEADING RISK MANAGERS THAT THIS month once again called on insurers to up their game and deliver new solutions to the ever-changing risk landscape will be pleased by sounds coming out of the risk

transfer industry that the influx of new and alternative market capital demands an innovative response.

Traditional insurers must view the alternative capital as a spur to meet client demands with new risk solutions, key to the industry weathering growing competition for business, said insurers and brokers at a number of industry events over the past few weeks.

Addressing the International Underwriters Association (IUA) in late October Paul Hopkin, Technical Director at Airmic, warned insurers that they must deliver new solutions to strategic business risks or lose relevance.

Insurers must adapt to the changing needs of business and develop solutions that support business strategy rather than simply focusing on physical operations, he urged.

This requires dialogue with clients, said Mr Hopkin, who questioned whether recent attempts to supply them with new coverages have been particularly relevant.

He told the IUA that insurance continues to be a critical source of protection, but that traditional types of cover are ‘losing their strategic value’ as companies’ physical assets become less important to business models.

Business models increasingly rely on outsourcing and in many cases their most important assets, such as reputation, are non-physical, he pointed out.

ADAPT OR DIE“Insurance must therefore adapt to this or risk becoming less relevant to corporate strategy,” he added. The most successful insurers will be those that respond to increasingly complex and intangible risks such as cyber, supply chain, reputation and nanotechnology, he said.

To deliver innovative solutions insurers need a greater understanding of their clients’ needs and increased dialogue with business, he continued.

“There needs to be a dialogue between the insurer and the insured. There is no point developing innovative products in isolation of the people you are hoping to sell the products to,” he told the IUA.

Although underwriters have started to respond to the need for new solutions, there has not always been a strong take-up of new products from corporate buyers. This is partly because the new coverages are missing their target, pointed out Mr Hopkin.

“There has been a lot of innovation around supply chain, for example, but how relevant has it been?” he asked.

Mr Hopkin’s message for the insurance industry was echoed by Ferma president Julia Graham. Speaking to Commercial Risk Europe she said there is a need for more innovation from insurers and brokers to enable organisations to cover risks that remain non-transferable.

“Discussions going on in areas like cyber and reputation risk create a demand for our partners to come up with solutions…We do not want insurers to move away from actuarial principles but they do need to be a bit more forward looking. People talk innovation but it has been a long time coming,” said Ms Graham, who is also director of risk management and insurance at international law firm DLA Piper.

Ms Graham also said that she believes risk transfer partners are receptive to demands from insureds for new covers. “We risk managers do realise this is not easy. If it was easy, then everybody would have come up with answers already,” she conceded.

The two Ferma and Airmic stalwarts, as well as their risk management colleagues around Europe and beyond, will be pleased that a number of insurance industry big hitters this month urged their profession to view the challenge thrown up by huge growth in alternative capital as an opportunity to meet client demands as opposed to a business threat.

Aon Benfield calculates that total global reinsurance capital reached its highest ever level of $570bn at the end of June. Guy Carpenter has described the $20bn of alternative capital that has entered the market over the past two years as ‘the largest change to the sector’s capital structure in recent memory’.

In response both Andrew Kendrick, President of ACE European Group, and Mike McGavick, XL Group’s CEO, said their industry must respond by boosting efforts to innovate and better deliver for insureds.

Speaking at an Insurance of London (ILL) lecture in London, Mr Kendrick said the new capital means that traditional players must redouble their efforts on innovation and deliver better service in order to maintain their market position.

Conceding that there is a ‘sense of frustration on the part of some larger clients that the insurance industry seems unable or unwilling to innovate’, Mr Kendrick therefore urged his colleagues to help risk managers tackle non-traditional risks caused by threats such as pandemics and increasingly complex supply chains.

“I’m not suggesting for a moment that all of these risks are fully insurable…but I do know that risk managers want and need more support from the industry,” he said.

He also said the insurers need to deliver superior service and a more client-centric approach.

“A hedge fund cannot, at least on its own, act as a true partner to an insured, successfully providing consultancy, risk management planning and—in a word—service. So if we are to differentiate ourselves from the newer alternatives, then I believe that traditional players will need to become more customer-centric,” he said.

“This isn’t the time to pull up the drawbridge and retreat into the cosy comfort zone of the past. That approach may not lead to sudden death. But it could bring a slow, terminal decline. Instead, we need to take advantage of the opportunity that this new capacity brings to stimulate our risk appetite and creativity,” he added.

Speaking at the BrokersLink Global Conference in Venice, Italy, Mr McGavick said the new capital represents an opportunity for traditional insurers to realign themselves with client needs. He said insurers should look to harness the new funds for the benefit of insureds.

“I view this capital coming into our industry as an opportunity, not a threat. Supported by analytics and our deep understanding of risk, we must be adaptive in finding ways to use this capital to cover the long list of new and increasingly technology-related risks to respond to the unmet needs of a global economy,” Mr McGavick said.

He said that being adaptive is ‘key to survival’. “We must find a way to respond to new exposures and overcome the challenges, because it’s only going to get tougher and not delivering is not an option,” he continued.

“Today risk managers and their boards are looking to

you, their brokers, and us, the underwriters, for answers. And here lies our opportunity, let’s take it,” he told the BrokersLink conference.

Meanwhile experts from across the risk transfer industry gathered at the Baden-Baden Reinsurance Symposium last month agreed that new solutions are key to the traditional risk transfer industry weathering the alternative capital storm.

Speaking at the meeting, Nick Frankland, Chief Executive Officer of EMEA Operations at host firm Guy Carpenter, said the wide variety of capital supply means a huge choice for customers.

“So we [brokers] must become expert in and able to advise our clients on all that is available, helping to create solutions that exploit this cornucopia. We must also work with the reinsurers and insurers to stimulate demand by filling known insurance gaps and providing solutions for the new breed of risks,” he said.

Ulrich Wallin, Chairman of the Executive Board of Hannover Re, said his firm supports the push to develop new covers for emerging and future risks, citing infectious diseases and cyber as examples.

He noted that traditional market players differ somewhat to the new capital suppliers, such as hedge and pension funds, because their ‘long-term orientated business model provides extensive experience in assessing current and future risks, in managing risks, and in creating tailor-made risk transfer solutions’.

He added that new product and distribution initiatives will become even more important in the future.

‘NO EXISTENTIAL THREAT’Fellow keynote speaker Brian Duperreault, Chief Executive Officer of Hamilton Insurance Group, said the reinsurance industry faces challenges from the influx of alternative capital but not an existential threat.

“I don’t think that the threat faced by the industry is existential. Yes, it is at a critical inflection point, but we have seen a number of inflection points before and it is usually a place where real opportunities lie,” he said.

“At the end of the day we are all risk takers. We place a risk and match it up with the best possible capital. How well we match risk to capital will be driven by how well insurers, reinsurers and brokers adapt to the winds of change. The brush strokes we use to paint the future of our industry should be big and bold—and I have no doubt that they will be,” he added.

And so it seems that risk managers and many of their transfer partners are singing from the same hymn sheet when it comes to delivering new and innovative solutions. However, as Ms Graham pointed out, innovation has been much talked about but a long time coming. It remains to be seen whether the recent positive sounds emerging from the risk transfer industry, spurred by growing competition within their business, really deliver results for readers of CRE. But perhaps current insurance market conditions increase the chances of solutions to new and less tangible risks.

Insurers say capital influx will spur innovation as risk managers call for new transfer options

[FROM LEFT] Julia Graham, Andrew Kendrick and Paul Hopkin

03_CRE_Y5_09_News.indd 3 4/11/14 16:29:27

4 NEWSFerma

Ben [email protected]

[BRUSSELS]—FERMA PLANS TO ARRANGE SPECIFIC events and sessions on intangible and more difficult to manage risks to help its members feel more confident in their ability to mitigate these new and emerging threats.

The focus on areas such as cyber, supply chain and environmental exposures is in part prompted by the results of the federation’s 2014 benchmark survey that shows risk managers are unsatisfied with their current level of mitigation on many of the leading risks that keep their CEOs awake at night.

Ferma therefore intends to discuss these key risks with leading experts and risk managers to identify the best way to manage such threats. This will then help risk managers in their discussions with brokers and insurers over more innovative transfer solutions.

Speaking at their seminar in Brussels last month, leading Ferma lights said the lack of member satisfaction with risk mitigation strategies is partly explained by the fact that risk managers increasingly have to deal with less tangible, quantifiable and therefore transferable risk.

Respondents to this year’s Ferma benchmark survey reported a low level of satisfaction with the mitigation of six of the top ten risks.

These risks are: political/ government intervention; legal and regulatory changes; compliance with regulation and legislation; competition; economic conditions; market strategy and human resources.

For three other of the leading risks—reputation and brand, planning and execution of strategy and debt/cash flow—there is a medium level of satisfaction. Only for quality issues, such as design, safety and liability of products and services, is satisfaction high.

“We believe the low level of satisfaction is explained by the fact that, as a profession, we are migrating from tangible risks towards intangible risks,” said Cristina Martinez, Ferma board member and Director of Corporate Risk Management, Campofrio Food Group, at a press conference. These are simply tougher to manage, she said.

In response Ferma plans to organise targeted events and in depth sessions on identified hot topics that will involve a range of risk management and transfer stakeholders. “We are currently organising meetings to become a strategic partner

with our stakeholders on these issues,” said Ms Martinez. She and Ferma president Julia Graham explained that

such a session was held on cyber risk during the federation’s seminar.

It involved the unit head of H4, the trust and security department of DG Connect at the European Commission, and a leading figure from Insurance Europe, the insurer association, to discuss EU data protection initiatives.

Similar meetings will be held on other matters, including supply chain and environmental exposures, Ferma board members explained. They hope these will allow risk managers and their risk transfer partners to deliver more innovative solutions to troublesome risks.

“So we have been trying to take these intangible threats and have a voice at the table on these issues in Europe, but also share what we think in the risk and insurance arena,” explained Ms Graham.

The Ferma president was keen to point out that this demands as much input and work from risk managers as brokers and insurers.

“We need to be more innovative. The survey results are showing us that we have got to try harder—that is insurers, brokers and risk managers. It is not just about our risk transfer partners. We, as risk managers, also have to be able to ask them the right questions—so it is a shared issue,” she said.

“More innovative solutions for some of those intangible areas, either in knowledge, risk transfer or risk management solutions, is what we are going to be looking for. So it is not a question of needing another product, it is a question of what sort of solutions we can work on together. I think we are heading that way but it has not yet arrived. So we can have that sort of discussion for all of those intangible areas,” she continued.

Ms Martinez said that Ferma needs to help risk professionals become business partners in the strategic decision-making process.

“We also need to acknowledge that intangible risks are increasingly on our agendas,” she said. “We need therefore to be more innovative and that is the reason we believe our partners, the brokers and insurers, are essential in the dialogue to find business solutions.”

Ms Martinez said that the increasing number of less tangible risks facing Ferma members is a reflection of the ongoing evolution in the role of the risk manager.

Her comments back up findings from our Global and European Risk Frontiers surveys that suggest a move away from managing easily transferable asset risks towards strategic risks.

“New activities that risk managers are gradually being involved in are business continuity management, the development and implementation of risk culture across the organisation and the alignment and integration of risk management as part of business strategy,” said Ms Martinez.

“Despite this great evolution there is still a long way ahead of us…we are moving and shifting towards more intangible types of risks and the resources and tools that risk professionals need to do their job are consequently changing,” she added.

Ferma reveals plans to tackle emerging risks with market

Cristina Martinez

FERMA BENCHMARK: RM SHOWS GENDER BIAS[BRUSSELS]—RISK MANAGERS IN LEADERSHIP roles are overwhelmingly likely to be male (80.5%) with just 19.5% female, according to Ferma’s latest benchmark survey results. The average European risk and insurance manager is a man aged between 45 and 55 and earns in the region of €100,000 and €120,000 a year, Ferma’s first European Risk and Insurance Report reveals.

Overall 73% of respondents to Ferma’s latest benchmark survey, upon which the report is based, were male and 27% female. When added to the figures on leadership in risk these numbers suggest more work is needed to drive diversity in risk and insurance management circles.

Ferma’s president Julia Graham, who has made diversity a key goal of her term in office, said on the findings: “Industry could do better and there is certainly room for improvement. The results endorse Ferma’s focus on improving gender diversity in our profession.”

The report shows that women make up the majority of the younger generation of risk managers. However women lose this position quickly as the survey findings move through the risk management career time line. Male risk managers predominate in leadership roles from the age of 35. Salary levels for risk managers in leadership positions are also typically higher for male risk managers than for women.

According to the report the typical risk manager works at the head office of a very large company. He has been in his role for between three and 10 years but in the sector for longer. He is likely to have a specific qualification in insurance or risk management.

