Insurers will be looking at how to move their Solvency II development work from the laboratory to business as usual, says Andrew Cox, Guy Carpenter's head of advisory for Europe, the Middle East and Africa, in InsuranceERM's 2012/2013 Q&A
What was the best development of 2012 for the re/insurance industry?
What was the biggest disappointment of 2012?
Probably both of these could be answered by "the delay in Solvency II." For those who are struggling to undergo the massive changes required by Solvency II, the delays are clearly helpful. However, there are those who have invested heavily to get themselves primed for Solvency II. For them, Solvency II is an opportunity for them to differentiate themselves and achieve a better competitive position; for these the delays are unwelcome.
What will be the biggest ERM challenge of 2013?
Catastrophe models are always under the spotlight, be it around the introduction of new or updated models, or assessing how well they have performed post loss. This will only continue over the next few years with the introduction of next generation platforms. But as well as improving the existing natural catastrophe models, an area of interest to me is how and when man-made catastrophe modelling really takes off in the same way.
What will re/insurers be focusing on next year in the light of the extra delay to Solvency II implementation?
I expect insurers will be looking at how to move their Solvency II development work from the laboratory to business as usual, and to start trying to extract real value from their massive investments.
The test will be around finding the right balance between finding models useful but not being in awe of them. An issue that I come across commonly is slow run times and inflexible model construction causing models to be given lip service at best in decision-making processes. I know a number of people will be working on this in 2013.
Do you foresee any substantive change in approach when the UK's Prudential Regulation Authority and Financial Conduct Authority come into existence in 2013?
It seems to me that many of the changes are more evolutionary rather than revolutionary. Focusing on the PRA, which is likely to be more relevant to people working in ERM, the aims to become more forward looking and more risk sensitive are an extension of what has been happening over a number of years through initiatives like the ICA [individual capital assessment] regime, reverse stress testing and Solvency II.
I can see in theory potential benefits for the regulators, as it may be easier to get a holistic view of the whole financial services sector and how it interacts with the wider economy. One potential downside is that, in the short term at least, there may be extra work for companies in dealing with and getting to know two regulatory teams rather than one.
What significant regulatory developments or industry trends do you foresee in the US and Asia-Pacific next year?
The introduction of the ORSA [own risk and solvency assessment] in the US is interesting. I hope that multinational companies, be they re/insurers, brokers or consultants, will act as conduits for best practices crossing the Atlantic.
Companies:Guy Carpenter
