www.commercialriskeurope.com
VOLUME 5/ ISSUE 10/ DECEMBER 2014
Commercial Risk Europe
EUROPEAN INSURANCE & RISK MANAGEMENT NEWS
HOT SEAT: PAOLO RIBOTTA
Generali Global Corporate & Commercial is a
significant market entrant, CRE asks its head
Paolo Ribotta why the Italian giant now joins
this already competitive market ............ p11-13
AVIATION SAFETY:
AGCS’ Global Aviation Safety Study reveals that huge
improvements in airline safety—and notably technology—
are leading to fewer fatal or catastrophic passenger
airline losses, despite 2014 having been a bad year ........... p4
AIRMIC.
PARIMA.
Airmic survey suggest boards
falling short on risk management
Parima promises
global programme
database for members
Ben Norris
[email protected]
[LONDON]—AN AIRMIC MEMBER
survey has revealed that the majority
of UK boards are falling short of the
latest risk guidance from the Financial
Reporting Committee (FRC) that
requires them to take a proactive role
in their companies’ risk management
efforts.
The survey also reveals that Airmic
members are increasingly turning to
consultants for help on cyber risk,
average salaries continue to rise, there
is a trend towards broader business
qualifications and captives remain a
popular tool despite the soft market.
Airmic’s biennial member salary
and status survey provides a profile of
today’s risk professionals, a snapshot
of insurance buying trends and gauges
the shifting status of risk management
within the corporate structure.
OUR SURVEY SAID...
The survey shows that only 30%
of boards at respondent companies
formally sign off their organisation’s
enterprise risk management (ERM)
programme despite new requirements
from the FRC. Just over half of
these companies require a board
presentation, rather than a board
paper, to sign off on the programme.
A further 18% of ERM programmes are signed off by the audit
committee and 14% by some other
board committee. 8% of companies
reported that they do not have a formal
sign-off of their ERM programme at
all.
This compares with 50% of UK
boards that sign off insurance spend.
About two thirds of those do so via
paper and the remainder require a
board presentation.
A further 30% of companies
delegate the approval of the insurance
renewal to the finance or another
board committee. 12% of companies
reported that they do not have a
formal sign-off of their insurance
programme.
The relatively few number of
boards that sign off their ERM
programmes is a concern given new
guidance from the FRC issued in
September.
Its Guidance On Risk Management
And Internal Control And Related
Financial And Business Reporting,
which forms part of the updated UK
Corporate Governance Code, makes
clear that while risk managers may
have day-to-day responsibility for
implementation and management,
Paul Hopkin
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 sufficient.
SYSTEM DESIGN
It says that boards must be responsible for ‘ensuring the design and
implementation of appropriate risk
management and internal control
systems’.
Although the guidance is aimed at
K&R.
listed UK companies bound to follow
the code all other types of organisations
and their risk managers are advised to
implement its recommendations.
“The new FRC rules mean that
boards will now have to pay greater
attention to their risk management
systems and arrangements. If we
ask this same question in two years’
time I would expect the board
sign-off of the ERM programme to
take place in a much higher percentage of cases,” Airmic’s technical
director Paul Hopkin told Commercial
Risk Europe.
“It was surprising in a sense that
sign-off at board level for insurance
programmes happened in a greater
number of cases than sign-off of
the ERM initiative,” he said. “The
insurance spend tends to be a routine
thing that comes up every year
and previously in many cases, and
certainly in my experience, tended
to be signed off at board committee
level rather than by the full board—so
I was quite surprised at that. I draw
some reassurance from the fact that
boards are taking insurance seriously.
I wouldn’t want boards to focus
only on ERM and lose all interest in
insurance.”
AIRMIC: Turn to p18
BARON URGES ASIAN
RISK MANAGERS TO
‘STEP UP’ THEIR GAME
Adrian Ladbury
[email protected]
[ SINGAPORE ]—THE PAN ASIA
Risk & Insurance Management
Association (Parima) plans to
deliver a compliance database to
help guide members through the
complexities of global programmes
and ensure that they do not break
the rules.
Details are currently thin on the
ground, but it appears that Parima
will follow the model adopted by
UK risk management association
Airmic. It revealed its database,
developed in partnership with
insurance data provider AXCO,
during its annual conference in
Birmingham earlier this year.
INAUGURAL
Parima’s initiative was announced
during its first annual conference
held in Singapore on 8-9
December.
Franck Baron, chairman of the
new association and group general
manager, risk management and
PARIMA: Turn to p18
EXPANSION.
Terror ransom ban puts focus on compliance Generali ‘back on its feet’;
Stuart Collins
[email protected]
[LONDON]—PROPOSED CHANGES
to the UK’s terrorism laws are not
expected to limit the availability of
kidnap and ransom (K&R) insurance
purchased by large corporates in
Europe, however the move is likely to
increase the focus on compliance.
In late November the UK
government set out a number of
measures to tackle the risk of terrorism
in its new Counter-Terrorism and
Security Bill, including a new criminal
offence that would ban insurers from
reimbursing policyholders for ransoms
paid to prescribed terrorist groups.
However, while the new law
creates a specific offence for insurers,
there is little practical change from
existing law under the Terrorism
01_CRE_Y5_10_News.indd 1
Act that already makes it illegal for
an insurer to underwrite ransom
payments to terrorists, according to
Anthony Menzies, a partner with law
firm DAC Beachcroft.
PROPOSALS
The proposed law does not appear
to increase the penalty for noncompliance, neither does it appear to
differ materially from existing law,
according to Mr Menzies. “Though it
identifies a new offence on the part of
insurers, the reality is that any insurer
who made a payment knowing or with
reason to believe that it was destined
for terrorists would already be guilty
of the offence under the existing
section 17,” he said. However, the
risk of kidnap and ransom by terrorist
organisations has become a much
bigger issue for governments, business
and insurers, he added.
“Terrorism is taking on a different
form and there are organisations that
do see kidnap and ransom as a source
of funding. If you are a corporate
with a worldwide K&R policy, and
an employee is caught up in such a
situation, your insurers will not be
able to reimburse any ransom
payment,” said Mr Menzies.
The proposed provision in the
Counter-Terrorism and Security Bill
is not restricted to ransoms paid to
terrorists for kidnap, according to Mr
Menzies. The law would also extend
to extortion demands from terrorists,
such as the threat of a cyber attack or
ransom demands for data.
Although this is only a change to
UK domestic legislation, it may have
wider implications affecting buyers
of kidnap and ransom insurance
K&R: Turn to p16
sights fixed on global
corporate market: Greco
market and left other elements from the
strategy to other Generali executives.
[email protected]
This personal commitment of the
group CEO will have been warmly
[LONDON]—GENERALI’S RECENT welcomed by the recently formed
expansion into the global corporate team at Generali Global Corporate &
insurance market received a
Commercial (GC&C) which is
significant public boost last
led by Paolo Ribotta (See related
month as group CEO Mario
articile on page 11).
Greco told investors that the
Risk
and
insurance
move was a ‘tangible example’
managers will be delighted
of the firm’s new wider global
to hear that Mr Greco said
strategy.
that ‘innovation, service and
Mr Greco, who joined the
technical performance’ would
group from Zurich in 2012 to Mario Greco
be at the heart of Generali’s
lead an ambitious turnaround
strategy for this market that
strategy for the Italian insurance group, already delivers over €2bn of annual
personally told investors about the
group’s plans for the global corporate
GENERALI: Turn to p16
Adrian Ladbury
9/12/14 12:44:45
$ # " $ $ !$ ! $ $ $ "
" " $ $ "
% ! " !# $ ! " " ! ! 02_CRE_Y5_10_FAP.indd 2
8/12/14 16:28:13
NEWS Space
3
Orbital Sciences Antares 130
rocket blows out on 28 October
Reliability concerns fuelling
two-speed space market
Stuart Collins
news@commercialriskeurope
[LONDON]
T
HE COST OF INSURING SATELLITE LAUNCHES IS
set to rise for some operators, but better risks
should enjoy favourable conditions as underwriters
look to reward the use of more reliable rockets and
satellite technologies.
The space insurance market is tough, with fierce competition
and a run of losses in 2013 and 2014. The sector was shaken
by two high profile losses in October following the failure of an
Antares 130 rocket and the loss of Virgin Galactic’s SpaceShip II, a
reminder that supporting the burgeoning commercial space sector
is likely to be a bumpy ride.
On 28 October an Orbital Sciences Antares 130 rocket
carrying an Orb-3 cargo craft to the International Space Station
(ISS) came to a fiery end just seconds after lift-off. It generated
a $48m insurance claim. Just days later, the Virgin Galactic
SpaceShip II crashed during a test flight over the Mojave Desert
killing one of its two pilots. The space plane was reportedly insured
for $40 to $50m, underwritten by aviation insurers led by AIG.
The two losses in October will not in themselves turn the soft
space insurance market, but they do come at a challenging time for
space underwriters.
“For most clients this is a good time to buy space insurance,
but it’s a challenging time to be an underwriter of space risk,”
according to Peter Elson, Chief Operating Officer Aerospace at JLT
Specialty Ltd. “There’s plenty of competition putting pricing under
pressure, while space underwriters are now having to manage a
much more volatile and fragmented book of business than they did
over the last 10 years,” he said.
Underwriting margins are already thin for space insurers
that will find it difficult to turn in a profit this year, explained
Jan Schmidt, a space underwriter at Swiss Re in Zurich. Rates for
launch plus one year [in-orbit] are around half of what they were in
2010, he said.
The 2013 underwriting year produced a loss. 2014 has already
seen above average losses and lower premiums. Total space market
premium in 2014 currently stands at around $750m, compared
with an average of $1bn. However, claims so far this year total
about $650m, suggesting a breakeven year for space insurers, or
even a small profit.
Despite low rates and increased losses, the space insurance
market remains attractive for insurers because it provides potential
profits and a source of premium from uncorrelated risks.
“Many in the market believe that rates are not sustainable at
this level, but it remains a question of supply and demand,” said
Mr Schmidt. “The market remains attractive even though many
players are not making money,” he said, noting that there have not
been any significant withdrawals from the market.
While launch failures are both spectacular and costly,
underwriters have also suffered some expensive claims for satellites
in orbit, pointed out Mr Schmidt. This year has seen four O3b
03_CRE_Y5_10_News.indd 3
Networks telecommunications satellites suffer a power anomaly
and the malfunction of the recently launched ABS-2 broadcast
satellite, which has reportedly resulted in a $214m insurance claim.
According to Mr Elson, space insurers have enjoyed a good run
of satellite and launch reliability as well as strong profits over most
of the past decade. However, in the last two years there has been an
increase in insured losses. This escalation is the result of setbacks in
new satellite and rocket configurations combining with continued
random failures of proven systems.
“We now face the real prospect of a relatively small number of
partial losses wiping out the annual premium for the entire space
insurance market. For the in-orbit insurance segment, that number
could be just one,” said Mr Elson.
As a result, space underwriters are becoming much more
selective to avoid losses in a softer market. “We’re seeing far higher
differentiation for launch plus one year cover, with the less wellperceived risks priced as much as three times more than the most
attractive,” said Mr Elson.
Recent losses are helping stabilise an otherwise soft space
insurance market, according to Denis Bensoussan, Space
Underwriter at Beazley. Launch vehicles or satellites that have
experienced failures in recent years have seen significant rate
increases, he said.
“This is a market with two faces. Reliable risks attract
competition, and for good risks the market remains soft. But
a significant and growing section of the market containing
challenging risks is attracting higher rates,” according to Mr
Bensoussan.
“It is only fair that underwriters reward operators that
favour reliability over costs,” said Mr Bensoussan. “Technical
differentiation is part of the value insurers bring. It is our
responsibility as underwriters to provide premium that adequately
reflects the risks and rewards those demonstrating long-term
reliability,” he said.