—Ben Norris

Guide launched on audit and risk committees as EU beefs up reporting rules

Adrian [email protected]

[BRUSSELS]—THE EUROPEAN RISK management and audit professions took a further step forward in efforts to work more closely to deal with the latest EU risk reporting rules with the launch of a new guide on best practice for audit and risk committees at the Ferma seminar in Brussels.

As they jointly presented the report, Julia Graham, President of Ferma, and Thijs Smit, President of the European Confederation of Institutes of Internal Auditing (ECIIA), agreed that there had been an element of competition between risk and audit over ownership of risk management in recent times.

This competition and confusion over who should be responsible for what had

led to a duplication of effort and waste of valuable resource, particularly in less mature organisations, conceded Mr Smit.

“It is a fact that in the past risk and audit committees have worked separately on this and about 50% of the work was doubled. This report will hopefully help eliminate that,” said Mr Smit.

“Where companies are in the development stage there can be a tendency towards competition between risk and audit, but as companies move towards a more mature model they tend to realise that the two functions are actually complementary and there is a place for both. When the two functions work together they are more effective

and it produces a ‘win win’. If there is competition then effectiveness is lost for the company,” he continued.

Commercial Risk Europe’s own European and Global Risk Frontiers surveys found that many risk managers are frustrated by an apparent effort by audit to take control of risk.

Ms Graham, who is also director of risk management and insurance at the global law firm DLA Piper, conceded that this is a perception among some risk managers, but added that she hoped the publication of the report would help clarify roles and responsibilities so that such complaints will not be heard going forward.

“There is still an element of competition between risk management and audit for control of risk. This is exactly what this publication and joint effort is designed to address. It gives clear guidance on the responsibilities and what managers might do to manage these reporting requirements more effectively,” said Ms Graham.

“Therefore I welcome this and will certainly put it on the desk of the chairs of the risk and audit committees at DLA Piper as soon as I return to the office. This is very valid and also shows the importance of the three lines of defence approach that I think works and a lot of regulators do too,” added the Ferma president.

Julia Graham

03_CRE_Y5_09_News.indd 4 4/11/14 16:29:16

05_CRE_Y5_09_FAP.indd 5 4/11/14 16:26:51

Association News

AMRAE survey reveals risk management boost to local French government Rodrigo [email protected]

[PARIS]

RISK MANAGEMENT is making inroads at local government level in France, according to a study released

by AMRAE.However, a leading local government

risk manager noted that the use of insurance remains restricted, in part because the market does not supply viable solutions.

The second Baromètre Collectivités Territoriales et Gestion Globale des Risques—an annual survey in France conducted by consultancy ARENGI on behalf of AMRAE—reveals that more local French governments are performing risk mapping exercises.

48% of survey respondents have either completed a risk map or are in the process of finalising such an exercise. This compares to 36% in 2013. A further 41% are about to start risk mapping, up from 30% a year ago.

“Risk management has made much progress among local governments of late,” Yannis Wendling, Head of Audit, Internal Control and Risk Management at Conseil General Seine Saint-Denis, a local government in the Parisian region, told Commercial Risk Europe. “For example, a higher number of organisations than before have engaged in risk mapping exercises,” he said on the survey’s results.

The survey has also found increased engagement of top officials in the implementation of risk management programmes. It reveals that 42% of local governments have in place a department or function dedicated to the implementation or promotion of risk management systems. This is up from 26% in 2013.

The boost to risk management at local government level is in part a result of funding cut backs, argued Mr Wendling. “The state has reduced the budgets assigned to local governments,” he said. “This fact increases the pressure in terms of the resource available, which can translate into new risks or a higher exposure to risks. The implementation of risk management becomes more important in this context.”

According to the survey, staff health and safety risks are top priorities for risk managers at local French governments. Absenteeism and replacing retiring staff are also a concern. Psychosocial risks are also under the spotlight.

Other key risks include bankruptcy of an outsourced partner, the failure of modernisation projects and breakdown of IT systems. Internal and external frauds are also significant worries for risk managers at local governments, the survey shows.

But Mr Wendling explained that although risk management has made progress in local government, risk transfer via insurance remains limited.

“We have not arrived yet at a stage where financial solutions for the transfer of risks are more widely used, and there is no real reason for that,” he remarked. “I believe that the evaluation of the costs and benefits of having an insurance coverage for some risks will be reviewed and corrected.”

He added: “Public entities work with a philosophy of making purchases via tenders, and we follow a procurement code that changes quite often. Purchases of insurance, as well as of other products and services, are subject to much regulation and sometimes our procurement code and the insurance code somewhat clash with each other. Even then, there is no significant practical hurdle to the purchase of insurance.”

However, a lack of insurance purchase can partly be explained by the fact that the insurance market is failing to provide the coverages that public services really need.

“The most important obstacle is that products available to us in the insurance market are very much standardised,” Mr Wendling said. “They offer simple and standard coverages for civil liability, damages at public works and so on. We cannot find some of the coverages that would meet our analysis of risks. Our insurance partners have not gone far enough in the proposition of innovative solutions.”

One example is business continuity. “We have many buildings that host schools, nurseries and libraries. The main risk concerning them is that if there is a water leak or electrical fault we need to close those facilities. The risk in this case is not financial. It is that if we have to close those facilities, we need to find a way to carry on providing the services affected. But insurers do not provide a business continuity solution that would help us in this situation,” said Mr Wendling.

NEWS6 COMMENT

T HE LATEST SET OF RESULTS POSTED BY

the big US and Bermuda insurance and

reinsurance companies strongly suggest

that European risk and insurance managers will not

have a tough time at this year-end renewal.

You know the market is looking good for

customers when insurers are posting decent profits,

combined ratios around the 90% mark, respectable

revenue growth and improving investment income.

Reserve releases continue to flow and support

the numbers, but they are not huge.

Most of the big US and Bermuda/Switzerland-

based insurers that had reported at the time of

going to press were also busy throwing capital back

at investors through share re-purchases.

This means that there really is nothing better

to do with the money because market conditions

are too competitive and will remain so for the

foreseeable future.

The reinsurance market is awash with capital

as pension and hedge funds continue to seek

somewhere to raise their yield in the continued low

interest rate environment.

As the CEO of one leading European insurer

said in a recent interview this will surely only serve

to persuade Munich Re, Swiss Re and SCOR to

invest more in their corporate insurance operations.

Claims do not appear to be a problem.

The third quarter results show that the market

is enjoying quite a good run of late. Moreover, the

investments that insurers have made in recent times

to diversify their books and manage their overall

risk more professionally continue to pay dividends.

It looks like one big hit will not turn the market

in the way it used to. This is clearly great news for

insurance managers.

Potentially the down side of all of this is that

such a positive outlook for both the risk managers

and risk-carriers will not spark innovation.

If the insurers are happy to chuck their profits

back at investors through share buy-backs then that

means they have less to invest in emerging or re-

emerging risks. They are making decent profits and

are happy to return any spare capital rather than

taking punts on new risks with the capital.

This is sensible of course from the investors’

perspective but not so good from the policyholders’

perspective. This is because buyers would really like

to see a little more fear in the eyes of the insurers

and a need to use that money to develop new

markets.

This is why it is so important that the European

and international risk management community

back Ferma’s effort to bang some heads together to

try and crack some of these difficult areas such as

cyber.

During Ferma’s press conference at its recent

seminar in Brussels the federation’s president Julia

Graham and board member Cristina Martinez exp-

lained that Ferma plans to bring the market tog-

ether through a series of meetings next year to really

thrash out some of these more tricky coverage areas.

We at Commercial Risk Europe would love to

help in this effort and will do everything we can

to get leading players from risk management and

the insurance market around a number of tables to

make this happen.

Analysis of the latest insurance company results

strongly suggests that market forces will not spur

innovation.

It will need a push from the risk management

community to kick-start this badly needed initiative.

So get involved and make the effort to come along

to the first meeting.

Results vs innovation

EDITORIAL DIRECTORAdrian [email protected]

PUBLISHING DIRECTORHugo FosterTel: +44 (0)1892 785 176 [W]

+44 (0)7894 718 724 [M][email protected]

ART DIRECTORAlan Booth—www.calixa.bizTel: +44 (0)20 8123 3271[W]

+44 (0)7817 671 973[M][email protected]

WEB EDITOR/DEPUTY EDITORBen NorrisTel: +44 (0)7749 496 612 [M][email protected]

While every care has been taken in publishing Commercial Risk Europe, neither the publisher nor any of the contributors accept responsibility for any errors it may contain or for any losses howsoever arising from or in reliance upon its contents. Editeur Responsable: Adrian Ladbury.

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UK/IRELAND: Garry Booth, Stuart Collins, Tony Dowding, Nicholas Pratt FRANCE/SPAIN: Rodrigo Amaral GERMANY: Anne-Christin Groeger, Friederike Krieger, Herbert Fromme EDITORIAL ENQUIRIES: [email protected]

06_CRE_Y5_09_Leader.indd 6 4/11/14 16:31:52

07_CRE_Y5_09_FAP.indd 7 4/11/14 16:26:27

8 BEHIND THE NEWSIRM Report 2014

Tick box compliance no solution to managing extended enterprise and supply chain riskBen [email protected]

[LONDON]—INCREASED COMPLIANCE and a tick box approach to supply chain risk management will not prevent scandals and can actually increase the vulnerability of extended enterprises, according to a major new report by the Institute of Risk Management (IRM) launched last month.

The Extended Enterprise: Managing Risk In Complex 21st Century Organisations report urges companies to prioritise behavioural and cultural risk over tick box compliance to tackle uncertainties in the modern economy’s complex delivery networks.

The report argues that the modern commercial obsession with systems and processes obscures the real problem in supply chain and extended enterprise risk management—a failure to understand and predict human behaviour and build trust.

As Peter Neville Lewis, one of the report’s authors and IRM member, explained: “Ticking boxes is easy—and dangerous. Boxes were ticked at Rana Plaza...and at BP. Developing a sophisticated understanding of ‘personal risk management’ may be harder but, as companies as diverse as John Lewis and Tata Industries show, it helps create the ethical behaviour that controls risk across an organisation—however big or complex.”

Traditional approaches to supply chain risk management do not always bear fruit. For example, figures from a Chartered Institute of Purchasing and Supply (CIPS) survey of UK businesses this August revealed that nearly 75% of supply chain professionals admitted they had zero visibility on the first stages of their supply chain.

Furthermore, the report points out that no organisation today has direct control over every aspect of its operations or reputation as the complexity of supply chains and extended enterprises grows.

TACKLING EXTENDED ENTERPRISE RISKThe report defines the extended enterprise as a structure where a number of organisations come together in a joint endeavour in order to achieve outcomes that they could not have achieved on their own.

“Whilst stronger control may improve performance in simple systems, this is not true in complex systems. A complex system cannot be controlled. However it can be influenced. And the more the system is able to adapt and learn, the greater the probability that it can be influenced or nudged into the desired state. Traditional understanding of governance and risk management has been dominated by process thinking, but in the extended enterprise we need to give at least as much attention to relationships, attitudes and behaviour,” says the IRM in the report’s executive summary.

Therefore the Extended Enterprise: Managing Risk In Complex 21st Century

Organisations report highlights the importance of transition from risk management of a single organisation to a coherent programme that meets the global and interdependent challenges of today’s joint endeavours.

Although supply chain risk management is an important component, understanding and managing risk in the extended enterprise goes further. It looks beyond supply into the complex network of relationships that underpin public and private economic activity in modern economies, says the IRM.

It says that risk managers and their organisations need to understand their extended enterprises and manage the risks of the relationships that bind them. It considers how risk management approaches should in turn be adapted.

According to the report’s editor and IRM’s technical director Carolyn Williams: “Today’s extended enterprise environments achieve amazing outcomes but also display many of the characteristics of complex systems, with all the potential for volatility and uncertainty that implies. By modelling the extended enterprise in practice, we provide risk practitioners with the tools to start understanding organisational exposure to extended enterprise risks—wherever in the chain they are. By their very nature, complex systems cannot be managed or controlled, but

they can be influenced, so this will demand from the future risk manager new skills in leadership and in the understanding of culture, ethics and behaviour.”

Mapping the extended enterprise should help identify those risks that need to be communicated, key points where failure could occur and highlight differences in culture and environment that might affect perceptions of risk, says the report. A pro-active risk communications plan, including specific plans for incident response, should be an essential element of an extended enterprise risk programme, it argues.

