In this interview with InsuranceERM (subscription required), Milliman’s Neil Cantle and Elliot Varnell reflect on key issues impacting Europe’s insurance industry in 2013. They also discuss some challenges the industry may face in 2014.
Here’s an excerpt from the interview:
What will 2013 be remembered for?
Varnell: I would suggest that it was the year that Solvency II was finally “agreed” at the top level after a few years of debate and wrangling between the Council, Commission and Parliament.
Ironically, it was also the year when economically based regulatory capital was to some extent de-emphasised as the PRA published on Early Warning Indicators (see IERM, 4 October) and the FSB announced its G-SII list (see IERM, 19 July) and kicked off a project through the IAIS to come up with a global metric for regulatory capital (see IERM, 12 December.)
But also the year that many insurers – especially life insurers – rebalanced their focus away from Solvency II and regulatory capital and turned to looking for the best opportunities for value creation in their business. The refocus on product development and investment in infrastructure stand out as examples of areas that insurers have re-focused onto value creation.
What will be the biggest ERM challenge of 2014?
Cantle: I think many firms are still struggling to bring ERM to life and make it truly operational. If ERM is done simply as a compliance exercise then it can cost a lot of money and simply be a burden. If it is done to bring insights to the business and improve the opportunity for discussion about performance uncertainty then it can improve resilience and add significant long-term value to the business. The challenge is therefore to look beyond templates and documentation and make it strategic. Concepts like risk appetite require a multi-variate view of performance, so that indicators are seen in context, and many firms still cannot do that.