However, more expensive insurance can have a big impact on
the cost of satellite procurement and launch, with insurance on
average accounting for one third of the total amount. Balancing
cost and reliability presents some interesting challenges for space
operators.
While new commercial launch vehicles from Orbital Sciences
Corporation and SpaceX have increased choice since NASA’s Space
Shuttle was taken out of service in 2011, there remains only limited
reliable launch capacity.
Ariane, the leading commercial launch provider, and SpaceX,
its emerging competitor, can only supply a limited number of
launches each year, while US rules on exporting satellite technology
prevent operators using the Chinese Long March launch vehicle.
The cheaper Russian Proton vehicle, subject to both launch
failures and delays in recent years, is proving a risky choice.
Following six launch failures in almost four years, Proton-M rocket
launches have already seen significant rate increases.
Just over ten years ago, the market perceived broadly
consistent risk profiles across the main launch vehicles and satellite
systems but considerable differences have emerged in the past few
years, according to Mr Elson.
“Not so long ago, clients could look at their total mission
costs and view insurance as a significant, yet reasonably consistent
element. But today there are huge differences in risk pricing,” said
Mr Elson.
With only about twenty launches each year requiring
insurance, these conditions are also making it increasingly difficult
for underwriters to build a diverse and balanced portfolio, Mr Elson
explained.
Higher value western-built satellites gravitate to the more
reliable launch vehicles—like the Ariane 5—which attract the most
competition from underwriters. However, the Ariane 5 is capable
of carrying two high-value satellites into orbit, with a combined
insured value roughly equal to that of a whole year’s premium for
the space market.
“The space market is inherently volatile with relatively few
events. This is now being compounded by the challenge for
underwriters to secure the lines they want across what is already a
very narrow spread of risk,” said Mr Elson.
The space market is not growing currently, but there are some
favourable trends. For example, the development of smaller and
cheaper micro-satellites coupled with more efficient and reusable
space vehicles could entice new players into the satellite market,
predicts Mr Schmidt, who noted that commercial operators are
more likely to buy insurance than government-funded ventures.
The development of the commercial space sector was aided
by NASA’s decision not to replace the ageing Space Shuttle in
2011. Rather than develop a new launch vehicle, NASA awarded
contracts to commercial operators Orbital Sciences Corporation
and SpaceX to resupply the International Space Station, with
the intention of using commercial operators to ferry cargo and
astronauts to the station in the future.
In addition to SpaceX and Orbital, several private companies,
including Blue Origin, Virgin Galactic and UK-based Reaction
Engines Ltd, are also looking to build commercial reusable
launchers capable of taking people and payloads into space, albeit
low orbit.
The development of the commercial space sector is a positive
for both satellite operators and insurers, although underwriters
could potentially face higher claims as new launch vehicles mature,
explained Mr Schmidt.
An increasing number of reliable commercial launch vehicles
will give satellite operators more choice and will help diversify risk,
he said. For example, if a problem arises on one launch vehicle,
there would be a greater number of alternatives available, he
added.
However, while the diversification of launch supply is
important for operators and insurers, it only helps if they are
reliable. With the market’s annual premium currently riding
on just two main launch vehicles, uncertainty creates even more
unpredictability in an already volatile market, explained Mr
Bensoussan.
“Recent losses are a sad reminder that space is a tough and
unforgiving business. Insurance traditionally plays a critical
enabling and supporting role to help new players get into the
commercial space business, but underwriters will have to be
cautious and patient by only rewarding enduring maturity and
reliability and not be blind to the risks,” said Mr Bensoussan.
8/12/14 16:21:10
Aviation
4
NEWS
Evidence of safer skies but risk
management challenges ahead
Ben Norris
[email protected]
[LONDON]—DESPITE 2014’S HEAVY AVIATION
losses the skies are an increasingly safe place to be,
however new technologies, rising claims costs and
other risk management issues pose challenges for the
airline industry, according to a new report by Allianz
Global Corporate & Specialty (AGCS).
The AGCS’ Global Aviation Safety Study reveals
that huge improvements in airline safety are leading
to fewer fatal or catastrophic passenger airline
losses. Currently fewer than two deaths occur per
every 100 million passengers on commercial flights.
This compares to 133 deaths for every 100 million
passengers during 1962 to 1971.
The study, which focuses on global developments
in the commercial aviation sector and air safety
from the beginning of the jet age in 1952 to the
present day, explains how, where and why safety
improvements have occurred over the last 60 years.
According to the report, there is more chance of
being killed by lightning (one in 10.5 million) than
dying in a plane crash in the US and Europe (one in
29 million). This is despite growth in the sector that
will see an estimated 3.3 billion passengers fly this
year compared with just 106 million in 1960.
TECHNOLOGY UPSIDE
“Air safety has improved greatly, underpinned
by technology, navigation systems, engine
improvement and design implementations such as
fail-safe design criteria and fly-by-wire control,” said
Joe Strickland, Global Head of Aviation, Americas
at AGCS. “At the same time the standard of training
of crew and safety management have become
notably higher. Innovations such as digital message
communications systems—enabling pilots and
controllers to ‘text’ each other—are enhancing the
aviation safety environment further.”
These improvements in safety are noted despite
the fact that 2014 has been a heavy loss year for the
aviation industry.
In March Malaysia Airlines flight MH370
vanished with 230 passengers on board. Four
months later Malaysia Airlines flight MH17, a
scheduled international passenger flight from
Amsterdam to Kuala Lumpur, crashed killing 283
passengers and 15 crewmembers.
Further losses include the Air Algerie AH5017
flight that crashed near the Malian town of Gossi
in July, killing all 118 people on board, the loss of
a TransAsia Airways plane over Taiwan that cost
48 lives and a commuter plane crash in Nepal that
resulted in the death of 18 people.
By the end of August three of the 10 major nonnatural catastrophe insurance losses in 2014 could
be attributed to plane crashes, according to AGCS’
Global Claims Review 2014.
But the insurer’s recently published aviation
report notes that analysts believe the recent air
disasters do not necessarily reflect any major
systemic problem in airline safety.
The report, published in association with EmbryRiddle Aeronautical University, does, however,
explain that the costs of aviation claims are rising.
Increases in aviation claims are driven by the
widespread use of new materials in plane design, as
well as ever-more demanding regulation and growth
of liability-based litigation.
“Today there are fewer fatalities or total hull
losses compared with the past, but new types of
risk and losses, such as composite repairs, ground
equipment damage or the risk of grounding, are
additional drivers of exposure,” explained Henning
Haagen, Global Head of Aviation EMEA and Asia
Pacific at AGCS.
Increasing fleet values and a rise in passenger
numbers are expected to push the value of
risk exposure through the $1tn barrier by 2020,
if not before, says the report.
03_CRE_Y5_10_News.indd 4
Analysis of large aviation insurance claims
between 2009 and 2013 in excess of €1m shows
that plane crashes are the major cause of loss in
terms of number of insurance claims generated
(23%) and subsequent value (37%). 18% of aviation
claims relate to ground handling and 16% to
mechanical failure.
Analysis of losses between 2003-2012 shows
most accidents occur during descent and landing
(57%), followed by the climb stage of flight (24%).
Just 9% occur during the cruise stage. Analysis also
shows there is no such thing as a safest seat on a
flight, because no two crashes are comparable.
The report notes that in commercial aviation
operations an estimated 70% of fatal accidents are
related to human error with pilot fatigue a major
contributor.
Initiatives such as crew resource management
and the automated cockpit have improved safety
levels, but automation can also have downside risk,
the report says. A number of incidents have raised
questions over whether pilots are too reliant on
automation in the cockpit, it points out.
“More focus should be placed on continuous
training with pilots flying with and without
automation. Basic airmanship remains essential
to safely operate any aircraft and in particular if,
for any reason, automation is unavailable,” said
Sebastien Saillard, Head of Aviation Claims at
AGCS.
The report also reveals that safety records are far
worse in Africa and Asia than Europe and the US.
In 2012, 88% of global aviation fatalities
occurred in Africa (45%) and Asia (43%). This is
partly explained by the fact that over 50% of the
total fleet in Africa is currently second generation
aircraft.
“Upgrading the airline fleet to current
generation aircraft is one of the safety initiatives
which have lowered the global accident rate. In
some parts of Africa, safety and training standards
are comparable to those of 50 years ago in the US or
Europe,” says the report.
The aviation industry’s safety management
record will be tested further in future by a number
of potential new risk scenarios. Examples include the
increasing likelihood of cyber attacks, the expected
increase in use of drones, an anticipated future
shortage of a skilled workforce, including pilots, and
the prospect of increasing turbulence driven by the
changing climate.
TECHNOLOGY DOWNSIDE
“New generation aircraft are highly exposed
to cybercrime due to the prevalent use of data
networks, onboard computer systems and
navigation systems. Data breaches and cyber
attacks are perceived to be growing risks,” explained
Ludovic Arnoux, AGCS’ Global Head of Aviation
Risk Consulting.
According to the Allianz Risk Barometer 2014,
the threat of a cyber risk was ranked as the eighth
highest risk facing the sector. This is the first time
cyber risk has appeared in the top 10 ranking and
AGCS expects it to rise further up the list in 2015.
In particular data breaches and cyber terrorism
are perceived to be growing threats.
“Cyber terrorism can take several forms, but
ultimately is a means of deliberately attacking
or threatening targets by means of utilising the
internet as a common conduit by which computers
and smart phones are intimately connected. Cyber
terrorism may replace the hijacker and bomber and
become the weapon of choice on attacks against
the aviation community,” said AGCS in its Aviation
Safety Study report.
n TO VIEW OR DOWNLOAD THE FULL Global
Aviation Safety Study 2014 VISIT: www.agcs.
allianz.com/assets/PDFs/Reports/AGCSGlobal-Aviation-Safety-Study-2014.pdf
8/12/14 16:21:22
MAPFRE GLOBAL RISKS
Confidence from working with experts
in Telecommunications
A global vision delivering specialised solutions.
05_CRE_Y5_10_FAP.indd 5
8/12/14 18:00:58
COMMENT
6
NEWS
Association News
What do you want for Xmas?
T
HE VAST MAJORITY OF Commercial Risk
Europe readers of course already have
everything they could possibly need and
so writing a list for Santa this year is going to be
tricky.
Today’s risk and insurance managers have
fascinating, rewarding, fulfilling, highly paid and
very secure jobs that bring them lots of fun, little
stress and loads of spare time to enjoy quality
time with friends and family and pursue personal
interests whenever they feel like it.
They have the opportunity to attend loads
of great events, especially those organised by
Commercial Risk Europe, to network with peers
and partners in the insurance market, engage in
stimulating discussion and continuously improve
their knowledge and understanding of risk and the
insurance market.
And even insurers are making life easier than
ever for risk and insurance managers.
Rates keep on falling as quality capacity
continues to rise. The insurers are falling
over themselves to deliver top-notch
service in this highly competitive market.
They are working on bullet-proof
compliance solutions for their global
programmes, plan to deliver
contracts at the point of sale
and plan to settle claims at
an incredible rate of knots,
sometimes it seems even
before the loss has
occurred!
The European
Commission has got so
obsessed with life valuations
that captives look like they will
slip quietly through the net, so no problem there.
So what on earth could your average European
corporate risk and insurance manager wish for as we
near the festive year-end?
One suggestion that would surely put a great
big beaming smile on the face of the excited risk
manager as he or she dives into their stocking
would be a nice little pile of innovations.
Wouldn’t it be great if insurers were to use
some of their hard-earned profits to neatly wrap
up exciting bundles of exceptionally wide coverage
in watertight and highly transparent legal paper
(admitted in all countries of the world of course) for
really tough risks such as cyber, supply chain and
reputation?