Modelling and mapping your extended enterprise helps identify the ultimate location of risk across the network. The report outlines the following benefits to organisations as a result:n Gaining a detailed understanding

of the value chain through the system to help improve performance and efficiency

n Identifying key points in the network which control flows of information, physical goods or money so that risk and audit attention can be focused on these areas

n Helping to identify what can be controlled, what can be influenced and what can only be monitored

n Building resilience by identifying where links are weak, undervalued or missing

n Allowing for scenario planning

and stress testing by analysing the effects of taking out elements or sections and disrupting flows

n Improving the ability to be able to respond to external and internal shocks by understanding in advance what the effects might be

n Improving response times and reducing disruption costs when dealing with an incident

n Providing a framework for looking at the key dynamics of power, incentives, regulation and values and ethics.In the world of the extended

enterprise the role of the board has to change from one of ‘command and control’ to one of leadership, coordination and influence, the report says.

“Relationship management and collaborative working across the extended enterprise become essential. Boards need to develop a clear understanding of their extended enterprise. This includes an appreciation of the relative power, incentives, motivations, culture and ethics and operating conditions of the key participants,” it explains.

As well as supporting organisational performance, the report claims that a better understanding of risk across the extended enterprise is vital in tackling wider problems including slavery, abuse, environmental damage and dangerous working conditions.

The report argues that wilful blindness by organisations to these

issues within their broader networks is unacceptable. Firms must ask themselves whether any claims that they make about their values hold true across their extended enterprise, it says.

The report’s executive summary suggests that risk managers and their organisations should ask themselves the following questions about extended enterprise risk:n How complex is our business

operating model? n How extended is our enterprise?

Have we analysed it?n What additional risks does

complexity pose and how do we manage them?

n Which key components, processes, functions or people could, if they fail, stop us operating?

n What scenarios could trigger a systemic reaction that could cause widespread damage?

n Have we thought about the social dynamics (power, rewards, regulation and shared ethical values) across our extended enterprises? Do we understand what motivates other key participants and how they will behave under stress?

n Have we thought about the risk appetite and tolerance of members of the extended enterprise and how these compare to our own?

n Have we thought about the risk culture of other participants and how it compares to our own?

n Do we set an example of ethical, decent and right-minded behaviour in order to build trust and foster these behaviours through the enterprise?

n Do any claims that we make about our organisational values hold true across our extended enterprise?

n How do we satisfy ourselves that we know what is going on throughout our extended enterprise? How do we get helpful risk information?

n Are appropriate governance structures in place to ensure that the likelihood of success in the joint endeavour is maximised?

n Has the board devoted sufficient resources to creating and maintaining an adequate risk management and assurance framework that functions across its extended enterprise?

n Do our senior people have the right skills and capabilities to lead a complex extended enterprise?

n Does our extended enterprise structure support or stifle innovation?

n Do we give sufficient consideration to the risks associated with our relationships? Is there a senior executive responsible for relationship management?

n Do we understand how communications flow through the extended enterprise, how perceptions may vary and how this affects risk management?

n Do we understand our reliance on outsourced IT and cloud-based services and the risks that these may bring to the enterprise?Please see the next page for an

interview with the IRM’s chairman Richard Anderson on the report’s key findings and recommendations.

Carolyn Williams, report editor and IRM’s technical director

08_CRE_Y5_09_BTN.indd 8 4/11/14 16:32:54

IRM Report 2014BEHIND THE NEWS 9

Managing risk in the extended enterprise

‘‘A s you start trying to deal with complex problems you need to bring lots of ideas and

disciplines to the table and you need creativity and imagination to fi nd the resolution to the problem. So you cannot just tick the boxes because there are no longer any boxes to tick.”. . . ’

Richard Anderson

Following the publication of the Institute of Risk Management’s (IRM) Extended Enterprise: Managing Risk In Complex 21st Century Organisations report, Commercial Risk Europe spoke to Richard Anderson, the institute’s chairman and principal consultant at AndersonRisk, for his take on its key fi ndings and recommendations. BEN NORRIS reports

CRE: What do you see as the key issues, fi ndings and recommendations within the study/report?

RA: This work refl ects on a world in which everything is happening faster, there is total uncertainty and ambiguity about what is happening and where we are all totally interconnected—not just from an IT perspective but in terms of how people work together.

If you look at any major project—product design to manufacturing—nobody can do everything from source to end point on their own any longer. So we are all working in these extended enterprises in a very complex world and in this publication we at the IRM are asking what does that look like from a risk management perspective.

We feel the solution is all about understanding the power in relationships and who is getting what out of these connections, and not just from a fi nancial point of view. Above all the study stresses the importance of the extent to which there are shared ethical values across the extended enterprise, because where there aren’t shared ethical values that is typically where you see the risk explosions. So that is what we are talking about in this report and how some of the tools and techniques that we are developing need to be spread across this interconnected world of complexity.

CRE: Who exactly is the report aimed at? Risk professionals or boards?

RA: As with all of our thought leadership it has a joint readership in mind. We always want to support risk practitioners by providing them with tools, techniques and approaches to allow them to better do their jobs, but we are always interested in making sure we can address the needs of the board. At the end of the day if we are not addressing the needs of the board then the risk manager is going to be wasting his or her time.

CRE: The report stresses the need for organisations to move from enterprise risk (ERM) management within their own entity to ERM across the extended enterprise. How does a risk manager go about achieving this?

RA: It is about being able to map the social dynamics. It is also about being able to understand who is participating in your extended enterprise, how you are connected and where are the points where problems can occur. It also demands a change in leadership. Leadership in a hierarchical sense breaks down in an extended enterprise because you don’t have authority as you cannot know everything that is going on. Therefore you need to create a followership so people want to follow the general direction of a particular extended enterprise.

In response risk practitioners have got to be much more agile in a business and strategic sense. They have got to be really good at the personal connections, building relationships and making sure the right relationships are working. Risk managers are going to have to adopt a very open and enquiring mindset. Don’t assume you know it all, you have got to be what I describe as the disruptive intelligence that pierces perfect place arrogance.

CRE: Is this why the report warns against a reliance on compliance and box ticking to manage new risks thrown up by extended enterprises and increasingly complex supply chains?

RA: Absolutely. We are dealing with very complicated ideas and business activities. We know that a complex problem isn’t susceptible to normal management rules. You can’t have a single discipline and a simple process and know what will happen. As you start trying to deal with complex problems you need to bring lots of ideas and disciplines to the table and you

need creativity and imagination to fi nd the resolution to the problem. So you cannot just tick the boxes because there are no longer any boxes to tick.

Supply chains are a big issue and a tick box mentality can actually hinder supply chain risk management because it diminishes the importance of relationships. It is very diffi cult for the relationships to survive the tick box approach.

CRE: What is the difference between an extended enterprise and a supply chain?

RA: There is a really interesting difference. Supply chain is me, my hauliers, my suppliers and if something goes wrong it will be bad for me. Whereas the extended enterprise is everybody that is in my ecosystem and if something goes wrong it is bad for all of us.

CRE: The report promotes managing the behavioural side of risk within the extended enterprise. Are risk managers currently doing this or is more work needed in this area?

RA: I am not sure whether they are at the moment. Clearly risk management culture is a hot topic right now, but my sense is that a lot of the standard questionnaires are rather stultifying.

From my own perspective, rather than the IRM’s, I have been working on getting to the real artefacts of culture, which is all about understanding the risk conversations. Culture boils down to what I say to you, how you respond and whether you are listening to me when I am telling you about risk or thinking about something else.

There is an approach that I am beginning to develop where you map conversations about risk between different participants, both within an organisation and across an extended enterprise. To me that is what we are going to need to start to do. I have used this approach in a number of organisations and it has shown up those where a strong silo approach exists, which is disastrous in a complex world. It shows where there isn’t interaction between departments.

CRE: But isn’t mapping these risk conversations notoriously diffi cult to achieve in a quantitative and measurable manner?

RA: Culture and behaviour is hard to measure and pinpoint so it is about getting as much data as you can and then being able to map that and show others that things are or are not taking place and working.

I have been working with technologists to facilitate this process. It will start with a questionnaire that goes out to comparatively few people within an organisation and asks them who have they been talking to about risk, what subjects have they been discussing and what is the quality of the conversation. From that we can see whether we have both ends of the conversation, whether there is agreement on the importance or quality of the conversation and the number of times the conversation is held. We can then map the conversation by hierarchy, business unit, function, process and geography to map the quality of conversations right across an organisation. A lot of people are currently assessing risk culture with tick box surveys but I am not sure that approach really works.

CRE: What role do boards need to play in managing risk in the extended enterprise?

RA: From within a UK context the new guidance from the Financial Reporting Council is very clear that it is the board’s responsibility to ensure that the risk culture is appropriate for the management of risks they wish to take from a strategic perspective. But at the end of the day regulation isn’t the reason to do it. The reason to do it is to create a long-term, sustainable organisation. To achieve that you must understand and manage your risks and one of the most important aspects of that is ensuring your people know how to do so.

CRE: What are the tangible benefi ts for risk managers who read and take advice from this report?

RA: They will further their ability to infl uence boards to think more widely about their scope of risk management.

08_CRE_Y5_09_BTN.indd 9 5/11/14 08:43:40

EUROPEAN RISK FRONTIERS10 Nordic countries 2014

As we wrap up this year’s European Risk Frontiers survey we bring you highlights of our discussions with leading Nordic risk managers. The survey, sponsored by HDI-Gerling, takes an in-depth look at the world of risk

management, considering the skills needed to thrive in today’s modern economy and the developing role of the profession. It then tackles hot topics from the world of insurance and risk transfer. BEN NORRIS reports

Extending the skill set

Reporting to execs a minimum requirement

IT IS IMPERATIVE THAT RISK MANAGERS REPORT DIRECTLY TO THE executive team in order to be effective, with fi nance and legal the most likely targets, say Nordic risk managers. However, some say that in too many organisations such reporting lines still do not exist.

“If the risk manager is not part of the executive management team, he or she must report to a member of the management team. Who that person is within your company, whether head of fi nance or head of legal, depends on its structure. I report to the head of legal but the most common reporting line in Sweden is to fi nance,” said Anders Esbjörnsson, Ferma board member and Group Risk Manager at construction fi rm NCC AB.

“But still too many risk managers do not report to the executive team—while that is the situation in less than 100% of cases it is still too few. I think this is something that Ferma is going to address,” he added.

Fredrik Finnman, Swerma’s president and Group Risk and Insurance Manager at ASSA ABLOY, agreed on the importance of

contact with the executive team as well as the board.He said that typically in Sweden risk managers do sit and report at

least to group legal or group fi nance.“I think both ways are suitable. I haven’t really heard of anybody

being disappointed or lacking the support because they are reporting to either function,” he said.

He added that managers should have signifi cant contact with the board because it sets the overall strategy of the organisation for CEOs to follow. “So direct board contact at least four times a year would be ideal for the risk manager,” said Mr Finnman.

Lassi Väisänen, Executive Director of Finnish risk management association FinnRima, argued that reporting to fi nance is the best option for risk managers that mainly deal with insurance.

However, for those that deal with wider aspects of risk, reporting to the chief operating offi cer or chief strategic offi cer is preferable, he said.

“The reason being that these two functions are responsible for strategic planning and execution of selected strategies,” he said. Adding a risk perspective to these functions allows them to better understand and analyse the consequences of their decisions, he added.

Susanne Ström, Swerma board member, said that risk managers need to report to someone in the management team to facilitate direct contact with, and infl uence on, key decision makers.

“A risk dialogue with the board and management team is necessary to get full understanding from both angles,” she said.

MORE WORK NEEDED TO CONVINCE BOARDS ABOUT ERM

B OARDS ARE BETTER AT GRASPING the value offered by truly active enterprise risk management (ERM) but there is still

much room for improvement, according to Nordic risk managers taking part in this year’s European Risk Frontiers survey.

Some say a lack of direct risk management airtime with the board is holding back understanding of the function’s benefi ts. Breaking down this barrier is not easy and requires further effort on the part of risk professionals, they agree.

“I think more and more boards accept the benefi ts of risk management. But based on my own experience it is only when you conduct a quantitative risk assessment on something tangible and say if we don’t mitigate this risk this is the exposure and its potential effect on the group’s profi t that boards really understand that they need to act,” said Fredrik Finnman, Swerma’s president and Group Risk and Insurance Manager at ASSA ABLOY.

Lassi Väisänen, Executive Director of Finnish risk management association FinnRima, said that boards usually understand the value of traditional risk management but not necessarily ERM.

“They are quite used to reading top ten risk lists, information about biggest insurable risks, insurance covers and so on,” he explained.

Anders Esbjörnsson, Ferma board member and Group Risk Manager at construction fi rm NCC AB, said that lack of direct risk management contact with boards means they are generally not grasping the value of ERM.

