18 years ago an Irish insurance conference probably would have consisted of a broker and an underwriter from Dublin having a pint of Guinness in a pub (most likely in London). Times have changed. Since the founding of the Dublin International Insurance & Management Association (DIMA) in 1990, Ireland’s international insurance presence has grown to become one of the most important in Europe.
DIMA’s membership reads like a who’s who of the world’s insurance community. Dublin is now home to the European operations of Companies like ACE and XL, as well as over 200 captives. DIMA organized and ran the European Insurance Forum, held March 15 and 16 at the Four Seasons Hotel in Dublin, which attested to the growing importance of the city as an insurance hub.
The two day conference featured a wide range of speakers, and touched on a number of timely topics. Despite opening on a bit of a down note – Swiss Re’s announcement that it had chosen to centralize its European operations in Luxembourg (See IJ web site March 13), rather than Ireland, most of the delegates and speakers expressed confidence that Dublin has achieved a critical mass as a hub for international insurance and reinsurance activities. “I don’t see Swiss Re going to Luxembourg as competition,” said Sarah Goddard, DIMA’s CEO. “There needs to be a choice in Europe, as the various business models vary, so do the choice of locations.”
DIMA’s Chairman Scott McIntosh, who also happens to be the managing director of Swiss Re Ireland, noted that Dublin seemed to be more attuned to the needs of companies from English speaking countries due not only to the language, but also to cultural and legal differences.
Given those parameters Swiss Re’s decision does seem more logical. “Ireland and Luxembourg are complementary,” said Victor Rod, who heads the Duchy’s Insurance Supervisory Authority.
Financial regulation occupied center stage at the conference. The European Reinsurance Directive is due to come into force Dec. 10 this year. EU countries are required to adopt the legislation necessary to make the directive part of their laws. Ireland got a jump on the rest of Europe by passing the enabling legislation in July 2006, the first EU country to do so.
McIntosh described it as providing “greater legitimacy and transparency; a more level playing field, increasing capital efficiency,” and providing the EU with “additional leverage to reduce collateral requirements,” a feature aimed directly at the U.S. Despite French objections they are scheduled to be abolished throughout the EU in January of 2008.
Walter Bell brought all three of his current hats to the conference – Insurance Commissioner of Alabama, President of the NAIC, and Vice President of the IAIS (International Association of Insurance Supervisors). He needed them to defend the U.S. position.
“95 different countries sell reinsurance in the U.S.,” Bell pointed out. “We’re focused on assuring the solvency of both the ceding companies and the reinsurers; we don’t regulate rate and form [for reinsurers].” He also stressed that the U.S. has taken steps, such as the model law on credit for reinsurance. “What I support is a ‘re-calibration’ [of reinsurance regulation], not elimination.”
The pending implementation (in 2010) of the EU’s Solvency II requirements for the regulation of the insurance and reinsurance industry was the other big regulation topic. “I see it as a revolution in European regulation,” Goddard said. The proposals, which are many and complicated, basically aim at switching insurance regulation from concentrating on annual capital requirements to an ongoing risk evaluation system; i.e. the riskier the business, the more reserve capital will be required.
The enormous basket of risks the industry faces was the other main topic covered at the conference. A session on “killer risks” identified financial meltdowns and loss of reputation as being of the greatest concern.
John O’Connor, former head of London’s Flying Squad – an elite police unit that has taken on the IRA and more recently the subway bombers – gave a sobering assessment of the world wide terrorist threat. “It’s not a war, it’s a conflict,” he said, “you’ve got two opposing sides; what the terrorists want [such as an Islamic State in the UK] is unachievable, but there is no way to ‘win’ as you’d have in a war.” He pointed out that one of the goals of the second set of UK bombers (the ones that didn’t go off) was to inflame Britons against Muslims “so as to create more terrorists.”
Chemical, biological and radioactive terror threats got a good going over too from Dr. Steve Hajiof, a public health specialist, whose clients include the London Public Health Service, UNICEF the WHO and the EU. “The people who plant these agents aim at disruption through terror,” he said; they’re hard to spot and it’s sometimes hard to tell who’s been exposed.”
He discussed some past attacks, such as the release of the Sarin nerve gas on the Tokyo subway, which “created a panic and had a devastating effect.” However, he also indicated that “although most chemical and biological agents are relatively easy to produce, they are hard to deliver.” Most of the audience wasn’t terribly comforted by this.
Global warming and the threat from avian influenza were also reviewed. Dr. David Cook, Medical Director-UK of International SOS, compared the threat to the Spanish Flu of 1918, which killed at least 40 million people around the world, and probably many more. He feels it’s only a matter of time before the H5N1 virus develops a capability to spread through human contact. If that happens, “30 percent of the world’s population could contract the disease within a relatively short period of time. The mortality rate in those who’ve been infected has been 60 percent.”
The latest saga in the climate change debate got a good going over from Bill McGuire, the Director of the Benfield Hazard Research Centre. In addition to bigger and more powerful hurricanes, the world also faces threats from earthquakes and volcanoes. Increased activity may be triggered by the changing climate through melting ice caps and higher sea levels, which increase the strains along the earth’s major fault lines. “Three billion people live within 60 kilometers [36 miles] of the coast,” he pointed out.
So, how is the insurance industry to cope with all these threats? It will need government to play a greater role, as the private sector is not designed to pay for mega-catastrophes. “Reinsurers cannot support maximum losses,” said Hannover Re’s Juergen Graeber. “Adequate prices would assure more stability, but you cannot write under funded business.” Discussing the situation on the Gulf Coast and Florida, he said the U.S. “needs all the capacity it can get,” but if it is too cheap, then the industry is “big enough to lose a billion in premium.” It does seem that losing a billion in premium is better than losing 50 billion in losses.
The conference closed in time for all of those attending to start the St. Patrick’s Day festivities early. Even the weather cooperated – it didn’t rain.
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