But perhaps it’s just a little too early for this
to happen and the market needs to carry out some
more in-depth and challenging discussion about
what these bundles should actually comprise.
If that is the case, and we suspect that it is,
then we at Commercial Risk Europe are willing
and able to help foster this positive debate
and discussion throughout 2015 as we
lead up to next Christmas through our
Risk Frontiers events and surveys.
To help us in this effort and
make sure we ask the correct
questions please do write and
tell us what you would like
for Christmas next year;
what types of coverage
improvements you
would like to see in
which areas and we
will do our best to get
answers and hopefully,
ultimately, results!
EDITORIAL DIRECTOR
Adrian Ladbury
[email protected]
ART DIRECTOR
Alan Booth—www.calixa.biz
Tel: +44 (0)20 8123 3271[W]
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[email protected]
PUBLISHING DIRECTOR
Hugo Foster
Tel: +44 (0)1892 785 176 [W]
+44 (0)7894 718 724 [M]
WEB EDITOR /DEPUTY EDITOR
Ben Norris
Tel: +44 (0)7749 496 612 [M]
[email protected]
[email protected]
REPORTERS:
[email protected]
PRODUCTION EDITOR: Annabel Foster
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]
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RUBICON MEDIA LTD. © 2014
All rights reserved. Reproduction or transmission
of any content is prohibited without prior
written agreement from the publisher
Commercial Risk Europe is published
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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.
06_CRE_Y5_10_Trainspotting-Edition.indd 6
AMRAE survey suggests
French undervalue HR risk
management as value driver
Rodrigo Amaral
[email protected]
[PARIS]

FRENCH RISK
managers remain
generally unaware
of the benefits
of actively managing human
resource (HR) risks, according
to a survey released by
AMRAE, the country’s risk
management association.
The results show that
while companies are engaged
in meeting legal requirements
for employee mental and
physical health they are not
making the most of risk
management tools to mitigate
the threat.
The research reveals that
only one in every five risk
managers surveyed view a
detailed mapping of human resource risk as a key driver to success within
their organisation. A further 60% said that the task is important but not a
priority.
AMRAE disclosed the results of the survey of 30 leading French
companies during its third annual conference on risk management and
human resources that took place in November in Paris.
Given that the companies surveyed were large multinational groups
with comprehensive risk management systems in place the results were
unexpected, said Abdel Bencheikh (pictured above), president of AMRAE’s
HR commission.
“The result was a surprise for me. I expected much higher levels
of awareness among large, globalised companies,” Mr Bencheikh told
Commercial Risk Europe. “These are companies with a very mature view of
risk management, and it was surprising to find out that in only 20% of
companies risk managers see HR risks as a driver for the development of
their company. After all, the companies surveyed have mapped HR risks
and have identified the major risks that they face in this area and they
already have in place governance tools to deal with and report them.”
There has been a reported increase in cases of stress and burnout
among French workers in the media over the last couple of years. Several
suicides have been linked to working conditions placing the issue firmly
on the radar of legislators that have implemented new rules to force
companies to deal with the problem.
In November, a new study issued by training consultancy CEGOS
claimed that one out of every four French workers has suffered a severe
psychological condition during the course of his or her career. More than
half of the 1,135 workers and managers surveyed by CEGOS identified
deterioration in the social climate of their companies. Such findings point
to a potential increase in HR risks.
The regulatory backlash that has hit French companies in recent years
may provide a clue as to why companies still see the management of HR
risks as an obligation rather than a value driver.
“It seems to me that companies strive to meet regulatory requirements
linked to HR risks, but have not arrived to the point where they can make
the link between those risks and their business objectives,” Mr Bencheikh
said. “It is however an issue that must be taken to the highest levels of
the company. If only for marketing and communication reasons, it is
something that deserves the attention of boards.”
He also said that the insurance market could boost the management of
HR risks in France by better acknowledging mitigation efforts carried out
by firms and their risk managers.
“It is necessary for the insurance market to become more innovative
when it comes to solutions for HR risks,” he said. “Our insurance partners
are still working very much with an actuarial approach on this issue. They
do not price anything that they have not been able to produce a statistic
on in the past. Nobody is willing to evaluate whether a company’s policy
will reduce accidents or health-related absence in the medium to long
term. They should be able to accompany their clients in this effort in order
to encourage them to implement improvements.”
8/12/14 16:23:34
RISK FRONTIERS Stockholm
7
Commercial Risk Europe held its latest Risk Frontiers seminar in Stockholm late last month that
focused on emerging risk, regulation and market dynamics in the Nordic region and beyond.
Over the next few pages we bring you highlights from the event sponsored by ACE and held in partnership
with the Swedish and Finnish risk management associations Swerma and Finnrima
Don’t act in haste on
global programmes
Michael Furgueson, President of ACE’s Global Accounts division at ACE in EMEA, told delegates:
“Global programmes should be designed for you. You rule how you run your business.”
Adrian Ladbury
[email protected]
G
[STOCKHOLM]
LOBAL PROGRAMMES CAN BE COMPLEX, TIME-CONSUMING AND COMPLICATED
by legal, regulatory and fiscal uncertainties. Under these circumstances, hard-pressed and
budget-constrained risk managers really cannot be blamed for opting for apparently quick
and easy, ready-made and comprehensive solutions.
But one leading expert warned risk managers at Commercial Risk Europe’s recent Risk Frontiers event
in Stockholm that snap decisions can often lead to future problems.
He advised risk managers present at the event, organised in partnership with the Swedish and Finnish
risk management associations Swerma and Finnrima, that they need to remain in the driving seat and
make sure that the programme suits the needs of their company, not the insurance market.
The key element is to make sure that all relevant parties, including tax, legal and finance, as well as
brokers and insurers, are fully involved in a structured dialogue to make sure that insurance programmes
work effectively.
07_CRE_Y5_10-RF-Stockholm.indd 7
DIALOGUE
Mr Furgueson highlighted some of the problems when risk managers have to deal with multi-country
placements and cope with the differing internal demands and attitudes to risk.
“It often does not happen the way you want it to happen and think it should work. There has to be
more emphasis placed on service. You need a lot of dialogue between the parties involved and when the
parties get together they have to talk about your needs not theirs,” said Mr Furgueson.
One reason why it is important to take time out to really think about the needs of the company and
hold open and challenging discussions with partners is that not all risks have typically been covered by
global programme structures, pointed out Mr Furgueson.
He said that ACE is today holding more discussions with risk managers about how risks such as
business travel and D&O can be included in their international programmes and highlighted the need for
risk managers to kick off their thinking and discussion with partners in a different way.
The customer must start the process by asking what the business really needs from the programme
CONTINUED ON NEXT PAGE
8/12/14 16:25:05
Stockholm
8
RISK FRONTIERS
Cyber
threats
require ERM
response
C
[STOCKHOLM]
YBER RISKS ARE TOO BROAD TO BE FULLY DEALT WITH BY IT
departments and must become part of enterprise risk
management programmes, delegates were told at our
latest Risk Frontiers seminar. Ultimate responsibility for
cyber risk management must lie with the board, experts said.
Speaking at CRE’s Emerging Risk, Risk Regulation & Market
Dynamics In The Nordics seminar, Kristoffer Haleen, Client Advocate at
Willis, said that identifying and mitigating cyber risk is a much bigger
corporate issue than simply information technology.
IT departments, which do not set corporate objectives or strategy,
cannot manage the myriad of cyber risks alone, he said. Rather IT must
just be one of the stakeholders involved in cyber risk management.
“What is not a problem for IT security may be a huge problem for
legal. The responsibility is not always with IT and therefore the mitigation
decisions shouldn’t be either. IT security cannot decide what information
needs to be gathered, nor can they decide on how long it is needed for.
They cannot define the operational needs of the organisation,” he said.
“Cyber risks are part of enterprise risk as a whole,” he told
delegates. The threat must be quantified and analysed alongside other
risks faced by the organisation, he added.
“Cyber risk must be integrated into your everyday risk management
work,” he continued. “Organisations need to talk about things in a
manner and language that everyone can understand—the risk manager,
legal team, CFO and the IT people. It is a process and everyone needs to
understand that this is not a threat to one particular position or because
one person is not doing his or her job—the issues are much larger and
broader than that,” said Mr Haleen.
CONTINUED FROM PREVIOUS PAGE
rather than what the insurance market needs, he stressed.
Mr Furgueson also advised risk managers to challenge the
answers they receive from brokers and insurers about how their
programmes should be constructed.
“You want the best terms, cost and simplicity, and of course you
want a compliant product. But is looking at everything through
the lens of ‘admitted versus non-admitted’ really the best way to
go about it? Instead, the discussion should centre on whether the
insurance will perform in line with what management expects it to
do,” he said.
“Typically you take your programme out to the market and the
insurance community responds to the coverage specifications set out
by brokers and then comes back with quotations. One of the most
exasperating things we hear from risk managers is that there is a lack
of uniformity about what is available and needed. ‘I don’t feel it’s
clear’ is a typical response. But sometimes it’s also about how you ask
the question or what the specifications say,” continued Mr Furgueson.
He advises risk managers to ask questions and engage in proper
discussion.
“Do these offers get challenged? One leading risk manager
recently told me that she had asked her broker and three different
insurers a very specific programme structure question and she
was fascinated to get different answers from all of them,” said Mr
Furgueson. “She wondered if some of the insurers had really checked
if what they were offering was possible and so she asked them
to go back and double-check with their own legal departments.
After challenging the answer, the risk manager was then told that
what was offered was not, in fact, appropriate or possible. So some
underwriters said yes and then their own lawyers said no. This risk
manager asked if this was really the way insurers should be doing
business.”
CONSISTENCY, COMPLIANCE, CERTAINTY
Mr Furgueson said that ACE had carried out a survey this year
of 280 risk managers in Europe and asked why they valued
international insurance programmes. He said that consistency of
coverage ranked highest, certainty of compliance next, then
certainty of coverage.
Mr Furgueson also argued that the insurance market needs to up
its efforts in the contract certainty area.
“Risk managers can be judged on ensuring that the
documentation is in place on time. Board members understandably
will ask why the insurance market operates in the way it does—deal
now, detail later. A number of insurers are more focused on ensuring
documentation is in order up front since this is one key aspect of
the service that is purchased. The big question is does the insurance
perform the way you expect it to?” asked Mr Furgueson.
The good news is that ACE and its rival insurers in this
specialist market are spending more time and resource to
improve their performance and commitment to the issue.
07_CRE_Y5_10-RF-Stockholm.indd 8
How to deal with cyber risk is ultimately a board decision because
these can be business critical risks, he said.
But there is no doubt that risk managers must be involved in the risk
management process. They need to understand that the majority of cyber
risk is caused by human error, which risk managers are used to dealing
with, rather than difficult to grasp IT issues.
Kyle Bryant, Regional Cyber Manager for Continental Europe at ACE,
explained that 60% of his firm’s worldwide cyber claims are caused by
human error.
“That is what we like to drive home because that is something that
risk managers are used to managing—people risk,” he said.
There is help at hand for risk managers trying to get to grips with
more technical cyber threats and deal with IT departments that may
view attempts to manage the risk as an intrusion or slight on their
performance.
“At ACE we have IT managers and try to bring these on client visits
to bridge the knowledge gap and ask IT key questions. I am an insurance
guy, I do not know the ins and outs of building a network, I don’t know
what the best security programme is…and we wouldn’t expect our risk
Commercial Risk Europe’s annual Global Risk Frontiers survey has
found that risk managers want to spend more time with insurers and
brokers to clarify exactly what will happen when a claim occurs to
ensure that the process is as painless as possible and the claim is paid.