“To fully reach the board the risk manager or CRO should have direct airtime with board members. If you report to the executive team and the CEO reports to the board the risk message can get diluted—the information will be fi ltered to the board level. So ultimately getting the message directly to the board is key and that requires direct airtime at at least one board meeting per year. However, I think this rarely happens and is very unusual. So I would say that boards are not really grasping the true value of risk management for this very reason,” he said.

“Because ERM is not usually fully developed boards pick up bits and pieces of risk information from various sources. Because the reporting is not streamlined not all information is getting through in the best way possible,” he added.

He said to help bridge this gap and better explain the value of ERM risk professionals need to work on their communication skills. “You need to be able to explain complex issues to both the blue-collar worker and to the board,” he said.

Such communication needs to focus on quantitative benefi ts of risk management, said Mr Finnman.

“That starts interest in risk management. It doesn’t work if you request a meeting with the board and then just present ISO 31000, for example, as the way forward because it doesn’t give them something tangible. You need to say ‘look this is our most important factory and should it burn down we will see a 15% loss of profi t over an 18-month period’. Then the board understands the benefi t,” he continued.

Smart risk conversations with the board could take the form of discussions on key strategic decisions, said Mr Väisänen.

“More practical level advice to help top management with modern simulation methods to see what might be the consequences of a decision on the balance sheet is also advisable,” he said.

However, he warned that risk managers lack such simulation tools and conceded that other business functions do not necessarily believe risk management can provide assistance. “The result is that more adverse decisions are taking place,” he said.

B EING ABLE TO SELL AND COMMUNICATE THE role and benefi ts of risk management are crucial qualities for any truly effective risk manager, agreed risk professionals from the Nordic region taking part

in our European Risk Frontiers survey.Like many of their colleagues from across Europe that took

part in the survey they also said a thorough understanding of the business, independence and a strategic overview are valued commodities.

“Risk management is about communication and the ability to convince people internally about its benefi ts and to motivate them,” said Fredrik Finnman, Swerma’s president and Group Risk and Insurance Manager at ASSA ABLOY. It requires drive and courage to convince people internally about risk management, he added.

“So perseverance and the ability to sell what you do are key qualities of a good risk manager. You need to be able to explain what risk management is on a basic level to people who are yet to accept the message,” he said.

Anders Esbjörnsson, Ferma board member and Group Risk Manager at construction fi rm NCC AB, said that traditional risk management skills will always be needed but that communication and psychological skills are increasingly important.

“The more experienced and older generation of risk managers are extremely good technically, but to be successful today it is more and more important to be able to communicate and handle people, both within and outside of the organisation. These are the most essential new skills that are needed,” added the Swedish risk manager. He believes that there is ‘still a long way to go’ for many risk managers to get up to speed in these key areas.

Communicating to top management requires risk managers, many of whom come from the insurance industry, to move away from overly technical insurance terms and language in order to be understood by business colleagues, continued the Swedish risk manager.

“This is a challenge for us as a profession to overcome,” said Mr Esbjörnsson. “We are working on it but there is a long way to go.”

He also said that modern risk managers must be fl exible and responsive to change in their industry and the risk landscape. “We must quite quickly learn how to handle these new risks. So we must not only look at traditional risk, we must keep a close eye on new developments in risk,” he added.

Fellow participant Lassi Väisänen, Executive Director of Finnish risk management association FinnRima, agreed that communication skills and the ability to cooperate across the business and corporate functions are key skills for risk managers.

He also listed a good understanding of the business, an ability to foresee, in cooperation with other functions, the biggest uncertainties and risks and avoiding silos as key to the risk function.

Mr Väisänen added that risk managers must be able to make

clear the likely fi nancial impact of risks on company results.“You need to be able to transfer risk information in a format

that enables people to see risk impact at profi t and loss and balance sheet levels. You must understand what are the biggest risk areas from profi t and loss and the balance sheet point of view,” he explained.

Swerma board member Susanne Ström said that successful risk managers must be independent, accountable, have integrity, maintain a group-wide perspective, be good communicators and understand the strategy and risk management connections of an organisation.

OBTAINING THE SKILL SETObtaining the new skills increasingly demanded of risk managers as they broaden their role is a conundrum for the profession. While Nordic experts believe part of the answer simply lies in gaining experience, they recognise the need for better education and training.

As Mr Esbjörnsson said, experience is important but there is a need to broaden the education on offer.

“When you look at risk management education programmes there is a real need to add communication and human behaviour skills to many courses. So we are talking about learning more on soft details in risk—how human behaviour affects risk as opposed to just the technical side of things, such as setting up a sprinkler to manage fi re risk,” he said.

He noted that the European risk management certifi cation scheme currently being tackled by Ferma is an important initiative, particularly as it will require certifi ed risk managers to embark on continuous professional development.

“You need to have continuous training and education and attend risk management seminars,” said Mr Esbjörnsson. “If an insurance risk manager from an insurance background is not active in attending seminars, courses and training programmes he or she will lose the skills related to insurance and the very reason they were hired. The risk management associations must be aware of this and deliver ongoing learning opportunities to their members. Ferma can then act in a coordination role and add value,” he suggested.

Mr Finnman argued that business experience and understanding its core functions are hugely benefi cial for risk managers.

“For myself working in a multinational company it helps that I have experience in functions outside of risk within the same industry because then I can understand the type of people I am working with,” he said.

Ms Ström said formal risk management training enables risk managers to better understand the big picture. But this should be supplemented by specialist training—in areas such as insurance, engineering or fi nancials—depending on the specifi c tasks of individual risk managers, she added.

Fredrik Finnmann

10_CRE_Y5_09_ERF-Nordics.indd 10 4/11/14 16:33:42

To register please go to www.commercialriskeurope.com/RFStockholm

08.15–08.45—REGISTRATION AND COFFEE

08.45–09.00—WELCOME ADDRESSESWelcome address from Adrian Ladbury, Editor of Commercial Risk Europe and host for the day Susanne Ström, Vice President, SWERMA and Bror Sandas, Country President, Nordic Countries, ACE European Group

PART I: THE STATE OF THE CORPORATE INSURANCE MARKET: CAPACITY, PRICE, EFFICIENCY AND INNOVATION

9.00–9.20—THE BIG PICTURE Are demand and supply of corporate insurance coverage in equilibrium and what is the outlook?

Adrian Ladbury reports on the big picture outlook for the insurance market based on meetings with reinsurers and brokers at the Monte Carlo and Baden-Baden reinsurance meetings, analysis from the credit rating agencies and equity analysts and meetings with the leading international corporate insurance groups and brokers at the Ferma Forum in Brussels. He will also report on what risk managers in Europe and worldwide would like to see their insurers and brokers do to improve the way they deliver products and services to their customers based on CRE’s annual Risk Frontiers survey. Do the wants and needs of customers and suppliers match?

9.20–10.05— HOW TO DESIGN THE OPTIMAL MULTINATIONAL PROGRAMMEMichael G Furgueson, President, Global Accounts EMEA, ACE Group

ACE’s latest research reveals that client demand for multinational programmes is set to grow further in Europe over the next three years. But expanding geographical footprints and divergent regulation mean there are many complexities that clients, brokers and insurers need to navigate to achieve an effective programme and good service is becoming even more important to delivering compliance. Based on the latest developments, this session will highlight a number of specific issues that need consideration to develop and implement an optimal programme.

10.05–10.35— THE CORPORATE INSURANCE MARKET IN THE NORDIC REGION

Jacob Schlawitz, CEO, Aon Nordic

■ What capacity is available currently for corporate insurance managers in the Nordic region in the major lines?

■ How competitive is the market currently and what is the pricing outlook for corporate insurance in coming renewals, what is driving this pricing and capacity trend?

■ What has the loss history been like over the last 12 months—have loss ratios worsened or improved and have there been any significant losses?

■ What impact will the arrival of Solvency II have upon the corporate insurance market in Europe and the Nordic region and how should insurance managers prepare for this?

■ Have there been any significant coverage developments in recent times and what can corporate customers look out for in future?

■ What new products are customers demanding and what is the market doing about this? Where is the innovation in critical areas such as cyber, supply chain and environmental?

■ What improved services are demanded and how is the market reacting? How are insurers improving the way claims are agreed and settled?

■ Is the market happy with the speed and efficiency of premium payment? Are contracts issued the moment premiums are paid and if not why not?

■ How can cost be cut out of the system without lowering quality standards? Are brokers paid too much?

■ What could and should the insurance market do to make global programmes more efficient and assure policyholders that they are compliant?

■ What could and should regulators do to help make this happen?

10.35–10.45 — Q&A WITH SPEAKERS

10.45–11.15 — COFFEE BREAK

PART II: RISK REGULATION AND REPORTING

11.15–11.45— THE EVOLVING EUROPEAN AND SWEDISH REGULATORY LANDSCAPE: SOLVENCY II, CAPITAL AND REPORTING RULES AND THE DEATH OF THE CAPTIVE?

■ Is Solvency II on target, how will it be implemented in Sweden and what impact will it have upon the Swedish insurance market?

■ What impact will Solvency II have upon the captive insurance market? What is the latest guidance available to captive owners about how the rules need to be implemented?

■ What discussions and consultation have been held with corporate insurance buyers about Solvency II and captives and how has the regulator attempted to react to their needs?

■ What other rules are on the agenda in Europe and Sweden that the regulator is working on and which risk and insurance managers need to be aware of and prepare for?

■ What about global programmes? Is there any chance that the International Association of Insurance Supervisors (IAIS) could deliver a standard that would help create a more level playing field and give risk managers greater assurance that their programmes are compliant?

■ How could and should captive owners and insurers prepare for the introduction of new accounting standards for insurance companies?

11.45–12.15— RISK REPORTING, DISCLOSURE AND SANCTIONS■ What is the point in risk reporting and why has it become such a hot topic in Europe and

internationally?■ What are the main European and international risk reporting and disclosure rules that European

corporations currently have to adhere to?■ Are there any new risk reporting, corporate governance and disclosure rules that risk and insurance

managers and the wider insurance market need to be aware of? ■ What will the directive on non-financial reporting require of companies? Why does the EC want to

introduce these new requirements and what will they achieve? ■ How do credit rating agencies use risk reporting? What progress has been made by Standard &

Poor’s on its enterprise risk management rating system and do the other rating agencies have similar plans to rate the quality and effectiveness of risk management?

12.15–12.30—Q&A

12.30–2.00—LUNCH

PART III: THE EMERGING RISK LANDSCAPE

2.00–2.45—CYBER RISKKyle Bryant, Regional Cyber Manager, Continental Europe, ACE Group; Kristoffer Haleen, Client Advocate, Willis

■ What is cyber risk?■ How is the risk identified and measured?■ Who should be responsible for the identification, measurement and management of cyber risk?■ How could and should risk managers work with other key departments such as IT, marketing and

legal to make sure these risks are effectively managed?■ What are the latest loss trends?■ What insurance coverage is currently available for cyber risk, which insurers and reinsurers are

offering the capacity and how is it priced?■ What are the latest coverage developments and what are the major gaps that risk managers would

like to see filled?

2.45–3.00—Q&A

3.00–3.45—POLITICAL RISKDavid McFadyen, Practice Leader Crisis Management, Aon Sweden

■ What is political risk?■ How are these risks best identified and measured?■ Who should be responsible for the identification, measurement and management of political risk?■ How could and should risk managers work with other key departments such as marketing and legal

to make sure these risks are effectively managed?■ What are the latest loss trends and where are the hotspots that companies need to look out for

when expanding to emerging markets?■ What insurance coverage is currently available for this market?■ Which insurers and reinsurers are offering the capacity and how is it priced?■ What are the latest coverage developments and what are the major gaps that risk managers would

like to see filled?

3.45–4.00—Q&A AND CONCLUDING COMMENTS—CONFERENCE ENDS

SPONSOR:

Risk FrontiersEMERGING RISK, RISK REGULATION & MARKET DYNAMICS IN THE NORDICS20 NOVEMBER, 2014CLARION HOTEL, RINGVÄGEN

11_CRE_Y5_09_FAP.indd 11 4/11/14 19:53:08

EUROPEAN RISK FRONTIERSNordic countries 201412

ISO 31000: A balancing actI

SO 31000 RECEIVED A THUMBS UP from most Nordic participants of our European Risk Frontiers survey as a suitable global risk management standard because it provides a balance between

generic processes and terms and fl exibility to allow adaptation to individual country and organisational needs.

According to Lassi Väisänen, Executive Director of Finnish risk management association FinnRima, because ISO 31000 is not currently a certifi able standard it provides freedom for companies to decide how deeply and fully they establish and adhere to its principles.

He said a real strength of ISO 31000 is it encourages risk managers and their organisations to understand and make use of the relationships, commonalities and differences between various risk management methods, standards and best practices.

