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MONDAY 22.10.12


but beware of cat models Speakers at the Guy Carpenter symposium in Baden-Baden yesterday pondered whether volatility represents an opportunity or a threat to the industry – their conclusions may surprise some.


Volatile opportunities – Michel Liès, Swiss Re


than ignored or seen as a threat by the industry. But there are also some types of volatility that are unacceptable and which the industry must collectively address. Those were the conclusions of a panel of


V


speakers at a presentation debate organised by Guy Carpenter yesterday (Sunday) at the Kon- gresshaus in Baden-Baden. The session was called Volatility – opportunity or threat? Nick Frankland, CEO of EMEA Opera-


tions at Guy Carpenter, kicked the session off by stating the concept of volatility is often mis- understood. “It is a much abused concept but in reality it is the heart of our industry,” he said. Chris Klein, head of sales operations (UK/ EMEA) and market relationships at Guy Carpenter, backed this up by saying volatility is often regarded as bad and regulatory changes are often designed to mitigate it. “But have we gone too far?” he asked. Michel Liès, the chief executive of Swiss Re,


stated that volatility is a fact of life in reinsur- ance. He made the case that levels of volatility are increasing on both the asset and the liability sides of reinsurers’ balance sheets.


olatility is a fact for reinsurers and should be embraced and actively managed rather


He said the volatility of losses stemming from


disasters – both natural and man made – is also increasing. Amongst other things, he blamed greater concentrations of population around cit- ies and climate change for this. But he stated that the most important thing for reinsurers should be to be transparent about the risks. “We know our activities are not risk free but


we should be as transparent as we can about what these risks are. We should never surprise our investors with something that is not a sur- prise to us.”


Liès said that reinsurance should absorb


volatility and provide capital to the wider econ- omy when needed. He said the industry should become better at communicating this role to the wider world – especially regulators. But he also noted that the insurance indus-


try is shouldering a lower percentage of overall economic losses than it has historically in the aftermath of big catastrophes. This represents a challenge for the industry. “Our penetration in some markets is not as good as it should be. We need to improve,” he said. He concluded by arguing that, to him, vola- tility is an opportunity. “Without it, you would


What’s inside 2 MAYOR OF BADEN-BADEN WELCOMES THE REINSURANCE INDUSTRY 3 SOLVENCY II MEANS OPPORTUNITIES AND CHALLENGES: AON BENFIELD 4 A LIABILITY-DRIVEN INVESTMENT STRATEGY CAN MEAN REWARDS 6 CASUALTY BUSINESS FACES MANY CHALLENGES AHEAD: BARBICAN 10 PORTFOLIO TRANSFER CAN MITIGATE SOLVENCY II CHALLENGES: DARAG


Nick Frankland, Guy Carpenter


not have our industry,” he said. “We are there to absorb the shocks and help our clients in challenging times. But we also need to attract a good price for doing that.” Carlos Montalvo, the executive director of


the European Insurance and Occupational Pensions Authority (EIOPA), also acknowl- edged that volatility represents a fundamental part of reinsurance but that risks need to be priced correctly. “You need to convince analysts, investors and supervisors that volatility is (continued overleaf)


TODAY BADEN-


BADEN Research, analysis + opinion on international insurance + reinsurance


12 RATES AND CATASTROPHE MODELLING WILL BE BIG TALKING POINTS 14 SUSTAINING POSITIVE EARNINGS WILL BE TOUGH: FITCH RATINGS 15 UNDERWRITING PERFORMANCES MUST NOW IMPROVE: GEN RE 16 BETTER CLIENT LIAISON IS NEEDED ON CASUALTY BUSINESS: MUNICH RE 17 REINSURERS SHOULD FOCUS ON CLIENT PROBLEMS, NOT THEIR OWN


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