The leading insurers that we have interviewed in recent times
assure us that this is exactly what they also want to achieve.
They say that they are carrying out more pre-claim scenarioplanning sessions and making sure that risk managers actually
meet claims people as well as business development managers and
underwriters.
Mr Furgueson said that ACE is totally committed to this
approach and that it is good for everyone in the market.
“We have more dialogue on these issues than ever before. Risk
managers are under a lot of pressure and have to make comparisons
and informed decisions,” he said.
“They [risk managers] have to make informed and conscious
decisions about how they are buying insurance. This is a discussion
we have more and more,” Mr Furgueson continued.
One interesting development noted by ACE’s EMEA Global
Accounts head was the rise in demand for regional programmes.
For some organisations this seems like a sensible compromise
between the need for central control and consistency and local
attention to legal and regulatory requirements as well as budgetary
constraints. But this development once again underlines the need for
clarity of purpose at the outset, argued Mr Furgueson.
“We are also seeing companies doing regional programmes—for
Asia Pacific, Latin America and Europe—because they have budget
and corporate governance issues. So the customer has to know here
what he or she wants and also has to accept that it will still take
time,” he said.
Another key challenge for the risk manager is to encourage the
wider business to think of the insurance programme as a business
tool and an enabler of growth rather than simply a procurement
decision, argued Mr Furgueson.
“If you are expanding then you need insurance. You can’t expand
anywhere without insurance. We are a business enabler that allows
your company to access growth markets. Insurance is the DNA
of commerce. It is about how to help your company achieve its
ambitions, targets and strategy. I know that this can fall on deaf ears
sometimes, but with global corporates you can often have a serious
dialogue,” he said.
Mr Furgueson advised risk managers at the event to really
think about their business needs before the details of insurance
requirements.
He said that risk managers have to ‘line up’ with the corporate
culture. “Do you want a centralised structure or localised? You have
to ask where the company is going and design a programme to fit
future needs. You have to do the analysis from the bottom up not
just the top down,” he said.
“Ask yourself: ‘What do I need to buy to help the business
perform?’ You may find that certain operations really do not need the
coverage because the risk is not really there. Ask yourself if you need
managers to be able to answer those questions either. So being able to
ask the right questions is the first step. We try that with the application
process and then we try and prod a bit more with follow-ups,” said Mr
Bryant.
Mr Haleen said he frequently runs into situations where IT security is
wary of risk managers buying insurance and risk transfer partners getting
involved in mitigating cyber threats.
“When you scratch the surface many IT security officials are afraid
that some insurance guy will come in and tell them how to do their job
and how to set up the network going forward, but that is not the case,” he
said. IT security people quickly understand that this is not about them not
doing their job, he added.
“What I am most proud of in my work with this risk are workshops
where we have tried to gather all of the information and depending on
the setup brought in outside experts as well. This is needed if only to get
everyone talking about these risks so that everyone understands and
identifies them and prioritises them among the many other risks that the
company is facing,” he said.
—Ben Norris
to rebuild a plant in a country if you suffer a loss. You may decide
that it would be better to relocate elsewhere and so the coverage
is not needed. Following the Thai floods, a number of companies
decided that it would be better to relocate elsewhere because
economic conditions had changed the scale of the risk and sourcing
there had proven too high,” explained Mr Furgueson.
Risk managers also have to think about their captive and selfretention strategy when constructing global programmes, according
to the international insurance expert.
Evidence of cover is another area to consider because this may be
needed for local businesses and partners, he advised. Tax and transfer
pricing is another core issue.
BUSINESS STRUCTURES
“How costs are allocated is coming up more and more. Risk
managers are more often being asked the question internally,
particularly as we keep hearing news about alleged tax avoidance by
leading international companies based in offshore centres,” he said.
“The current focus on business structures involving Luxembourg
and other countries is not a new story for finance professionals. But
it is news to the general public and politicians. In its BEPS initiative
the OECD cited captives as one of many transfer pricing structures
worth looking at more closely. Risk managers need to listen to
the mood music and pay more attention to what happens to the
premium after it has been paid,” advised Mr Furgueson.
The global programmes expert gave some further useful advice
in conclusion. He offered the following steps:
■ State clearly where you want to go and ensure you have
management buy-in;
■ Collaborate with the other parts of the business that should be
involved such as tax, finance, sales and of course the brokers and
insurers—and recognise that this all takes time;
■ Make conscious decisions about the purpose and structure of
your programme in advance. Do not fall into a solution that you
will not be happy with when the claim is made;
■ Carry out claims ‘war games’. Run loss scenarios and ask who
will respond at your insurer and broker. If you find a gap then
fill it. Engage in more dialogue than in the past. Evaluate and
communicate the real value of the insurance;
■ Think and talk about a €25m transaction because that is
the insured value and not a €100,000 transaction because
that is the premium;
■ Focus on performance and mutually agree service
standards up front;
■ Carry out peer review. Discuss your strategy and needs with
fellow risk managers, industry groups and the like;
■ Challenge at all times.
As Mr Furgueson pointed out in his speech, risk managers really
need to be on the front foot when they arrange these programmes.
“There are no absolutes. Demand transparency from the broker and
the insurers,” concluded Mr Furgueson.
8/12/14 16:25:13
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09_CRE_Y5_09_FAP.indd 9
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03/06/2014 10:47
03/06/2014 10:47
9/12/14 12:03:31
Stockholm
10
RISK FRONTIERS
Risk managers urged
to stay ahead of the
political risk curve
Ben Norris
David McFadyen
[email protected]
T
[STOCKHOLM]
HE CONSERVATIVE AND REACTIONARY
political risk market demands that
insurance buyers take a particularly
proactive approach to risk transfer,
a broker told Nordic risk managers
last month.
Speaking at our latest Risk Frontiers seminar
in Stockholm, Aon Sweden’s crisis management
practice leader, David McFadyen, said that while
risk managers may understand why cover is
withdrawn for certain political risks following
an incident their managers may find it harder to
understand why an organisation cannot get the
insurance it needs.
He also said that companies often prefer to
physically manage rather than transfer political
risk. But whatever the chosen solution it is
imperative that organisations involve the full
spectrum of stakeholders when monitoring and
dealing with political risk, he added at the event
sponsored by ACE.
“Unfortunately I think the political risk
market is still very conservative and traditional.
When something happens insurers quickly
distance themselves from being able to cover
that particular incident in that particular
country. The market reacts quite severely,” said
Mr McFadyen.
Noting that countries can turn quickly into
bad risks, he said that buyers therefore need to
stay ‘ahead of the curve’ on political risk.
“The market doesn’t always close down but
it becomes very difficult to get coverage for
something after the incident occurs. Political
risk insurance is certainly something that
requires a proactive rather than a reactive
buyer,” he said.
While such advice may seem obvious to
readers of CRE they may have trouble explaining
an inability to buy affordable coverage to others
in their company.
“Risk and insurance managers understand
that you cannot insure the house after it
has caught fire but other people find it
“ The market doesn’t always close
down but it becomes very difficult
to get coverage for something
after the incident occurs.
Political risk insurance is certainly
something that requires a proactive
rather than a reactive buyer...”
DAVID MCFADYEN
more challenging to understand,” noted Mr
McFadyen.
Staying ahead of the curve on political risk is
not an easy task for risk managers who may feel
like they need a crystal ball to work out where
and when the next political risk storm will hit.
Mr McFadyen believes companies need a
collective effort to best manage the threat.
“Political risk really does involve a number
of key stakeholders in the company. You cannot
just point to security or finance and say take
care of political risk. It really is a challenge and
a problem that needs to involve people from
all parts of the organisation. That makes it a
challenge to get people together and talk about
the risk and mitigate the risk,” he said. “You
need to be reading the signs and involved with
local management, contractors and suppliers to
get a real feeling for what is happening on the
ground.”
Once this work takes place the difficult
decision must then be taken whether to
physically manage or transfer political risks.
“I would say that more companies are
managing the risk rather than transferring it to
an insurance product. Although there is huge
capacity in the market,” said Mr McFadyen.
Those looking to offload the many
transferrable political risks currently enjoy a soft
market that involves between 50 and 60 carriers,
explained the broker. It is possible to build
capacity of up to $2bn.
The market is made up of many different
products including coverages for physical
confiscation, political violence, trade disruption,
contract frustration, licence cancellation and
currency inconvertibility.
“You have many products within political
risk from which more often than not clients
cherry pick,” said Mr McFadyen. Clients are
currently interested in transferring Africa and
Southeast Asia risks, said the broker.
“For political violence and terrorism we are
seeing Africa as the hot spot. On the confiscation
side of things it is more Southeast Asia where
companies are looking for those new low cost
destinations for sourcing and manufacturing.
Africa and Southeast Asia are where clients are
buying,” he said.
Solvency II to bolster not hinder
captives says Nordic expert
T
[STOCKHOLM]
HE SPOTLIGHT PLACED ON CAPTIVES UNDER SOLVENCY II
will likely lead to the vehicles becoming more important risk
management tools that garner increased attention from boards
and top management on risk, according to a leading expert speaking at
Commercial Risk Europe’s latest Risk Frontiers seminar.
At CRE’s Emerging Risk, Risk Regulation & Market Dynamics In The
Nordics seminar last month, Martin Persson [pictured, left], Managing
Director of Aon Global Risk Consulting AB, the insurance management and
consulting division within Aon Sweden, gave a positive outlook for captives
treated as proper strategic risk management tools under Solvency II.
Far from the planned European capital adequacy regime being the
death of captives he believes Solvency II will place the self-insurance
vehicles at the centre of board-level risk discussions.
He conceded that Solvency II will likely be the ‘final nail in the coffin’
for captives operating purely for tax purposes and without a proper risk
management focus. But for the overwhelming majority that are treated as
strategic risk management tools and part of an ongoing risk management
programme the regime, which is scheduled for introduction in January
2016, will likely have the opposite effect, said Mr Persson.
07_CRE_Y5_10-RF-Stockholm.indd 10
“Solvency II puts the spotlight on the captive more than
previously. You have the board, as well as chief financial officers,
chief legal officers and treasury, who now (under Solvency II) will
have to be more aware and active possibly in the discussions around
risk management and risk. So if we can together handle the costs of
Solvency II I am quite positive for the captive going forward. They may
well become even more important for sophisticated risk management
programmes,” said Mr Persson, who is an expert in captive strategy
reviews and Solvency II implementation measures.
“So will Solvency II signal the death of captives? I actually think
that for these sorts of captives the opposite is true,” he added.
Mr Persson also said that although the Swedish regulator has held
open discussion over the treatment of captives under Solvency II some
areas need further attention and explanation.
He would like to see more flexibility in how actuarial rules and
standards will apply to captives under Solvency II, clarification
over the use of safety reserves as capital, an explanation of how
intercompany loans will be treated and clearer guidelines on reporting
requirements.
—Ben Norris
8/12/14 16:25:22
Paulo Ribotta, Generali
11
HOT SEAT
Generali Global Corporate & Commercial (GC&C) is a significant new player in the international large corporate market.
Commercial Risk Europe editorial director ADRIAN LADBURY asked unit head Paolo Ribotta why the Italian insurance giant had taken so long to
enter this already competitive market and why risk and insurance managers should partner with Generali rather than the established players
NOT SO NEW KID
I
ON THE BLOCK
N APRIL 2013 TRIESTE-BASED
Italian insurance giant Generali finally
announced that it had decided to set
up a dedicated operation for global
corporate business and seriously ramp
up its offering for the medium-sized and
large corporate customer.
The company announced that the new
Global Corporate & Commercial (GC&C)
business unit would be led by Paolo Ribotta,
formerly of XL and Zurich, who joined the
group in 2012 and reports to Paolo Vagnone,
head of Global Business Lines.