“As ISO 31000 itself makes clear...it is intended to be utilised to harmonise risk management processes in existing and future standards. It provides a common approach in support of standards dealing with specifi c risks and/or sectors, and does not replace those

standards,” said Mr Väisänen. Fredrik Finnman, Swerma’s president and

Group Risk and Insurance Manager at ASSA ABLOY, said that ISO 31000 is an excellent base for any industry to establish a risk management programme. “Certainly you don’t have to adhere to every detail of ISO 31000 but the framework

Anders Esbjörnsson

and such should defi nitely be used as an international standard,” he told CRE.

He pointed out that ISO 31000 is increasingly gaining recognition as an international standard and said that Swerma members now tend to use it and/or COSO.

“It does need to be adapted to the individual company but to establish a risk management process internally it is always easier to have references such as ISO 31000 to explain to people what it will involve,” he added.

Fellow survey participant Anders Esbjörnsson, Ferma board member and Group Risk Manager at construction fi rm NCC AB, was less sure about the validity of global standards, including the potential use of ISO 31000.

“I would say yes and no [for using ISO 31000 as a global standard]. There are things in common around the world but it is very hard to standardise the job of risk management. So having the ISO 31000 is not the be all and end all solution and will not tell everyone what a risk manager does or is. However, there are similarities in risk management across countries or type of industry, and for this there must be a standard and guidelines such as ISO 31000,” he said.

GLOBAL PROGRAMME QUALITY TO BE DRIVEN BY INSURER’S FOCUS ON COMPLIANCEInsurers are increasingly focused on the compliance of multinational programmes, which creates more work for risk managers, but also peace of mind, a leading Swedish risk manager taking part in our European Risk Frontiers survey said.

“The eagerness from insurers to comply with all the legal issues on multinational programmes is defi nitely increasing. A few years ago underwriters would say compliance is something we really should do but were at the same time willing to take shortcuts to minimise administration, but we don’t hear that sort of thing anymore. There are no shortcuts when it comes to compliance, which creates more work for us but delivers peace of mind and increased quality—we need to comply,” said Anders Esbjörnsson, Ferma board member and Group Risk Manager at construction fi rm NCC AB.

Fredrik Finnman, Swerma’s president and Group Risk and Insurance Manager at ASSA ABLOY, added that in his experience global programmes are working fi ne. They are increasingly a business critical solution with claims handling the key focus, he said.

“It is complicated to set them up but they are business critical. Claims handling is the most critical part of a global programme and the main motivation to have a well functioning multinational insurance solution,” he told CRE.

No end in sight for soft Scandinavian marketT HE NORDIC RISK TRANSFER MARKET

remains very soft with new capital only likely to maintain the status quo or even improve

the environment for buyers, according to Nordic risk managers.

“Capacity only seems to be going up, there is defi nitely enough in the Nordic market, and the price is decreasing by the year—it is still a very soft insurance market,” said Fredrik Finnman, Swerma’s president and Group Risk and Insurance Manager at ASSA ABLOY.

He said the outlook is set fair for buyers as an increasing amount of capital from investors continues to enter the market.

“Investors see the insurance sector as a very good complement to their portfolio. So you have insurance-linked securities (ILSs) and cat bonds cropping up. Insurance companies now have this relatively cheap alternative source to tap into,” he noted.

Anders Esbjörnsson, Ferma board member and Group Risk Manager at construction fi rm NCC AB, said that currently there are many large insurance players operating in Scandinavia with others increasing their activity and capacity.

“When I compare the Scandinavian market and prices to the London

market it is very soft over here. Today I do not have problems with the capacity or pricing. I don’t see any signs of this changing in the foreseeable future. Investors face low interest rates and need to put their money somewhere and non-life insurance is a good place to invest,” he said.

Lassi Väisänen, Executive Director of Finnish risk management association FinnRima, painted a lightly less rosy picture of the local Finnish market. “Local insurance companies are fulfi lling needs for SMEs, but big enterprises are usually looking for capacity abroad,” he said.

Mr Finnman also said that new and alternative capital is providing different types of solutions for captives and multinational companies in the ILS market. But he pointed out this market is young

and lacks appetite for the more tricky risks. This could change, however, as individuals from the insurance sector start to align their skills with capital market investment, he added.

“The ILS market is particularly focused on short tailed risks, nat cats or fi re risk, but the market is growing for long tailed liability risks also. I have seen people moving from the insurance sector to the capital markets and bringing their knowledge of insurance with them. This might increase the risk appetite for more tricky risks within the capital markets,” he said.

Lassi Väisänen

“ I would say yes and no [for using ISO 31000 as a global standard]. There are things in common around the world but it is very hard to standardise the job of risk management. So having the ISO 31000 is not the be all and end all solution...”

ANDERS ESBJÖRNSSON

A simple risk transfer equation

R ISK MANAGERS SHOULD RETAIN RISKS THAT THEY ARE ABLE TO QUANTIFY AND MEASURE WITH THE resources at their disposal and look to transfer the more complicated and unknown threats, say Nordic risk managers.

“I have a philosophy within my organisation and my captive that the fi rst task is to understand the risk ourselves, that is the fi rst criteria we must reach. I would not today accept political risk in the captive, a cyber risk or even a D&O risk, as in my team I do not have the expertise to fully grasp those risks. So we only accept risks that we understand,” said Anders Esbjörnsson, Ferma board member and Group Risk Manager at construction fi rm NCC AB.

Fredrik Finnman, Swerma’s president and Group Risk and Insurance Manager at ASSA ABLOY, agreed that hard to physically manage and quantify risks lend themselves to risk transfer.

“The risks that should be transferred are those beyond the risk appetite of the company and moreover risks that are outside the envelope of the business,” he said. “Exposures that are very hard to assess, like supply chain risks or cyber risks, I think it is a good idea to try and transfer.”

Fellow European Risk Frontiers participant Lassi Väisänen, Executive Director of Finnish risk management association FinnRima, said that the good news for risk managers is that modern insurance solutions are allowing companies to transfer more risks.

“There are business needs and insurance solutions available for enterprises to transfer more risks…Modern insurance solutions will expand the use of insurance to support dynamic business at a new level. These new ideas will not reduce the meaningfulness of current insurance solutions, but give new possibilities for risk managers to work more closely with business people,” he said.

10_CRE_Y5_09_ERF-Nordics.indd 12 5/11/14 08:39:02

Onwards upwards

ADRIAN LADBURY (AL): WHAT IS THE BACKGROUND TO BROKERSLINK? HOW AND WHY DID YOU EVOLVE SO RAPIDLY WITHOUT EXTERNAL FUNDING?

JOSÉ MANUEL DIAS DA FONSECA (JMF): BrokersLink was born in Portugal in July 2004, formed by MDS in Portugal, Artai in Spain, Pérouse, First Assur of France and Lazam-MDS in Brazil. The vision for BrokersLink is to provide outstanding service to clients worldwide, responding to the demands of an increasingly competitive and global market. It started as a small group of members who had to compete with the big guys. One of the most important competitive edges was to be global to help service our Portuguese customers’ increasingly international needs. We also had a rising number of European customers outside of Portugal in France and other countries. So we needed alternatives. To start with the group of four partners were mainly focused on Europe and Brazil but the direction was clearly going to be global from the start.

AL: HOW DID YOU BECOME TRULY GLOBAL?

JMF: In November 2007 we offi cially created the Associação BrokersLink (ABL) to become a key player in the global insurance market and an alternative to the large global brokers. At that point BrokersLink gathered some 40 independent brokers across over 50 countries and managed more than an aggregated $4bn in premium.

Then we met other similar brokers in Asia and Latin America and began to focus on these markets. In November 2008 PanAsian Alliance, the network of Asian brokers that was created in 2005, and Alinter, the South American network of independent brokers formed in 2000, made the decision to operate under the single BrokersLink brand as one global network. As I travelled around the world and met other independent brokers I found that we had similar DNA wherever we were. In 2009 leading US independent broker Frank Crystal joined the network and we went truly global. We offi cially relaunched with a new brand identity and held our fi rst international conference in Hong Kong.

AL: WHAT ABOUT OTHER SERVICES? RISK MANAGERS WITH CROSS-BORDER EXPOSURES AND COVERAGE REQUIREMENTS DEMAND MORE THAN JUST TRANSACTIONAL PLACEMENT SERVICES, THEY ALSO WANT SERVICES IN OTHER RISK-RELATED AREAS. HOW DO YOU DELIVER THIS?

JMF: We expanded the membership to include other key service providers to deliver just this for customers. We now have a formal relationship with some 15 expert service providers including AIR Worldwide, the catastrophe modelling fi rm, American Appraisal, the global loss adjusting fi rm, Herco Risk Consulting, which is part of the MDS Group, Safeonline, the cyber security experts, and Towers Watson, the human capital and risk consulting fi rm. We even now work with a US law fi rm and so have a great range of expert advisory fi rms. This is another thing that makes us different to other broker networks. We are not just defending our business by using opportunistic tactics. We are looking for new business and have very aggressive DNA throughout the network.

AL: WHY DID YOU DECIDE TO INCORPORATE THE NETWORK? HOW DOES THIS HELP

IMPROVE THE OFFERING FOR CUSTOMERS AND WIN NEW BUSINESS?

JMF: We made a very important decision at the end of 2013 to transform BrokersLink from a not-for-profi t commercial partnership into a formal, profi t-oriented operation. We have created a holding company and incorporated in Zurich and will launch the stock offer to all members at the end of the year. The objective is to create a new model for the market, creating a unique alternative. We are different as the model does not exist anywhere else. We are raising capital to fund further investment that is focused on a signifi cant new business development push, a central management structure and investment in IT, such as a global software system. We also need to invest in branding and PR. So this will happen in the fi rst half of 2015 and we will probably end up with 40 to 60 shareholders.

AL: IS THERE NOT A DANGER THAT THE NEW STRUCTURE WILL DAMAGE WHAT HAS SO FAR BEEN A VERY SUCCESSFUL PARTNERSHIP SYSTEM? WILL IT STIFLE THE DYNAMISM AND FOCUS ON CUSTOMER CARE THAT THE INDEPENDENT NETWORK STRUCTURE FOSTERS?

JMF: We do not want to kill independence and the entrepreneurial philosophy. Our members are strong, dynamic and business- oriented companies. There is a great culture within the network. Over the last 10 years or so we have worked hard to ensure that all members are

very motivated to work together. The success of BrokersLink is largely based on the human relationship basis of the network and the level of knowledge. Everybody knows each other and there is a big alignment of culture. One important benefi t of incorporation and raising funds through the stock offer is to invest in IT. This is so important nowadays, especially for global customers. If we retain the close relationships with each other and customers and this is supported by the best possible IT infrastructure then we have the best of both worlds.

AL: WHAT ABOUT YOUR RELATIONSHIP WITH THE INSURANCE MARKET? HOW DOES THIS WORK? WHAT ADVANTAGES DO YOU BELIEVE YOU HAVE OVER YOUR BIG RIVALS SUCH AS MARSH, AON AND WILLIS?

JMF: BrokersLink partners with many insurance market leaders around the world. We manage a signifi cant premium volume with major insurers and this provides the leverage the network needs to deliver competitive and quality insurance programmes to clients.

The network has strong partnerships with AIG, Zurich and XL Group. We also have a strong relationship with CooperGay, one of the world’s leading wholesale and reinsurance brokers [MDS owns 10% of CooperGay]. These partners work actively to support BrokersLink members’ development efforts with training programmes, international database access and co-branded products. These partnerships are crucial to the development of the global alliance and the goal is to establish a prosperous collaboration for all involved parties.

But this club is not closed. Many other insurance brokers and captive in-house brokers also use BrokersLink as a platform to provide global risk management and insurance brokerage services to their multinational clients. At our recent conference in Venice there was a record turnout of over 270 members from over 70 countries. Our keynote speaker was Mike McGavick, CEO of XL. The big insurers take us seriously.

AL: SO PRESUMING THE STOCK OFFER IS SUCCESSFUL WHAT IS NEXT ON THE AGENDA FOR BROKERSLINK? WHAT WILL DIFFERENTIATE YOU FROM THE BIG LISTED

GLOBAL BROKERS SUCH AS AON, MARSH AND WILLIS AND THE OTHER BROKER NETWORKS?

