News
WEDNESDAY 10.31.12
PCI: A voice at the top table is a must
A number of legislative reforms are due over the next 12 months that will dramatically affect the insurance industry – as such, it is critical insurers make their voices heard now, says Robert Gordon of the PCI.
the industry’s voice is heard at the highest levels of government, if it is to avoid being subjected to unsuitable and ill-informed regulatory changes designed for the wider financial services industry. That is the view of Robert Gordon, head of
T
policy development and research at the Prop- erty Casualty Insurers Association of America (PCI). Gordon worked in the House of Repre- sentatives for almost 20 years helping guide and draft legislation relating to the insurance indus- Terrorism Risk Insurance Act (TRIA). For the past four years, Gordon has worked for the PCI, helping turn the trade body into a key lobbyist of the government on issues that affect the insurance industry and, more so, a source of expertise that the government can turn to when it needs input and expertise from the industry on legislative matters.
he US insurance industry is facing fundamental change on a number of fronts. Therefore it is critical that
He says there are a number of legislative changes
set to emerge over the next 12 months that will have far reaching consequences for the industry and which - ing the industry’s response through the PCI. Top of the agenda, he says, is regulatory change
as a number of bodies, both domestic and interna- tional, look to reshape the industry and the way it the industry is regulated, with a number of different regulatory strands combining to create a complex picture for the industry. “It is vital we have a voice at this table and try
to ensure what happens is right for the industry He says another issue pertinent to the industry
Robert Gordon, PCI
is the renewal of TRIA, which expires at the end of 2014. Although that seems like a long way off, Gor- don points out that reinsurers would ideally like to have certainty over their future at next year’s renew- als. “Whether that is possible or not is another mat-
‘Low-risk’ investment strategies create concentration risk I
nsurers de-risking their investment portfolios and moving into ‘low risk’ assets such as US treasuries or related products, could face a
meltdown on the investment side of their balance sheet should interest rates suddenly increase. That is the stark warning from David Mock-
low, head of origination and sales at Elanus Capi- tal Management, an independent alternative asset manager. He says the industry has been pressured into investing in this way by regulators, sharehold- ers and rating agencies.
similar investment portfolio, this presents its own risks. Mocklow says the industry should ponder what would happen if interest rates were to sud- denly rise. Insurers looking to realise the underly- ing value of their US treasury-based portfolios
Meanwhile, those insurers willing to hang onto their assets would suddenly lose a huge amount of value when they then take that same portfolio to market. “It would come as a nasty surprise to many players that their investment portfolio is says. “The same thing happened to the banks. It is Mocklow recommends insurers seek alterna-
David Mocklow, Elanus Capital Management
may look to sell. Mocklow argues, however, that the investment banks no longer have the capacity to handle such large amounts of assets. “So who would they sell them to? How would they get rid
6 | INTELLIGENT INSURER —PCIAA TODAY | Wednesday October 31 2012
tive investment strategies, some of which, he ar- gues, will not only pay a better return, but also decrease the overall risk in their portfolio. One for insurers is around the banking world. Many banks require capital relief and there are ways insurers can provide this in a form of synthetic capital while investing indirectly in bank loans.
www.intelligentinsurer.com
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