Generali said that the operation would ‘act
on a global scale’ and deploy an international
‘integrated approach’ at group level with a
central management team and specialised teams
active in individual countries.
“Through the new unit, Generali aims to
become a key world player in this segment and
expand its market share and profitability,” stated
the group at the time.
“The Global C&C unit will pursue customer
centricity, in line with Generali’s goal to become
a client-led business, through insurance
solutions focused on underwriting excellence,
claims management and customer service,”
added the Italian group.
This was a significant announcement for
Generali and the market in general as the Italian
insurance giant is a well respected brand with a
rich history. It is not renowned for making snap
decisions and prides itself on taking a long-term
approach to business.
Generali has always been an international
player with a long history in the Italian
mercantile and marine market and a pivotal
position in central and eastern Europe developed
from its Trieste base during the latter years of
the Austro-Hungarian empire and beyond.
GENERALI’S GEOPGRAPHY
Not surprisingly, given its historic legacy,
Generali announced last spring that from
a geographical viewpoint the initial focus
would be on European countries where the
group is already highly active, such as Italy,
France, Spain, the UK and of course central
and eastern Europe.
It said that ‘in the near future’ it planned
to ‘leverage’ its footprint in the rest of Europe,
Latin America and Asia Pacific to serve new
Global Corporate clients locally.
Mr Ribotta told Commercial Risk Europe
that this is a significant move that will
enable Generali to build upon its existing
customer base, skills and network to become
a serious player in this valuable and growing
multinational market.
“The main message is that we are seeing the
transformation of Generali from a solid longlasting traditional European insurance group
that has worked very much on a country by
country basis into a more global group with
strengths, specialist skills and capabilities that
extend across the group and portfolio. We
are moving on to the next stage and Global
Corporate is a key example of this change to a
truly global group,” explained Mr Ribotta.
Asked why Generali had made this big
move Mr Ribotta said the decision was simply
demand-driven. “By moving to the new
approach we are building a structure that
enables us to bring our skills and servicing
competencies to meet the needs of our
11_CRE_Y5_10_Hot_Seat.indd 11
Paolo Ribotta
customers,” he said.
Mr Ribotta said that this shift is particularly
important for multinational programme
business.
“We have created a new management
structure at Generali over the last two years that
enables us to bring the skills and competencies
to where the customer needs it and importantly
pull our network together,” he explained.
As noted above the group was not starting
from scratch. The key was to work out how
to liberate and maximise existing skills and
competencies and then selectively expand in
countries where Generali was not so strong.
Mr Ribotta said that once Generali’s
management started to look closely at corporate
business already within the group it realised the
full extent and potential of the business.
“What was needed was a strategic effort
to substantially increase the reliability of the
business mix, bring more stable results and
improve the range and quality of underwriting
service and claims capabilities…We finally
had a fully dedicated business unit with fully
accountable results and skills and capabilities,”
he said.
Based on 2014 numbers the new business
handles roughly €2bn in gross written
premiums. Italy accounts for 46%, central and
eastern Europe 18%, UK 13%, Spain and France
10% each, Asia 2% and the US 1%. This is
managed by over 1,000 dedicated people centred
CONTINUED ON NEXT PAGE
9/12/14 10:07:13
Paulo Ribotta, Generali
12
CONTINUED FROM PREVIOUS PAGE
in eight major cities.
Mr Ribotta explained that
these centres or hubs, such as
Hong Kong in Asia and Sao
Paulo in Latin America, service
the local business that comes
through operations and partners
in regional territories. He said
that when a country operation
becomes big enough then a
fully-fledged Global Corporate
operation is formed.
While this is an exciting
growth story for Mr Ribotta
11_CRE_Y5_10_Hot_Seat.indd 12
and his team the focus remains
firmly on the bottom line. This
approach is already paying off,
said the insurer.
“The more structured
approach to winning and
underwriting the corporate
business has led to a tangible
improvement in the net technical
result which has improved
threefold against the year
before,” explained Mr Ribotta.
The Italian said that one
key driver of this improved
profitability has been increased
retention of business and the
purchase of less reinsurance
made possible by the new
structure.
The retention ratio rose from
56% in 2013 to 64% in 2014.
“This is quite a significant figure
and it fits with our strategy of
increasing our participation and
moving towards becoming a lead
player in the business that we
want to write. As we invest in the
operational skills and capabilities
in this business we become more
of a risk taker,” said Mr Ribotta.
The Global Corporate
business is also expanding by
lines of business. It has recently
moved into areas where Generali
has not traditionally been so
strong such as financial lines,
professional indemnity and
Directors’ & Officers’.
REORGANISATION
The new operation has also
changed the way the company
operates in the aviation market.
“Previously this was written
on a country basis but this has
been pulled together now so that
it is part of the Global Aviation
business that is managed out of
HOT SEAT
London. This strategy is still in
the evolutionary stage...This fits
with our strategy of bringing
together our resources where we
can make the biggest impact,”
said Mr Ribotta.
Multinational programmes
are a key part of business these
days and one in which the more
established global insurers have
invested much time and effort in
recent times.
Mr Ribotta recognises that
this is a complex and critical
area that needs a sophisticated
approach and serious investment.
But again he said that Generali
Global Corporate hit the ground
running on the back of already
existing strengths.
“The fact is that Generali
has always had the customers,
geographical spread, skills and
capabilities needed to be a lead
player in the multinational
programme market, but we did
not convert that potential with
the focused investment needed.
We had a network of operations
in 104 countries but did not
make the specific investment
needed. Now we are doing that,”
he explained.
It is an increasingly important
area in this respect because
it enables these complex and
geographically diverse operations
to be more effectively managed
and improves communication
between customer, broker and
insurer.
Mr Ribotta said that
Generali’s strategy is not to
invest in legacy systems but to
create ‘enabling platforms’.
He said that the company has
invested ‘heavily’ in the last 18
months to upgrade the platform.
At the same time Generali
has identified clear servicing
metrics to serve the customers
at the standard required. It
has also streamlined and raised
the standard of its network
management capabilities.
No global insurer has a
fully fledged operation in every
territory of the world in which
all customers operate and so they
all work with partner companies
to at least front the business
out to the international market.
The choice and management of
such partners is of course critical
because one bad apple can easily
wreck the whole pie.
Mr Ribotta said that the new
Global Corporate operation has
decided to take a more selective
approach over its partners to
ensure that the service delivered
is up to standard and as
consistent as possible.
For example, in Asia last
March the group signed a deal
with Japanese insurer Mitsui
Sumitomo Insurance to work
together exclusively in the Asian
region on global corporate
accounts where necessary. To
start with the focus was on 10
new Asia Pacific markets.
“This allows us to service
multinational customers with the
full range of solutions in markets
where we do not currently have
that expertise,” said Mr Ribotta.
Mr Ribotta was asked how he
believes customers would like to
see multinational programmes
improved and what he and
his team are doing about it.
“Multinational programmes are
by their nature complex and
9/12/14 10:07:22
HOT SEAT Paulo Ribotta, Generali
there is no silver bullet solution.
But we have been looking very
closely at the key areas to see
where we needed to invest to
close some of the gaps,” he said.
“We are not offering a perfect
solution just as everybody else
but we are certainly in a very
different and better position
than we were 15 months ago.
We have invested about €10m
in developing platforms for
our multinational programme
customer relationship
management platform and that
really improves our ability to
know our customers on a global
basis,” he added.
“We have carried out pilot
projects to ensure that our
loss prevention services are
available and accessible for
customers when needed. The
platform is based on an asset
management platform because
asset protection is what we are
talking about at the end of the
day,” continued Mr Ribotta.
Loss engineering and risk
management advice is another
important area that has come
into the mix for big ticket crossborder business, especially at a
time of highly competitive rates
and the focus of competition
inevitably switches to service
rather than price.
Mr Ribotta said that Generali
is well equipped to offer such
services and compete with the
leading international players.
“Our risk engineering and loss
prevention capability is one
of the best kept secrets within
the group. Before we created
the Global Corporate unit
our customers were already
benefiting from over 100 loss
engineers in 34 countries. This
service was really not appreciated
in the market or marketed in
a structured way. This really
positions us alongside the biggest
established insurers in the
multinational market for sure,”
he said.
WHY NOW?
Given the cut-throat nature of
this highly competitive market
and the fact that capacity appears
to be rising year in year out, one
can be forgiven for asking why
Generali made this move in the
first place. Why not invest the
capital in a less occupied space?
Mr Ribotta explained that the
focus on large corporate business
is part of the group’s wider
strategy initially outlined to the
market in January 2013.
He said that the group
announced that it wanted to
rebalance the mix of life and
non-life business. The plan was
to grow the non-life side because
life insurance accounted for two
thirds of business at the time.
It was also decided that the
group needed to take a much
more client-centric approach
generally. This is obviously very
important in the large corporate
sector. There has also been an
‘evolution’ in the distribution
landscape that demanded a
more focused approach, said Mr
Ribotta.
“We have seen the rise of
more specialty brokers that
have acquired activities in more
markets and developed strong
networks. This means that we
need to interact with the brokers
11_CRE_Y5_10_Hot_Seat.indd 13
at a higher level,” he said.
Mr Ribotta said that Generali
also wanted to increase profit
levels across the group and
particularly secure more longerterm sustainable business and
profits going forward.
As noted above, this is,
however, a busy and popular
market currently among
mainstream international
insurers, specialty markets and
the big reinsurers that have
also set up dedicated corporate
insurance operations.
The key question for any
risk manager would have to be
therefore why should they use
Generali rather than existing
markets. What differentiates the
Italian group in this competitive
area?
“We are starting to catch
up with the competition
because clients and brokers are
willing to see broader offerings
and alternatives in a rather
concentrated market place.
But I think the market knows
that this is significant because
Generali never does things
hastily so when it does make
13
such a move it has to be taken
seriously,” responded Mr
Ribotta.
“We are generally humble
and will not make rash promises
to impress but would rather
be judged on our actions. The
fact is that we have increased
our presence in this market
for over ten years now. Our
principle is to be flexible, focus
on what the customer wants
and invest in service delivery
platforms for multinational
programmes, claims and risk
engineering services that truly
add value to the market. In
addition we can provide clients
with a seamless approach that
embeds the propositions of
GEB, a worldwide employee
benefits solution, and Europ
Assistance, one of the major
worldwide assistance providers,
both part of Generali. We
are a solid player that has a
proven name worldwide and is
willing to engage in long lasting
relationships that are based on
professionalism and delivered
by a service-driven organisation,”
he concluded.
FUTURE EVENTS
COMING UP IN 2015:
EVENT
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LOCATION
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9/12/14 15:19:26
INTERNATIONAL PROGRAMME NEWS
14
» THE BEST
OF IPN
Commercial Risk Europe’s International Programme
News (IPN) is a monthly web-based service that
delivers news and analysis on risk transfer and financing
developments at an international level. It examines
initiatives from insurers, brokers and captive managers
to help risk and insurance managers improve the way
they manage and transfer their cross-border risks.
Below is a lead story from this month’s issue.
You can access the full IPN newsletter at http://
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» SOLVENCY II AND
CAPTIVES: A
CHALLENGING MARRIAGE
[LUXEMBOURG]—IT IS ALWAYS GOOD TO
hear from regulators about what they are
doing and why they are doing it, so it
was doubly fortuitous to hear from both
Carlos Montalvo, Managing Director,
EIOPA, and Victor Rod, Director of
Luxembourg’s Commissariat aux Assurances,
at the European Captive Forum 2014 in
Luxembourg. Solvency II and its impact on
captives was on both of their minds.