JMF: The focus for the next two years will be to develop a continued stream of new business. We are different because the global brokers have offi ces worldwide but they are vertically

structured. The other broking networks are completely horizontal and essentially designed to protect their own

business. We are something in the middle as we retain our entrepreneurial spirit and independence but

with shareholders we will also create a vertical alignment and an even greater commitment to the cause than before. I believe the mix between the two will help develop new

business but at the same time retain the service culture, close relationships with customers and, of course, the local knowledge that is so key in the global insurance business. We have a very regional board with directors from each continent and the whole structure is built from bottom to top which means people feel very integrated. This is very clear when you

attend one of our events. We are very close and contact between different

Focus on BrokersLinkBEHIND THE NEWS 13

BrokersLink was created in 2004 as a partnership between four independent brokers in Portugal, France, Spain and

Brazil to meet the increasingly international risk and insurance needs of their customers. Ten years later the network

has over 60 broker members and 15 affi liated service providers. It is present in over 80 countries, boasts over 300

offi ces worldwide staffed by more than 7,000 risk and insurance professionals and handles some $15bn in annual

premium for customers. At its recent annual member conference in Venice, Italy, José Manuel Dias da Fonseca, the

network’s chairman and CEO of leading member MDS of Portugal, confi rmed that the network had incorporated

in Zurich, Switzerland and would launch a stock offer to members in the fi rst half of next year. Commercial Risk

Europe editor Adrian Ladbury asked Mr Fonseca why the network had decided to take this bold move and

how it would help further cement BrokersLink as a credible alternative to the established listed global brokers

At that point BrokersLink gathered some 40 independent brokers across over 50 countries and managed more than an

Then we met other similar brokers in Asia and Latin America and began to focus on these markets. In November 2008 PanAsian Alliance, the network of Asian brokers that was created in 2005, and Alinter, the South American network of independent brokers formed in 2000, made the decision to operate under the single BrokersLink brand as one global network. As I travelled around the world and met other independent brokers I found that we had similar DNA wherever we were. In 2009 leading US independent broker Frank Crystal joined the network and we went truly global. We offi cially relaunched with a new brand identity and held our fi rst international conference in Hong Kong.

WHAT ABOUT OTHER SERVICES? RISK MANAGERS WITH CROSS-BORDER EXPOSURES AND COVERAGE REQUIREMENTS DEMAND MORE THAN JUST TRANSACTIONAL PLACEMENT SERVICES, THEY ALSO WANT SERVICES IN OTHER RISK-RELATED AREAS. HOW DO YOU DELIVER THIS?

We expanded the membership to include other key service providers to deliver just this for customers. We now have a formal relationship with some 15 expert service providers including AIR Worldwide, the catastrophe modelling fi rm, American Appraisal, the global

which is part of the MDS Group, Safeonline, the cyber security experts, and Towers Watson, the human capital and risk consulting fi rm. We even now work with a US law fi rm and so have a great range of expert advisory fi rms. This is another thing that makes us different to other broker networks. We are not just defending our business by using opportunistic tactics. We are looking for new business and have very aggressive DNA throughout

a great culture within the network. Over the last 10 years or so we have worked hard to ensure that all members are

training programmes, international database access and co-branded products. These partnerships are crucial to the development of the global alliance and the goal is to establish a prosperous collaboration for all involved parties.

But this club is not closed. Many other insurance brokers and captive in-house brokers also use BrokersLink as a platform to provide global risk management and insurance brokerage services to their multinational clients. At our recent conference in Venice there was a record turnout of over 270 members from over 70 countries. Our keynote speaker was Mike McGavick, CEO of XL. The big insurers take us seriously.

AL: SO PRESUMING THE STOCK OFFER IS SUCCESSFUL WHAT IS NEXT ON THE AGENDA FOR BROKERSLINK? WHAT WILL DIFFERENTIATE YOU FROM THE BIG LISTED

GLOBAL BROKERS SUCH AS AON, MARSH AND WILLIS AND THE OTHER BROKER NETWORKS?

JMF: The focus for the next two years will be to develop a continued stream of new business. We are different because the global brokers have offi ces worldwide but they are vertically

structured. The other broking networks are completely horizontal and essentially designed to protect their own

business. We are something in the middle as we retain our entrepreneurial spirit and independence but

with shareholders we will also create a vertical alignment and an even greater commitment to the cause than before. I believe the mix between the two will help develop new

business but at the same time retain the service culture, close relationships with customers and, of course, the local knowledge that is so key in the global insurance business. We have a very regional board with directors from each continent and the whole structure is built from bottom to top which means people feel very integrated. This is very clear when you

CONTINUED ON NEXT PAGE

13_CRE_Y5_09_BTN.indd 13 4/11/14 18:53:08

B ROKERSLINK IS THE brainchild of José Manuel Dias da Fonseca, Chairman

of the network and Chief Executive of MDS, the biggest insurance broker in Portugal.

The evolution of MDS and BrokersLink are closely linked and rooted in the same need to meet the fast-growing international risk and insurance needs of Portuguese clients as well as wider European and international business.

MDS was originally formed in 1984 as captive broker of Sonae, the Portuguese telecommunications and retail conglomerate.

Over the last 20 years in particular Sonae has expanded at an accelerating rate and MDS followed suit as it sought to meet the risk management needs of its parent group.

The group decided to use its captive broker to look after its increasingly complex and international insurance and risk management requirements rather than outsourcing to an established global broker and so MDS embarked upon a rapid expansion path.

The first big move for MDS came in 1997 when it expanded its activities in the insurance market beyond the parent group.

MDS subsequently became a fully-fledged insurance brokerage willing and able to transact business on behalf of other companies and, because of the size of the Sonae group account, automatically became one of the biggest brokers in Portugal.

The group also created a risk management department to offer risk management consulting services to customers.

The next big step came in 2000 when the ambitious and well-connected Mr Fonseca joined as CEO.

In the same year Sonae Re, the captive reinsurer of Sonae Group, was created and the company also formed a partnership with Lazam, a leading insurance broker in Brazil,

to create Lazam-MDS. Portuguese

companies such as Sonae were well placed to take advantage of the impressive growth of the Brazilian economy at the start of the 21st century because of the historical, cultural and language links with the old mother country.

Portuguese companies have stepped up their expansion efforts in Brazil since the onset of the credit crisis as they faced such poor growth prospects in the domestic and Spanish

markets. The deal with Lazam was designed to help MDS clients expand their activities in Brazil.

Both Sonae and MDS threw themselves into the Brazilian adventure. But growth was not limited to Brazil.

In 2001, Sonae acquired a participation in French broker Firstassur as MDS sought to expand its footprint further into Europe

along with its growing third party customer base. Two years later, MDS acquired a participation in Pérouse, the Lyon, France-based broker, to create Pérouse-MDS.

In 2004 MDS celebrated its 20th anniversary and announced the creation of BrokersLink—initially a partnership with four like-minded Portuguese, Spanish and French brokers designed to help meet the increasingly international insurance and risk needs of customers.

In 2007 MDS made a significant move as it acquired a stake in CooperGay, the leading independent wholesale and reinsurance broker.

In 2009 MDS celebrated its 25th anniversary and BrokersLink held its first global conference in Hong Kong, further cementing the Portuguese group’s international credentials.

A year later Cooper Gay merged with Swett & Crawford, the leading US wholesale broker, which helped MDS service its European and international customers in the US.

In 2011 MDS announced the launch of Herco in Portugal. Herco is a risk-consulting firm initially based in Brazil that provides customers with risk management advice.

Two years later Jorge Luzzi, former president of Ferma and risk manager for Pirelli, joined MDS Group as Executive President of Global Herco and Director of HighDome, the Malta-based PCC that is fully owned by MDS Group and delivers a range of risk financing solutions to its clients and the wider market.

Last year MDS announced a significant expansion of its African operations as it opened an office in Luanda, Angola.

And this year, as the group celebrated its 30th anniversary, it announced the plans to incorporate BrokersLink and offer shares to its members.

14 BEHIND THE NEWSFocus on BrokersLink

brokers is very easy and important to us.

AL: I HAVE BEEN TOLD MANY TIMES BY RISK MANAGERS THAT THEY PREFER WORKING WITH INDEPENDENT BROKERS BECAUSE THEY FEEL THAT THEY RECEIVE BETTER SERVICE AND CONTINUITY OF CONTACT. BUT THEY FEEL THAT THEY HAVE TO WORK WITH THE BIG, LISTED MULTINATIONAL BROKERS BECAUSE THEY ARE A ‘SAFE BET’. IF ANYTHING GOES WRONG THE RISK MANAGER CAN’T BE BLAMED FOR CHOOSING AN ‘UNKNOWN’ NAME. WILL YOUR NEW STATUS HELP OVERCOME THIS OBJECTION?

JMF: It is true that some multinational customers feel that they have to work with the big groups for the reason you identified. But the reality is that there are credible alternatives and BrokersLink is one of those alternatives. We can guarantee the same skills and capabilities if not better and we offer a much more client-focused service and easier access. Access and quick reaction speed is very important to customers nowadays and we can offer that. In Venice our Irish partner shared an interesting tale. He said that he had an IT client in Dublin

that had just opened an office in Singapore and forgot to tell the broker. He realised that he needed to sort insurance for the new office but did not know how to go about it. Our Irish partner told him that he would sort it out and someone would turn up to help in the morning in Singapore. The Irish customer did not believe it would happen, but of course it did. Our partner in Singapore was there the following morning to start the process. This does not necess-arily happen in much bigger and bureaucratic organisations that can also suffer from internal competition which all leads to delays. We are building a broking organisation that is specialist and delivers service but does not suffer from such stereotypes because it retains the entrepreneurial spirit and attention to customer needs. Also customers do not suffer from people always moving around to different departments and territories.

AL: YOU ANNOUNCED A CHANGE IN THE STRUCTURE OF BROKERSLINK RECENTLY IN WHICH YOU SPLIT THE FORMER EUROPE MIDDLE EAST AND AFRICA (EMEA) REGION INTO TWO SEPARATE REGIONS–EUROPE AND MIDDLE EAST AND AFRICA (MEA). WHY DID YOU DO THIS?

JMF: This change was made to enable BrokersLink to build closer relationships with local clients and tailor its service delivery to match the different needs of each region. The Middle East and Africa are very different economies with different needs and so we decided to reflect that with a new structure. As part of this move Jacqueline Legrand, CEO of MDS Portugal and previously regional director of the combined EMEA region, will focus solely on Europe. Youness Rhallam, CEO of Moroccan broker Alpha Assurances, was appointed regional director of MEA. Youness will be closely supported in this key role by Tiago Mora, CEO of MDS Angola, Maely Daoud, director of Filhet-Allard in France, and Cyril Haddad, regional CEO of Egypt-based Hadbrok Insurance Brokers. The African continent in particular presents enormous potential for BrokersLink, but it is a huge continent with specific and different cultures, legal systems, business and insurance practices that require dedicated leadership. By appointing Youness as our regional director for MEA we will be able to provide clients in this exciting and fast-growing market with access to the highest standards of global service combined with local expertise and awareness of local cultures.

CONTINUED FROM PREVIOUS PAGE

MDSNavigating through choppy waters to a brave new world

José Manuel Dias da Fonseca

‘‘ MDS was originally

formed in 1984 as captive

broker of Sonae, the Portuguese

telecommunications and retail

conglomerate...”

13_CRE_Y5_09_BTN.indd 14 4/11/14 18:52:53

15E-NEWSLETTER

» AON QUITS INEX24 TO LAUNCH OWN PORTAL

[COLOGNE]—INSURANCE BROKER AON IS leaving Inex24 because it believes the IT insurance placement platform is not up to scratch. Instead the broker plans to launch its own online portal for placing insurance tenders. It is currently being developed under the name Aon Carrier Link.

The planned platform will be accessible to Aon customers and insurers who collaborate with the broker.

“We have decided to use a system that conforms better to our actual needs than has been possible to date with Inex24,” Hartmuth Kremer-Jensen, Managing Director of Aon Risk Solutions, Germany, told CRE. The project will run for an initial period of three to five years after which Aon will review the situation.

Aon is dissatisfied with Inex24 because it believes it has too many incompatible interfaces that result in double-handling information.

“We currently have a system to manage treaties, another one which enables international customers to access information on losses and yet another one which we use to supply aggregate data to Aon branches in other European markets. It is not possible to simply enter the data once and to store it on all three systems in an identical way,” Mr Kremer-Jensen said. “The error rate increases as soon as the same data record is entered by three different people in three different systems.”

Inex24 is an IT collaboration platform, launched in 2011, which enables industrial customers to invite tenders for their insurance needs and negotiate contracts and conditions between insurers and brokers. At present there are between 50 and 60 insurers on the platform, 10 to 15 brokers and around 50 industrial companies. It currently operates in German-speaking countries only.

Inex24 was not expecting the move

by Aon. “We are very surprised by the news because we have a contract with Aon but we are clarifying the situation,” the Munich-based company told CRE.

Aon’s exit will be a serious loss for Inex24 and a big blow to efforts to modernise industrial insurance placements.