Mr Montalvo reminded us that the
long process of developing the Solvency II
framework first began 14 years ago, and
that in just 14 months’ time (January 2016)
the whole Solvency II regime would be fully
applicable. “So, 14 years of preparation, but it
is now that the fun begins,” he said.
He compared the process to a marriage.
“You get to know someone, you want to build
a common project, you plan for everything to
happen at the wedding and then it starts, but
it only works when it is done on a day to day
basis. It is the same thing with Solvency II,
we are only providing a framework that will
allow you, on a day to day basis, to run your
business,” he said.
The regulatory framework is designed
to be aligned with the reality of business,
he said, noting that a risk-based industry
required risk-based supervision. The
framework, he said, was set up to address
issues from the point of view of capital,
governance, risk management, transparency
and disclosure.
He acknowledged that captives are part
of the insurance world, but said they were
linked to companies that may or may not
have anything to do with insurance. So, he
said, if a sound risk management framework
makes sense for insurance companies, it
should also make sense for captives. But at
the same time, captives should also be treated
in a way that acknowledges the reality of
their business, he told the conference. “We are
supportive of Solvency II but we are equally
supportive of making sure that Solvency II
does not only make sense for a traditional
insurance or reinsurance business, but equally
for captives.”
On the issue of capital requirements, he
explained: “Capital is simply the fact that the
money is there when you need it, nothing
more, nothing less. And we are setting up a
framework that wants to make sure that the
capital is there when you need it.”
14_CRE_Y5_10_IPN.indd 14
On the crucial issue of proportionality,
he stressed that it is not just about size,
it is about the nature of the risk and the
complexity of the underlying business.
Finally, Mr Montalvo acknowledged that
there can sometimes be a gulf between the
captive sector and regulators. “Sometimes
regulators approach captives by saying ‘I
don’t understand this business and so I am
suspicious of this business’. This is the wrong
approach. If you don’t understand it, go
and work to understand it. Equally, if your
regulator does not understand the reality and
nature of your business, go and explain what
it is all about.”
As one of the regulators that is
implementing Solvency II and looking to
apply proportionality, Mr Rod was keen to
stress that he was on the side of captives.
“It is now crystal clear that Solvency II
legislation will be applicable to captives in
Europe,” he told the conference. “Some of
you will be concerned as to what Solvency
II will mean for existing captives and for
the new ones to be set up. Clearly, the new
quantitative and qualitative requirements will
be a challenge for each one of you, but also for
us regulators and supervisors.”
He said the Commissariat aux Assurances
had always fought, and would continue to
fight, at all possible European levels, to apply
the principle of proportionality included in
Solvency II to all companies and especially
captives. “We are trying to apply the new
regulations with common sense, and use all
the flexibilities left to local authorities to keep
the implementation of the new rules as less
burdensome as possible,” he said. Adding
that the regulator is committed to trying to
demystify Solvency II and to apply the new
rules in a smart and prudent way.
Captive owners will be hoping that other
regulators in Europe are equally as supportive
of captives and will show flexibility and
common sense in applying the new Solvency
II requirements.
—Tony Dowding
» CAPTIVES AND
MULTINATIONAL
PROGRAMMES:
CHOOSE YOUR
PARTNER CAREFULLY
NEARLY THREE QUARTERS OF
European risk managers have increased
their use of captive insurance arrangements
over the past three years to help manage
their multinational risks, according to
recent research from ACE. In its Structuring
Multinational Insurance Programmes—
Anticipating Emerging Global Challenges For
Captives report, ACE calls on risk managers
at multinational European companies to
re-examine the capabilities of their global
insurance partners as the international
regulatory and business environment grows
increasingly complex.
Suresh Krishnan, Executive Vice
President, Global Accounts at ACE, and one
of the authors of the report, said: “Financial
strength, underwriting acumen and price
are important criteria for captive owners
when choosing a global insurance partner. In
today’s complex international regulatory and
operating environment, the requirement for
best-in-class service and use of leading-edge
technology to effectively manage programme
performance should also be given due
consideration.”
He added: “Transparent claims-service
standards that are agreed before the
programme is bound; metrics that objectively
measure the performance of local premium
payments and local policy issuance; a clear
credit-risk methodology; and broad breadth
in compliance know-how, are all equally
important aspects of an insurer’s global
capability and, ultimately, of a successful
captive insurance programme.”
The report explains how captive
multinational reinsurance programmes
are generally designed and built centrally
at the insured’s parent’s level with cost of
local premium centrally allocated by the
parent to its local subsidiaries—with those
subsidiaries agreeing on the allocations in
order to purchase local policies as part of the
multinational insurance programme. But it
points out that owners of captives need to
have more than a passing familiarity with the
regulatory requirements of the jurisdictions in
which they operate.
“The key takeaway for a captive owner
is that the thoroughness with which they
respond to local rules will ultimately
determine the timeliness of local policies
being issued, local premiums being collected,
local taxes being remitted and permitted
premiums being ceded to the captive,
thereby driving an important aspect of the
performance of their global captive insurance
programme,” the report says.
For captive owners, the ability to use
their captive to manage consolidated loss
information about their subsidiaries, affiliates
and joint ventures is critical. However, the
typical points of contention between a policyissuing insurer and a captive revolve around
claims control and loss reporting.
According to ACE, to mitigate potential
problems, both insurer and client must
strive to establish clear responsibilities for all
matters that relate to claims handling.
“Having a robust claims-servicing
agreement with agreed claims bulletins,
claims protocols, claims procedures and
transparent servicing standards—with
identified local and central points of
contact—is key to managing both
communication with and the expectations of
those who are handling complex claims, often
many thousands of miles from where ultimate
decision-making may lie,” says the report.
The report concluded with some key
recommendations. First, it is important to
understand that local insurance laws apply
equally to primary and excess insurance.
Second, it is important to recognise that while
certain structures, such as overseas excess
towers combined with local excess policies,
provide the highest level of coverage certainty,
they have limitations when not designed
appropriately.
Third, when drafting clauses and local
certificates under excess policies, clients,
brokers and their insurers should factor in
the importance of careful wording to avoid
redefinition, unavailability of limits locally
and other undesired consequences.
Finally, the report noted that it is
important to collaborate with an insurer
and broker with international expertise and
servicing capabilities, as well as internal and
external tax, finance and legal specialists.
Suneeti Kaushal, Insurance Manager at
Ikano Insurance Advisory, responsible for the
structuring and placement of global insurance
programmes for IKEA, Inter-IKEA and
Ikano, and joint author of the report, added
a client perspective: “As clients, we want to
work with insurers who are value-adding
partners; partners who will critically examine
our assumptions, and who will work with
us to inform and navigate the complex, but
varied, regulatory and compliance demands of
each country in which we operate.
“Captive owners and managers should
insist on an insurer-partner who has the
information owners require to make properly
considered decisions about the structure of
their multinational insurance programme,
and who will explore with them potential
scenarios and stress-tests to establish how
their multinational insurance programme will
respond to particular claims situations,” Ms
Kaushal said.
“It is important to work through the
difficult questions with the insurer-partner
at the beginning; agree on service standards
and guidelines; establish clear communication
channels and the means to access information,
all long before the inevitable claims event
that will test the integrity of a multinational
insurance programme,” he added.
» NEW CHAIRMAN FOR IAIS
THE INTERNATIONAL ASSOCIATION
of Insurance Supervisors (IAIS) has elected
a new chair—Felix Hufeld, Chief Executive
Director for Insurance Supervision at the
German Federal Financial Supervisory
Authority (BaFin).
Mr Hufeld succeeds Peter Braumüller
(Austria), whose term had expired and who
served as chair for the previous six years.
“Over the next several years the association
will continue and conclude many important
projects, such as development of the first ever
risk-based global insurance capital standard, as
we further advance the IAIS’ role as the global
insurance standard setter and a key player in
ensuring financial stability,” said Mr Hufeld.
8/12/14 16:25:53
E-NEWSLETTER
15
» THE BEST
OF THE WEB
Commercial Risk Europe reports the leading news
stories of relevance to Europe’s risk and insurance
managers every week in its electronic newsletter.
Below is a round-up of the most popular articles
published last month. To sign up for the free
CRE weekly newsletter please go to
http://www.commercialriskeurope.com/
more-information/newsletter/sign-up-here
» ORGANISATIONS
STRUGGLING TO
MANAGE CYBER RISK
FINDS EY SURVEY
[LONDON]—THIS YEAR’S EY GLOBAL
Information Security survey suggests that
organisations lack the agility, budget and skills
to protect themselves against cyber risk.
The survey of 1825 chief information
officers, chief information security officers,
chief executive officers and other information
security executives reveals that organisations
are increasingly pessimistic about their ability
to meet information security needs.
Only 13% of respondents report that their
information security function fully meets their
organisation’s needs, down from 17% in 2013.
Last year 68% of respondents felt that their
information security function partly meets
their needs and that improvements are under
way. This number has fallen to 63% in 2014.
In the 2014 survey most organisations
(67%) said they are facing rising threats from
information security, but over a third (37%)
admit they have no real-time insight on cyber
risks in order to combat these threats.
The survey reveals that organisations
lack the budget and skills to combat rising
cybercrime. 43% of respondents say that
their organisation’s total information security
budget will stay approximately the same in the
coming 12 months despite growing threats.
This is only a marginal improvement on 2013
when 46% said budgets would not change.
Over half of those surveyed (53%) said
that a lack of skilled resource is one of the
main challenges facing their information
security programme. Only 5% of responding
companies have a threat intelligence team with
dedicated analysts. These figures also represent
no material difference over 2013, when 50%
highlighted a lack of skilled resources and 4%
said they had a threat intelligence team with
dedicated analysts.
An EY report detailing the survey results
entitled Get Ahead Of Cybercrime says the
15_CRE_Y5_10_BoW.indd 15
findings show that organisations need to
do a better job of anticipating attacks in an
environment where it is no longer possible to
prevent all cyber breaches and threats come
from ever more resourceful and well-funded
sources.
Paul van Kessel, EY’s Global Risk Leader,
said: “Too many organisations still fall short
in mastering the foundational components of
cybersecurity. In addition to a lack of focus at
the top of the organisation and a lack of welldefined procedures and practices, too many of
the organisations we surveyed reveal they do
not have a security operations centre. This is a
major cause for concern.
“Organisations will only develop a risk
strategy of the future if they understand how
to anticipate cybercrime. Cyber-attacks have
the potential to be far-reaching not only
financially, but also in terms of brand and
reputation damage, the loss of competitive
advantage and regulatory non-compliance.
Organisations must undertake a journey from
a reactive to a proactive posture, transforming
themselves from easy targets for cybercriminals
into more formidable adversaries,” he added.
The report encourages organisations to
embrace cybersecurity as a core competitive
capability.
This requires keeping the organisation
in a constant state of readiness, anticipating
where new threats may arise and shedding the
‘victim’ mindset of operating in a perpetual
state of anxiety, it says.
In order to achieve such goals the report
stresses the importance of remaining alert to
new threats. Leadership should address cyber
threats and risks as a core business issue,
and put in place a dynamic decision-making
process that enables quick preventative action,
it explains.
Organisations should also have a
comprehensive, yet targeted, awareness of the
wider threat landscape and how it relates to
them, the report adds. They should invest in
cyber threat intelligence.
It also urges organisations to better
understand their ‘crown jewels’. There should
be a common understanding across the
organisation of the assets that are of greatest
value to the business, and how they can be
prioritised and protected, it advises.
Organisations should regularly test
their cyber risk management capabilities, it
continues, adding that cybersecurity forensics
is a critical piece of the puzzle.
Organisations are also advised to closely
study data from incidents and attacks,
maintain and explore new collaborative
relationships and refresh their strategy
regularly.
The 2014 EY Global Information
Security survey was conducted between June
and August 2014. Respondents were from
all major industries and located in over 60
countries. 39% were from Europe, Middle
East, India & Africa, 26% from the Americas,
22% Asia-Pacific and 13% from Japan.
—Ben Norris
» GALLAGHER LAUNCHES
D&O COVERS TO
BOOST PROTECTION
ARTHUR J GALLAGHER—THE
international broking division of Arthur
J Gallagher & Co outside of the US—has
launched two bespoke DIC D&O ‘Side A’
products to better protect directors and
officers.
The two new wordings—AJG Solo and
AJG Optimum—can operate off the back
of the firm’s traditional D&O form, AJG
Absolute.
Arthur J Gallagher said they have been
launched in response to current ‘inadequate’
D&O ‘Side A’ conditions and because
individuals are increasingly liable for the
consequences of decisions and actions taken in
the course of their duties as directors.
The new products have been specifically
designed to offer broader cover via a range of
clearly extended policy terms coupled with
wider definitions and narrower exclusions,
backed by A-rated Lloyd’s capacity.
Solo and Optimum both offer ‘Side A’
directors’ & officers’ (D&O) difference in
conditions (DIC) cover, designed to close
gaps in standard D&O cover and thus protect
directors’ personal assets when conventional
D&O policies have been exhausted, fail to
indemnify certain risks or do not respond.
Solo has been devised to meet the personal
liability of directors of companies based outside
the US (or with US ADR Level 1 exposure),
while Optimum caters for the directors of
US-domiciled and US ADR Level 2 and above
listed companies.
Solo is an ‘any one claim’ policy providing
up to a $25m limit of liability for each
individual claim made during the period
of insurance. Although Optimum has an
aggregate basis of cover it offers multiple
reinstatements of liability.
Arthur J Gallagher said Solo and
Optimum provide key cover extensions and
narrower exclusions including:
n MAINBOARD LEGAL EXPENSES AND
ADDITIONAL DEFENCE COSTS—these
are in addition to the limit of liability
and are not both included in other
standard DIC forms
n SINGLE CLAIM REINSTATEMENT FOR
MAIN BOARD MEMBERS—Solo and
Optimum will allow one reinstatement
of limit for the same claim, if the
purchased limit is exhausted, for a
pre-agreed and favourable additional
premium at inception
n Very narrow fraud exclusion under
Solo & Optimum
n No bodily injury/property damage
or pollution exclusions
n No prior and pending exclusion
n NON-LICENSED DIC—where the
underlying insurer is unable to pay a loss
on account of local jurisdictions or laws,
the policy will, where possible, drop down
n AUTOMATIC INSOLVENCY DISCOVERY
PERIOD—should a company become
insolvent and thus unable to renew
the policy, Solo provides a significant
automatic discovery period for no
additional premium
n LOCAL LAW EXTENSION—where local law
requires a minimum notification period
following non-renewal of a policy or an
insurer to provide cover for an amount
greater than the limit of liability, both can
be amended to conform to the respective
laws.
—Ben Norris
» BUYERS CONCERNED
BY MULTI-LAYERED
CLAIMS SETTLEMENTS
[MADRID]—SPANISH RISK MANAGERS HAVE
raised concerns about market practices to settle
large losses covered by multi-layered insurance
programmes involving several insurers.
At a meeting organised by IGREA, one of
Spain’s risk management associations, experts
said they are worried about uncertainties
created by such arrangements, even in
cases where lawyers deem contracts to be
watertight.
Risk transfer for companies with
complicated and large risks increasingly
requires complex insurance solutions
placed with a consortium of underwriters.
Programmes are made up of different
coverage layers that are triggered according
to the losses suffered. Each of these layers is
often led by a different insurer, which can
generate disputes among underwriters when
it comes to establishing how much each
individual participant on the programme
must pay to the insured.
According to experts at the IGREA event
such arrangements do not translate smoothly
into civil law markets like Spain. They pointed
out that in the Lloyd’s market some companies
are specialised in leading consortia, while
others focus on following. In Spain, however,
most corporate insurers are designed to lead
complex programmes. This makes them less
willing to delegate the power of decision to
other insurers.
The main problems arise at the time of
settling payments, according to insurance
law expert Paulino Fajardo. “One thing is the
management of the claim, when rules can be
agreed, you can have a steering committee
and all participants can follow the leader,” he
said. “But at the time of making payments,
each company is independent to make its own
decisions.”
As a result, not even well-crafted contracts
can bring complete peace of mind to insurance
buyers. “It looks great to me that there is
a unified management of claims and that
everybody follows the leader. But what if
someone decides not to pay?” said Augusto
Pérez Arbizu, Director of Insurable Risks
and Product Development at Telefónica. “A
contract may look airtight from a legal point
of view, but, as an insurance buyer, I am
always shivering.”
Many of the problems could be avoided if
contracts paid closer attention to the possibility
of a claim, the experts said. “Negotiations
between buyers, brokers and insurers are
usually focused on the placing of the risk,”
noted Juan Manuel Negro, Deputy CEO of
Allianz in Spain. “They rarely talk of what will
happen if a loss takes place.”
—Rodrigo Amaral
8/12/14 16:25:45
Continued from Page One
16
NEWS
GENERALI: ‘Innovation, service and technical performance’ focus
CONTINUED FROM PAGE ONE
gross written premiums to the Triestebased group.
Mr Greco outlined the group’s plans
for the global corporate market during
an investors’ day in London that was held
shortly after he had revealed another
decent set of quarterly numbers.
The group operating result, for
the first nine months of this year, was
€3.7bn. This represented an increase of
12.8% over the same period in 2013.
The improvement accelerated in the
third quarter. The result was up 20.8%
on the same quarter last year.
The group P&C segment reported an
operating result of €1.5bn, up 11.8%.
The combined ratio fell to 93.6%
compared with 95% for the same period
last year. Total P&C premiums remained
stable at €15.6bn.
One of the key elements of Mr
Greco’s turnaround plan is to bolster the
group’s solvency position.
EUROZONE TROUBLES
This was necessary because the Italian
group has a relatively high exposure
to Italian and other eurozone bonds.
The group was downgraded along with
other leading southern European insurers
such as Mapfre in Spain at the height of
the eurozone debt crisis towards the end
of 2011.
The position has certainly improved
since Mr Greco arrived and the latest
results showed further progress.
During the first nine months a
stronger capital position resulted in a
Solvency I ratio of 160%. This was up
16 points on the same period last year.
Group shareholders’ equity rose to
€22.5bn, up 14% on the €19.8bn at
31 December.
Mr Greco was very bullish about
the success of his turnaround strategy
during the London investor day and
reported that it was ahead of schedule.
He said that Generali is ‘back on its feet’
and has ‘over-delivered’ on its promises.
“Over the past two years Generali
has relentlessly pursued a strategy to
fundamentally transform its business
without calling upon the help of
shareholders. We have delivered on
our promise and through discipline,
simplicity and focus we have achieved a
goal which many thought would not be
possible, especially given the challenging
macro-economic environment we
operate in,” he said.
“We commend all of our people
for having exceeded expectations to
substantially complete our turnaround
one year ahead of plan, making this
group a leading example in the sector.
Now the group is fit to tackle global
competition,” added Mr Greco.
Analysts have reacted positively to
the Generali turnaround since Mr Greco
took the helm but stress that the group
is not completely out of the woods yet.
AM Best, for example, revised its
outlook to stable from negative and
affirmed the financial strength rating of
A (Excellent) of the group and its main
subsidiaries in mid-October.
“The ratings reflect the group’s
very strong business position, solid
operating performance and improving
risk-adjusted capitalisation,” stated the
credit rating agency.
“Offsetting rating factors include
the sensitivity of the group’s riskadjusted capitalisation to financial
market volatility and profitability
pressures arising from the challenging
macroeconomic environment in its key
markets,” continued AM Best.
“The revised outlook reflects the
stabilisation of the macro-economic
and financial environment of Italy,
which remains Generali’s core market,
and the ongoing successful execution
of Generali’s strategic plan following a
senior management change [Mr Greco’s
arrival] in 2012,” added the rating
agency.
According to Mr Greco, one area in
which Generali will use its new level of
‘fitness’ to tackle the competition is the
global corporate market.
The group CEO said that the overall
plan is based on two key pillars.
The first is an integrated platform for
services and insurance solutions. This is
based on the core principles of ‘customer
focus, innovation and service delivery’,
said Mr Greco. The plan is based on a
consolidation of local expertise into a
globally relevant platform and ‘carefully
fostering’ new markets and lines of
business to maximise the benefits of
geographical and business line diversity,
he added.
The second pillar is based on
disciplined execution and underwriting
focus, said Mr Greco. Critically, skills
and competencies are being ‘upgraded’,
he said.
This is leading to strengthened
underwriting consistency and discipline,
servicing and claims on a global basis
and increased accountability.
And, it is reflected in a significant
shift from a gross to net underwriting
strategy. This is proven by the fact that
the GC&C retention ratio has already
risen to 64% in 2014 from 56% in
2013, the group CEO told investors.
Further performance improvements
are already visible as a direct result of
the new focus on the corporate business
and creation of the GC&C unit, said Mr
Greco.
The net technical results posted by
the unit are ‘strongly improving’ and
expected to exceed €75m in 2014.
That is more than triple the 2010-2012
average, he said.
During his Hot Seat interview
with Commercial Risk Europe Mr Ribotta
stressed how the launch of GC&C had
not been about the creation of something
from scratch but rather reorganisation
and redeployment of largely existing
resources.
This was the key message that
Mr Greco sent out to group staff and
management in an open letter posted
in April after the full year 2013 results
were announced.
Mr Greco wrote: “The unprecedented
challenges we are facing in the markets
nowadays could very often be overcome
by leveraging resources and expertise we
already have—if only we knew that we
had them.”
As a result ‘sharing’ is vital, according
to Mr Greco. This is because it allows
management to run the business in an
efficient, reactive, relevant and cohesive
way, he continued.
Mr Greco said that the group’s
Global Leadership Group meeting, in
Barcelona on 2-4 April, was focused on
this theme.
The group CEO said that this
meeting confirmed that Generali
already had the tools needed to develop
the business but needs to work harder to
liberate their potential.
“It was clear to me that Generali
already possesses many tools to improve
and grow its business—including the
human factor—but it is absolutely
imperative that we set up methods and
devise instruments to share and apply
them on a consistent basis,” explained
Mr Greco.
‘KEY INITIATIVES’
The key initiatives that he identified
from the meeting were all directly
relevant to the global corporate
business.
He said that tools to leverage local
best practices as opportunities on a
global scale, as well as global business
lines as cross-selling triggers, were
envisaged.
“For example, proposals on how to
manage large data were made, as we can
learn more about our customers and offer
them better solutions if we put together
the mass of information we already own
but which is now fragmented among the
different units,” explained Mr Greco.
“Our
global
lines—Generali
Employee Benefits, Global Corporate
& Commercial and Europ Assistance—
are enormous troves of resources that
can be tapped to then benefit other
lines and businesses, as their services
and expertise could be leveraged to win
affluent customers and product bundling
and global clients could be regarded as
pools of individual clients with their
insurance needs,” he added.
K&R: Risk of kidnap and ransom has become a much bigger issue
CONTINUED FROM PAGE ONE
outside the country, explained Marc
Hewitt, Vice President, Special Risks
in Marsh’s Financial and Professional
Practice.
European
and
international
companies that buy special risks
insurance from underwriters in the
London market may be affected by
the change in the law. Many insurers
offering special risks insurance—also
known as kidnap and ransom (K&R)
insurance—in continental Europe will
have links to the UK or are likely to
follow wordings used in the London
market, explained Mr Hewitt.