Inex24 was initiated by Felix Hufeld, currently Head of Insurance at the German Federal Office for Insurance Supervision (BaFin), and the late Ralf Oelßner, who was in charge of insurance at Lufthansa for many years.

Although large firms such as Siemens, ThyssenKrupp or Bosch use Inex24 to purchase insurance, the platform remains quite controversial. Many market players are concerned about data safety and the loss of personal contact.

Some large corporate insurers, including AXA Corporate Solutions, left Inex24 two years ago because of high costs and double information handling. “Running costs for the use of Inex24 were too high compared to the number of AXA Corporate Solutions customers,” a spokeswoman for the company said.

Despite Aon’s withdrawal and the concerns of companies such as AXA, there is great appetite in the market for computer-based placement tools and tender platforms.

Olaf Köhler, Insurance Manager at Austrian Railways (Österreichische Bundesbahnen) who uses Inex24 to place tenders said: “Platforms such as Inex24 facilitate business processes which are more transparent and comparable.”

Aon’s Mr Kremer-Jensen agrees and thinks that the basic idea behind Inex24 is a good one. “Organising industrial insurance nowadays via email and spreadsheets no longer works; systems are far too susceptible to errors,” he said.

Therefore Aon is currently working with large German industrial insurers to design and programme its new system. “When a loss occurs, it is very important that all affected parties can communicate easily and quickly with another,” Mr Kremer-Jensen said. “This is not the case when it takes ages to search for the appropriate documents and check what is actually written in the relevant contract.”

Mr Kremer-Jensen was not prepared to reveal how much the broker will spend on the system, commenting only that ‘it is definitely more than it would have cost us to use Inex24 for the next five years’.

“But that is still better than to die a slow death and to use a tool which is only being used by half of the market players,” he said.

—Anne-Christin Gröger

» GLOBAL PROGRAMMES ADDING TO COMPLEXITY OF LARGE CLAIMS: CUNNINGHAM LINDSEY

THE INCREASINGLY COMPLEX structure of global programmes is creating issues when it comes to large claims, according to loss adjuster Cunningham Lindsey.

Big insurance claims are becoming larger and more complicated to handle, reflecting the increased complexity of global programmes, economic growth, increasing reliance on technology and complicated corporate structures, according to the 2014 Major And Complex Loss Review from Cunningham Lindsey.

Claims growth is due in part to the global economic recovery as more and more companies look to operate in foreign markets, explained Neil Gibson, UK Major & Complex Loss Director at Cunningham Lindsey. As companies operate overseas so the settlement of large claims becomes more challenging, he said.

In particular, differences in coverage within global insurance programmes between local policies and the master policy can cause problems. For example, damage to goods and stock stored in the open may be covered under a global policy, but can be excluded by a local policy, said Mr Gibson.

Risk managers and their brokers are getting smarter at structuring global programmes and transferring risk, and they are also looking to get around restrictions and limitations in policies, he said.

For example, buying back of deductibles, cross class reinsurance and the use of captives in global programmes all make programme structures more complex and settling large claims more difficult, said Mr Gibson. As captives look to buy reinsurance protection lower down, differences between cover offered by the captive and under reinsurance can be problematic.

As claims become larger and corporate structures more complex, it becomes increasingly necessary to review insurance programmes and conduct scenario planning to test the policy against business continuity plans, said Mr Gibson.

“This is something that we as loss adjusters are being asked to do more and more. We are much more involved in pre-loss work, learning from incidence and drawing on past experience,” he said.

While claims continue to become larger and more complex, there is significant capacity in the market to sustain the current approach to claims in the near term, according to Mr Gibson. However, increasing complexity will require insurers and loss adjusters to invest in more specialist skills and expertise in the future, he said.

—Stuart Collins

» CHRIS FISCHER HIRS APPOINTED NEW CEO OF AGCS

ALLIANZ GLOBAL CORPORATE & Specialty (AGCS) has named Chris Fischer Hirs as its new CEO. He replaces Axel Theis who has been appointed to Allianz’s board of management.

In the shake up, Nina Klingspor, previously Head of CEO Office at Allianz, will replace Mr Hirs as CFO of AGCS. The appointments are all subject to regulatory approval.

Mr Theis will succeed retiring Clement Booth on the main Allianz board. In his new role Mr Theis will be responsible for Allianz’s global industrial insurance business, credit insurance and its insurance business in Ireland and the UK.

New AGCS CEO Mr Hirs first joined Allianz back in 1999 in its Allianz Risk Transfer (ART) division, which became part of AGCS in 2006.

In 2007 he was appointed to the AGCS board of management with responsibility for Asia-Pacific and ART. He then became chief regions & markets officer in addition to his ART responsibilities, before being appointed CFO of AGCS in 2009.

Ms Klingspor will be joining the AGCS board next January as CFO. She brings financial and operational experience to her new position, having been managing director of Allianz Global Investors Europe prior to her latest role. Before this, she worked at Allianz Global Investors and Allianz Asset Management in a range of managerial and market-facing roles.

AGCS was created in 2006 through the merger of Allianz Global Risks and Allianz Marine & Aviation. Mr Theis has been the company’s CEO ever since, working closely with Mr Booth as the Allianz board member with responsibility for AGCS.

During this time, AGCS has established itself as a key global industrial and specialty insurer and a key contributor to the Allianz Group’s Property & Casualty business. In only eight years AGCS has increased its gross premiums written by 78% to €5bn in 2013 and has doubled its employee numbers to 3,500 in 28 countries worldwide.

Mr Theis moved to thank the loyalty of clients, brokers and AGCS employees in helping the unit become a reliable partner for businesses around the world during the last eight years.

“While I’m looking forward to continuing to be closely involved with the company in my new role, I know that I leave AGCS in Chris’ expert hands. With his extensive leadership experience and his deep knowledge of our clients and markets, he is ideally placed to lead the company successfully in the next phase of its development,” he said on the appointment of his successor Mr Hirs.

—Ben Norris

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15_CRE_Y5_09_BoW.indd 15 4/11/14 16:34:16

NEWS16 Continued from Page One

in January and the number of new daily cases declines, RMS said.

The current outbreak is causing operational challenges and disruption for multinational companies operating in west Africa, as well as impacting local trade and commerce. The World Bank estimates that the economic cost of Ebola in west Africa could be as high as $32.6bn by the end of 2015.

HIGH IMPACTThe healthcare, mining, hotel and travel, agriculture, food and charity sectors are among those directly affected by the outbreak. Of chief concern for foreign organisations are expat and local employees working or travelling in the region, as well as the risk to assets and potential business interruption.

To date there has been little supply chain disruption for multinational companies, according to Caroline Woolley, EMEA Risk and Property Practice Leader at Marsh. However, should the situation deteriorate, this could change. For example, Ebola has driven up the price of cocoa in recent weeks over fears that the outbreak could spread to Ivory Coast and Ghana, which together account for around 60% of the world’s cocoa production.

“No company operates in isolation, they are all part of a local community relying on infrastructure and services, as well as part of a global value chain of customers and suppliers,” said Ms Woolley.

“Companies need to consider the implications of Ebola for their own locations and those of their supply chains and customers. There has been a lot of discussion around Ebola and many

companies are now looking at their options—running business continuity scenarios and testing their insurance policies to see how they may react, if at all, and whether there is alternative insurance cover available in the market,” she said.

Standard business interruption (BI) insurance is only usually triggered after the policyholder has suffered damage to their premises, explained Ms Woolley. However, there may be some limited cover available under extensions to property BI policies, including those for notifi able and specifi ed diseases and non-damage denial of access.

Extensions are usually triggered by a lockdown ordered by a recognised authority, typically limited to a notifi able human disease monitored by the WHO. This is the case with Ebola. Extensions also have sub-limits, and may have restrictive indemnity and waiting periods, explained Ms Woolley.

Ms Woolley is not aware of any business interruption claims in the market for Ebola. But she anticipates that claims are likely because Ebola is a notifi able disease that has resulted in government-ordered shutdowns.

The most affected industries could look to claim from their insurers where cover is available. For example, if the outbreak were to result in the closure of hospitals, some healthcare providers may make claims under BI and specialist infectious disease policies, said Ms Woolley. Our clients tend to prefer extension clauses to existing policies where possible, she explained.

Ebola coverage could be available under many lines of business, although exclusions, restrictions on cover, limits and wordings mean that companies have to review available coverage.

There is a lot of work going on to assess cover, according to David Benning, European Mining Practice leader at Marsh. “Some companies may have non-damage business interruption cover for certain infectious diseases, but this could have certain exclusions or be subject to conditions. For example, this is usually sub-limited in amount and time and restricted in terms of distance and scale of pandemic,” said Mr Benning.

It is still early days to gauge insurers’ reaction to the Ebola outbreak, although premium rate discussions should take second place to client efforts to manage the risk, said Mr Benning.

“Liability and property underwriters are trying to assess what is a fl uid, fast-moving situation characterised by uncertainty. But rather than talk of an insurance market reaction, this is more an issue of risk management, mitigation and contingency planning,” he said.

LOOK TO RESILIENCE, AGAINInsurers may ask more questions of an insured’s operational and supply chain resilience, according to Mr Benning. “While there is market talk of an ‘Ebola insurance product’ being launched, the reality is that cover and availability will vary markedly between class of insurance, spread of risk and regions,” he said.

Despite the Ebola outbreak, some insurers are still being fl exible around infectious disease cover, said Ms Woolley. For example, Marsh in the US has negotiated an endorsement with insurers to offer broader cover that removes the trigger requirement for a government shutdown.

However, it is believed that at least one liability insurer has moved to restrict cover for Ebola. According to

media reports, ACE Ltd may impose restrictions on Ebola-related liability claims for organisations with employees traveling to west Africa. This is thought to be the fi rst such move by an insurer.

According to Dow Jones, ACE has begun selectively excluding Ebola from new and renewing policies on a case-by-case basis for US customers that have foreign travel exposure to certain African countries.

Companies should have some liability insurance cover for employees related to infectious diseases under employers’ liability and specialist personal accident policies, explained Amanda Doran, Head of Commercial Combined at QBE Europe.

For example, local employees in west Africa would be covered by local employers’ liability insurance, while expat workers would typically be covered by home country employers’ liability, or equivalent cover. Some companies would also purchase specialist personal accident insurance, especially for employees in manual work, such as mining, she added.

Although Ebola is not usually excluded from such policies, there may be restrictions that companies should watch for. For example, most UK employers’ liability policies only cover 90 days spent abroad, and some would exclude manual work, according to Ms Doran.

Insurers can extend cover but would expect to be informed in advance of any employees travelling to affected areas, warned Ms Doran. Insurers like QBE are not applying additional limitations for Ebola or affected regions, she said.

The Ebola outbreak could also result in some traditional property insurers restricting non-damage BI cover, said

Ms Woolley. Some insurers are willing to provide more meaningful cover for non-damage BI risks like Ebola, but under separate policies written by the non-damage BI market, she explained.

Some insurers have already begun offering policies to cover loss of revenue related to disease outbreaks like Ebola. Insurance broker Miller is selling a policy underwritten by Ark Syndicate at Lloyd’s that provides business interruption insurance for healthcare facilities affected by a quarantine related to diseases such as Ebola.

EXCLUSION ZONESpecialist non-damage supply chain products typically exclude pandemics because of concerns with accumulation of risk, according to Nick Wildgoose, Global Supply Chain Risk Product Leader at Zurich Global Corporate. Zurich may cover infectious diseases under its supply chain product, but only for specifi c locations or transport hubs, he said.

“Ebola has not caused signifi cant supply chain disruption and, as yet, there have not been any claims notifi cations for Ebola under supply chain policies,” he said.

While the Ebola outbreak is a devastating event in its own right, IT and political risks feature much higher in surveys on supply chain disruptions than infectious diseases, according to Mr Wildgoose.

“Concerns remain more around political risks to supply chains like the recent protests in Hong Kong or the confl ict in Ukraine,” he said. “All these events, including the Ebola outbreak, are driving increasing awareness among clients of non-damage business interruption.”

CONTINUED FROM PAGE ONE

EBOLA: Fears for containment of outbreak still high on agenda

Therefore the code and its guidance are not mandatory but if fi rms do not comply they must explain why and detail appropriate alternative measures taken.

The FRC said the new code and guidance ‘signifi cantly enhances the quality of information investors receive about the long-term health and strategy of listed companies, and raises the bar for risk management’.

While the code tells UK listed companies what they need to do in terms of corporate governance, the guidance suggests how to do it in relation to risk management and internal control, explained Paul Hopkin, Airmic’s technical director.

He believes that the guidance and code is a real shot in the arm for risk management and risk professionals.

“It reinstates the position of risk management within the company and is a real chance for risk managers to go out into the company and have some real infl uence,” he said.