Underwriters in London and
continental Europe currently use
wordings that exclude cover for any
illegal payment of ransoms, which
would include those to prescribed
terrorist organisations, explained Mr
Hewitt.
K&R insurance is widely purchased
by high net worth individuals and
corporates looking to protect senior
management and employees when
traveling or working overseas.
However, claims involving terrorist
organisations are very rare, according
to Mr Hewitt.
NO ‘SPECIAL RISK’ CHANGES
According to the broker, the CounterTerrorism and Security Bill is not
expected to restrict cover available in
the market or lead to any changes in
buying habit.
“We do not anticipate any changes
to special risks cover,” said Mr Hewitt.
“Having spoken to underwriters in
recent weeks, we do not expect that
they will restrict special risks cover,
01_CRE_Y5_10_News.indd 16
have careful processes for undertaking
due diligence regarding the identity
of kidnappers when considering
reimbursement of ransoms and will no
doubt be reviewing their procedures
to double check that all aspects of the
proposed legislation have already been
considered,” said Ms Crorie.
although the change in law may
require some amendment to wordings
in order to clarify matters,” he said.
There is also no reason to believe
that the appetite of underwriters for
special risks insurance will alter as a
result of the change in UK law, even
for those insurers offering cover in
high risk zones where terrorist groups
are known to operate, like Syria, Iraq
and Nigeria, according to Mr Hewitt.
He said that the change in UK
law will not erode the value that
K&R insurance brings to individuals
and corporate clients. “Special risk
insurance gives immediate access to
the services of experienced response
consultants, which is of paramount
importance especially when a terrorist
organisation is involved with a
kidnap,” he said.
According to risk consultant
Maplecroft, kidnappings by terrorist
groups are on the rise. There have
been 30 incidents recorded in 2014
compared with a total of 23 in
2013 and 16 in 2012. To date, 171
foreign nationals—mostly from nongovernment organisations, oil and
gas firms, the tourist industry and
the world of journalism—have been
taken hostage in 2014, surpassing
the 44 abducted in 2013 and the 75
kidnapped in 2012.
The latest move by the UK
government does not affect the right
of a UK company to pay a ransom
directly to a terrorist organisation,
only its ability to recoup that cost,
according to Stefan Sabo-Walsh,
Security Analyst at Maplecroft
“The US has the tightest
regulations and, unlike the UK, has
made it illegal for private parties to
fund ransom payments themselves. In
the UK this continues to be legal, as
long as the payee does not seek to be
reimbursed by an insurer,” he said.
Of the other G7 countries, Canada,
France, Germany and Italy have all
reportedly allowed private parties
to pay ransoms to terrorist groups,
despite their governments stating that
they reject such payments, he added.
However, the UK government is
pushing fellow G7 countries to tighten
up domestic regulation to combat the
ability of insurers to reimburse ransom
payments, said Mr Sabo-Walsh.
However, the wider international
focus on terrorist funding may have
implications for compliance.
As payments made direct
to terrorist groups are already
prohibited by legislation, compliance
professionals and risk managers at
insurers providing K&R insurance will
already be familiar with the need to
undertake appropriate due diligence
when considering whether and to
whom any ransom payment is paid,
explained specialty insurance partner
at Clyde & Co, Michelle Crorie.
“Kidnap and ransom insurers’
risk managers and compliance teams
COMPLIANCE SCRUTINY
Compliance, which is already a high
priority, is likely to come under
renewed scrutiny, agreed Mr Hewitt.
“Underwriters, brokers and consultants
will do all in their power to ensure that
laws are complied with and already go
to great lengths to demonstrate that a
terrorist organisation is not involved,”
he said.
Monitoring terrorist groups and
demonstrating which organisations
are involved in a claim is challenging,
explained Nick Powis, Crisis
Consultancy Manager at Marsh’s
Financial and Professional Practice.
There are currently over 60
organisations listed by the UK as
terrorist organisations and hundreds
of individuals and organisations on
the sanctions list, which is constantly
changing, he said.
The proposed change to UK law
will also not help insurers faced with
the challenge of identifying whether
the ransom demand is coming from
a prescribed terrorist organisation,
explained Mr Menzies. In some
countries the distinction between
terrorist organisation and criminal
gangs cannot always be clearly drawn,
he said.
“If insurers find that they occupy a
grey area, they would err on the side
of caution,” said Mr Menzies.
9/12/14 12:44:54
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IIP_ad_A3_092014.indd 1
9/12/14 11:59:56
02.09.2014 13:37:02
Continued from Page One
18
NEWS
AIRMIC: Increased use of specialist consultants
helps to provide protection from cyber risk
CONTINUED FROM PAGE ONE
Mr Hopkin noted that the
survey suggests that where boards
receive a report on ERM they
are more interested in having a
presentation that they can challenge
rather than just a written report.
The survey also reveals a
big jump in the use of external
consultants by Airmic members
and a particular increase in those
helping UK risk managers to deal
with cyber risk.
It shows a significant increase in
the use of all types of consultants,
including lawyers, loss adjusters,
engineers and claims handling
experts, but was particularly
evident in IT.
IT RISK GROWTH
The survey shows that the number
of risk functions relying on IT
consultants now stands at 57%, up
from 29% in 2012.
According to Mr Hopkin
this is a sign that risk managers
are getting to grips with cyber
risk and challenging in-house IT
departments.
“One of the striking features
is how our members are making
use of consultants more than they
did two years ago, in particular
IT and cyber consultants. That is
in response to the fact that cyber
risk is a much higher profile issue
now than it ever has been before.
Cyber risk management requires a
specialist approach,” he said.
“Also I think there
is a tendency for inhouse IT people to
give assurances that
all is well but part
of the risk managers’
job is to challenge
those assurances. The increased use
of external IT consultants shows
how our members have gone about
challenging those assurances in
a very specialist area of risk,” he
added.
The survey finds that fewer
risk professionals now have specific
risk or insurance qualifications but
reveals a slight increase in broader
business qualifications such as
MBAs.
According to the survey, the
percentage of Airmic members with
a Chartered Insurance Institute
(CII) qualification has fallen from
45% in 2008 to 39% this year.
Similarly, 22% of respondents this
year had an IRM qualification,
down from 27% in 2008.
“Anecdotal evidence from
discussions with Airmic members
shows that a number of our very
senior members are business
qualified, know their industry
very, very well and have often been
operations people before taking
over the risk management brief. So
if you are going to be an effective
risk manager you have got to
understand business and our survey
results may reflect that trend. But
we are talking about subtleties in
movement,” said Mr Hopkin.
The survey reports a steady
increase in the average salary of
risk and insurance managers. Only
32% of Airmic members earn less
than £70,000—down from 48% in
2012 and 54% in 2008. Meanwhile,
the percentage of Airmic members
earning over £100,000 has risen
slightly from 24% in 2012, to 28%
this year.
Risk professionals in their 40s
with over ten years’ experience in
insurance and/or risk management earn the most
and there is a
clear
relationship
between job title and
remuneration. Chief
risk officers earn on
average £140,000, a
director of risk management earns
about £123,000 and the average
salary for a head of risk management
is about £104,000.
Although basic salaries have
increased between 2012 and 2014,
bonuses are less lucrative and, as
a result, the overall remuneration
package for risk managers has
reduced in several sectors, notably
the mining sector which has been
overtaken by the leisure, hotel &
travel industry as the most lucrative
sector for risk managers.
“Bonuses are optional—in good
times you get good bonuses but in
bad times bonuses are restricted.
There is an underlying increase in
salaries and the bonus situation is a
reflection of the economy. So I think
the findings are simply a reflection
of the harsh business reality,” said
Mr Hopkin.
This year’s survey also suggests
that Airmic members are not
buying more insurance despite the
soft market. In total they spend
an estimated £5bn in insurance
premiums annually, with another
£2bn going into captives and a
further £2bn in uninsured, selfinsured or retained losses.
CAPTIVE MARKET
“These figures are roughly the
same as the last time we gathered
this data five years ago, showing
that our members still maintain
their commitment to their captives
despite a softer market,” Mr Hopkin
explained. “Airmic members still
value their captives and even
in these competitive external
market days they still keep their
captives involved in their insurance
programmes.”
The Airmic salary and
status survey results are based
on 237 responses, representing
approximately 22% of the
association’s membership.
PARIMA: Parima will likely follow the model used by UK’s Airmic
CONTINUED FROM PAGE ONE
insurance at International SOS, the
medical and travel security services
company, revealed the plan during
his opening speech at the event.
Mr Baron said that risk and
insurance managers in Asia are fast
catching up with their international
peers but conceded that further
work needs to be done.
Parima was created to provide
Asian risk managers with the
skills, training, knowledge and
lobbying capability to develop the
profession. One key area in which
the association can help members
is international programmes, said
Mr Baron.
“When
you
implement
international programmes you
find that it is extremely complex
and increasingly so. There is a
lack of consistency when it comes
to international programmes,” he
told delegates.
“We are going to develop
a specific tool for members, a
compliance database. We will
develop this idea over the next few
weeks to provide support for the
profession,” explained Mr Baron.
Another important project for
the new association is education,
said Mr Baron.
He said that the ‘raison d’être’
of Parima is to ensure that Asian
risk and insurance managers are
equipped with the tools and skills to
‘step up’ and help their companies
cope with emerging risks and the
complexity of the modern business
world.
“It is very important that the
risk management profession in
Asia takes a step up and is rightly
01_CRE_Y5_10_News.indd 18
engaged in the organisation,” said
Mr Baron.
“Parima will help risk managers
go to the next level so that they
are rightly recognised in their
organisations. How will we do
this? Through education and at a
later stage a certification process,
and also through research and
benchmarking. We also need to
step up and discuss key issues
with regulators, authorities and
the market as a whole. This brings
challenges and opportunities for
us to step up as professionals,” he
continued.
The Federation of European
Risk Management Associations
(Ferma) is currently working on a
pan-European certification project
that it hopes will help promote
the benefits of risk management
and raise awareness, appreciation
and understanding of what the
profession is all about.
Mr Baron agrees that this is
critical and perhaps even more
important in Asia.
“Too often I hear from my
peers that they have to spend the
first 15 minutes of a presentation
at board level explaining what we
do. CFOs don’t have to do this and
neither do general counsel. We
need to gain recognition and this is
one of the reasons why Parima was
established. It is a platform for risk
managers in Asia,” he explained.
Mr Baron said that globalisation
is an important reason why risk
managers need to push themselves
forward and rise up the corporate
agenda.
“Integration and cross-border
flows impact us each day. This
needs to be understood and
monitored every day because there
is a threat of systemic risk that
cannot be ignored, it’s endemic.
This risk needs to be managed and
risk managers have a role in this,”
he said.
Mr Baron added that the socalled butterfly effect, by which
a butterfly may flap its wings in
Brazil and cause a storm in the US,
and the threat of ‘externalities’, are
further reasons why risk managers
need to up their game and profile
at board level.
“When a company decides to
expand to a new country or move
production for cost reasons they do
not always consider all the impacts
such as social and environmental.
Risk managers should help the
C-suite look at all externalities
that are not necessarily integrated
into the decision-making equation
when a company decides to do
business in a certain part of the
world,” said Mr Baron.
Another danger facing risk
managers and their organisations
is an obsession with lean and
mean management, said Mr
Baron. This approach means that
previously sensible practices, such
as holding stock buffers, no longer
occur which can leave companies
seriously exposed, he continued.
“This can lead to a tick box
mentality whereby managers are
comfortable that the job is done
because all has been placed with
one supplier that is very efficient.
But there is no substitute for
judgement, experience and face-toface contact. Again risk managers
need to step up and support this
search for efficiency,” said the
Parima chairman.
Franck Baron
9/12/14 12:45:02
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