A crucial update to the guidance is that boards must now be provided with suffi cient information from within the company to enable board members to satisfy risk management requirements.

“The board now has to show that it has been told about the main risks the organisation faces, that someone is doing a thorough job in identifying and analysing those risks and is passing that information up to the board,” said Mr Hopkin. This is a development that

Airmic ‘likes very much’, he added.“If you remember the risk glass

ceiling issue from our Roads to Ruin research whereby risk information failed to get through to the board, the FRC is effectively saying there should no longer be that glass ceiling within an organisation. It is saying risk information should be passed upwards so that the board understands the main risks to its business model and strategy,” he explained.

Critically this must be forward-looking information, which means boards are going to have to rely more heavily on the skills of risk managers as opposed to audit professionals, said Mr Hopkin.

“We are talking about information that says here are our operations and these things could go wrong in the future, or here is our strategy and here are things that could undermine that strategy. In both cases these are future risks and therefore audit is not in the best position to support the board. Rather the skill base of risk managers is best able to produce this forward-looking information and as necessary give assurance to the board about the risk guidance they should receive so they can make decisions on risk matters,” said Airmic’s technical director.

The new guidance was equally welcomed by Richard Anderson, Chairman of the IRM.

“It is the most impressive step forward in risk management guidance I have seen,” he told CRE.

“A set of guidance that talks

about risk appetite, risk culture, risk identifi cation, strategic risk and so on is really outstanding and is going to present major challenges for boards if they are going to take it as seriously as they need to,” he continued.

“It provides an enormous opportunity for risk managers to refresh and review what they are doing to make sure they have clearly articulated risk appetite and to make sure they do understand the real artifacts of risk culture. A bottom-up risk process just isn’t good enough—we need boards involved in the risk management process as well,” he added.

He recommends that all UK boards consider the content of the guidance carefully and take steps sooner rather than later to address any shortcomings in their current procedures.

SOLID GROUNDAirmic also said the guidelines represent a good method of ensuring a solid understanding of risk for all boards and recommends all members consider their own risk management standards in line with the updated guidance.

In an Airmic Live event that discussed the new code and guidance, Peter Swabey, Policy & Research Director at the Institute of Chartered Secretaries and Administrators (ICSA), also welcomed the updates. He said the guidance on risk management and internal control is ‘enormously helpful’.

Risk managers will be responsible for making sure that the board is

fully aware of these changes, their responsibilities and what they need to do to comply with the guidance, he stressed.

He said companies must consider how the changes apply to them on an individual basis.

There is no one-size-fi ts-all solution or single path to follow, he pointed out. “Neither Airmic or ourselves can produce something that says this is what you have got to do,” he said. “But the guidance gives you some really good ideas on how to make the management of risk individual to you as a company and I think that is really important.”

Gillian Lees, Head of Research and Development at the Chartered Institute of Management Accountants (CIMA), said the new code and guidance has raised the bar for risk management.

“Risk management is very much embedded in the code in a way it was not a few years ago,” she said.

She noted that the code’s newly introduced viability reporting statement brings in a broader-based, longer-term risk management approach.

“The longer-term viability statement involves several aspects. First of all directors have got to confi rm that they have conducted this very robust assessment of what we are calling the principal risks. These are the risks that would threaten the business model, the future performance of the company and the company’s solvency or liquidity—so the really

big risks. Once they have done that they have got to explain how they have assessed the prospects of the company over a particular period,” she said.

“I think we can say that risk is now well and truly embedded in the code. It is now made very clear in the guidance that boards need information that is the meat and drink of the risk manager. So we are talking about heat maps, scenario analysis and so on. I think the risk manager has a very important role to play in ensuring that the board has the full range of relevant information that enables it to determine the principal risks,” she added.

Also speaking at the Airmic Live event, Richard Sykes, Partner, PwC, pointed out that the FRC believes the new code and guidance is a fundamental change from existing risk management best practice as opposed to just an incremental update.

‘We think that this will be a fundamental change for the majority of organisations because although a lot of organisations have lots of arrangements around all aspects of risk management to get that properly joined up in a consistent manner, linked in to risk appetite all the way down to cultures and behaviour is a diffi cult task,” he said.

“For any risk manager I think this code can only be a positive step forward in terms of opening up the importance of risk and the profi le of risk amongst all your colleagues on the board table,” he added.

FRC: Airmic, IRM back move as ‘real opportunity for community’CONTINUED FROM PAGE ONE

01_CRE_Y5_09_News.indd 16 4/11/14 19:43:24

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17_CRE_Y5_09_FAP.indd 17 4/11/14 16:25:58

including improved accident year loss ratios, modest net spread compression and continued capital management.”

US-based Travelers reported net income of $919m, up 6% on the prior year quarter. Total revenues of $6.9bn were up 7%.

Travelers was one of the insurers that felt able to return capital to shareholders. It paid back total capital of $937m in the quarter, including $751m in share repurchases. Year-to-date total capital returned to shareholders is $2.9bn.

The company said that the increase in net and operating income compared to the prior year quarter primarily resulted from higher net investment income and lower catastrophe losses, partially offset by lower net favourable prior year reserve development and a slightly lower underlying underwriting gain.

Jay Fishman, Chairman and Chief Executive Offi cer of the company, said: “Our results were driven by a strong underwriting performance across all of our business segments, as refl ected in our consolidated combined ratio of 90%, and higher investment returns driven by private equity performance.”

Mr Fishman was actually quite bullish about the rating environment for international business at least. “Within business and international insurance, once again, we improved retention in our domestic businesses from already strong levels in recent quarters, while continuing to achieve meaningful rate and exposure increases,” he said.

Chubb reported that net income in the third quarter was up to $594m, from $541m in the third quarter of 2013.

The third quarter combined loss and expense ratio was 85.8% in 2014 and 85.7% in 2013. The impact of catastrophes accounted for 2.4 percentage points of the combined ratio in the third quarter of 2014 compared to 3.0 percentage points in the third quarter of 2013.

Net written premiums increased 5% in the third quarter of 2014 to $3.2bn.

During the third quarter, Chubb repurchased approximately 4.7 million shares of its common stock at a total cost of $425m.

“Chubb had an outstanding third quarter,” said John D. Finnegan, its chairman, president and chief executive offi cer. “Our combined ratio was an excellent 85.8%, refl ecting strong underwriting performance in all our business units as well as relatively low catastrophe losses. We are also pleased that in the third quarter we once again achieved mid-single digit increases in our US

rate change metrics, as well as high retention levels in all of our businesses,” he added, again talking up the market but with little aggression.

ACE, born in Bermuda but now located in Zug, Switzerland, reported a post-tax operating profi t of $891m for the quarter and $2.5bn for the year to date, which were both records.

The P&C combined ratio for the quarter was 86.3%. The P&C combined ratio for the nine months ended 30 September, 2014, was 87.5%. Both benefi ted from reserve releases.

Evan Greenberg, Chairman and Chief Executive Offi cer of ACE, commented: “P&C underwriting income was up 5% as a result of growth in earned premium and steady underwriting margin. The combined ratio of 86.3% benefi ted from strong current accident year results, positive prior years’ reserve development and relatively light catastrophe losses. Net investment income was up 8.5%, due primarily to growth in our invested assets and partnership distributions.”

NATURAL SLOWINGMr Greenberg reported that net P&C premiums, excluding crop insurance, grew 4% in the quarter and 7% over the year to date. He said that growth ‘naturally slowed a bit’ in the quarter given the more competitive market globally.

But Mr Greenberg added that ACE sees many opportunities for growth because of its broad global diversifi cation.

Share repurchases by ACE reached $450m during the quarter. Since the inception of its November 2013 share repurchase authorisation, the company had repurchased, up to 20 October, 2014, approximately 11.2 million shares for $1.1bn.

XL Group reported operating net income of $187.1m for the third quarter against $154.6m for the same period last year. The net profi t was down signifi cantly for this quarter, however, from

$135.6m to $72.4m.XL’s P&C combined ratio

was 90.1% for the quarter compared with 95.0% in the prior year quarter.

The trend of lower natural catastrophe losses continued as XL reported $29.8m in related costs compared to $85m in the prior year quarter. Share buybacks at XL totalled 8.2 million ordinary shares for $275m during the quarter.

XL’s chief executive offi cer Mike McGavick was perhaps a little more honest about the state of the market than his peers as he said: “While we note the relatively benign catastrophe activity so far this year, XL has produced solid across the board results with P&C underwriting profi t and combined ratio well ahead of the prior year quarter…We’re proud of what XL is producing, particularly given the well-documented pressure on pricing and renewals. Even with the tough market conditions, we believe we are well poised to build on this progress, relying on the drive, innovation and skill of our underwriters and global teams.”

Bermuda-based AXIS Capital reported net income of $279m, compared to $137m last year.

Gross premiums written decreased 1% to $897m. A decrease of 3% in its insurance segment premiums was partially offset by increases of 3% in its reinsurance segment.

The combined ratio was 92.2%, compared to 86.3%, with the current accident year loss ratio standing at 63.8% compared to 61.5%.

AXIS was another insurer that reported net favourable prior year reserve development. The results were boosted by $65m that buoyed the combined ratio by 6.7 points. This compared to the $80m that benefi ted the combined ratio by 8.4 points in the third quarter of last year.

AXIS carried out share repurchases during the quarter of some $150m.

Albert Benchimol, President

and CEO of AXIS Capital, said: “Against a backdrop of more challenging market conditions, we believe our market reputation for superior service, strong capital and superior ratings will allow AXIS to enhance its position and access profi table business. We will continue to balance prudent growth and active capital management. So far this year, we have repurchased 9% of our beginning outstanding common shares, for aggregate consideration of $469m, thus returning to shareholders 126% of the year-to-date operating income in the form of dividends and share repurchases.”

REALIGNMENTAllied World Assurance, now based in Zug, Switzerland, reported net income of $30.9m for the third quarter of 2014.

The company said that rates had increased 7.5% across its US insurance platform. The combined ratio was a healthy 87.4% for the fi rst nine months of 2014.

Interestingly, Allied World revealed that at the end of the fourth quarter it will realign its two insurance business segments into North American Insurance and Global Markets Insurance. The company has also reached defi nitive agreements to acquire the Hong Kong and Singapore operations of Royal & Sun Alliance Insurance.

Julian James, currently president of Allied World Assurance Company (Europe) Ltd, will be appointed president of Global Markets Insurance. He will continue to oversee all insurance lines of business for Allied World Europe and Syndicate 2232 and assume responsibility for Allied World’s operations in Asia Pacifi c as well as any other initiatives outside of North America.

“We continue to see attractive opportunities for selective organic growth,” said Allied World’s president and chief executive offi cer Scott Carmilani.

“The strategic changes to our management team, and reorganisation of our segments, will better align us with our clients and position us well for continued opportunities. Given the footprint of our business outside of North America, and the announced RSA transaction, these regions represent the next phase of our development,” he added.

Bermuda-based Aspen Insurance Holdings reported net post-tax profi t of $37.4m versus $107.4m for the third quarter of last year. The post tax operating profi t looked better at $81.7m against $82m.

Gross written premiums increased 12.2% over the third quarter of 2013 to $652.5m, with growth from both insurance and reinsurance segments.

The combined ratio for the third quarter of this year was 94.6% (91.3% excluding corporate expenses related to bid defence costs following Endurance’s failed attempt to buy the company). This compared with 91.8% for the third quarter of 2013.

Net favourable development on prior year loss reserves contributed $32.6m, or 5.3 combined ratio points, for the third quarter of 2014 compared with $33.6m, or 6.2 combined ratio points, for the third quarter of last year.

During the third quarter Aspen bought back $90m worth of shares from investors. For the nine months ended 30 September the company bought back some $120.9m of shares.

Chris O’Kane, Chief Executive Offi cer of Aspen, said during a conference call with analysts that rates have generally been stable but there has been movement in loss-hit lines.

“Across the entire insurance book price adequacy has remained relatively stable. Yet there are some areas where rates have been under pressure such as energy and property damage where they have fallen 14% year-to-date and aviation which has fallen 7%,” he said.

“We are generally pulling back from the areas where the rates are suffering and successfully allocating capital to areas where pricing is holding steady or increasing slightly such as certain parts of US casualty and also marine energy liability where we are achieving price increases of 9% year-to-date,” added Mr O’ Kane.

■ A full analysis of the world’s leading insurance and reinsurance company results and implications for capacity and pricing trends for corporate risk managers will be included in the December/January issue of Commercial Risk Europe.

NEWS18 Continued from Page One

RESULTS: Reserve releases continue to boost fi rms’combined ratios and capital handed back to investorsCONTINUED FROM PAGE ONE

[FROM LEFT] Julian James and Evan Greenberg

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