Insurance Companies Want to Strengthen Risk and Capital Management
With just a few exceptions, the insurance industry has weathered the economic crisis relatively unscathed so far. Nevertheless a global study undertaken by KPMG shows that insurance companies are endeavoring to improve their risk and capital management. The main incentive behind these efforts is not new regulations, however, rather their desire to strengthen their business performance over the long term.
A survey conducted by KPMG of 392 insurance companies in 47 countries in Europe, Asia and North America has shown that most insurers have come through the financial crisis with reasonably strong reserves, but this does not prevent capital from being foremost in their minds when they consider possible constraints on growth. Regulatory intervention that could force insurers to hold more capital, such as Solvency II, is the number one concern, but survey respondents are also worried about the cost and availability of capital should they need to increase their buffers. Both life and non-life insurers share broadly similar concerns about this issue.
Despite the recent controversy over the recommended parameters for Solvency II, respondents questioned for this survey broadly welcome the new capital regime. Just over six out of ten respondents think that the legislation will have a positive impact on their risk management, and a similar proportion expect benefits to their capital management. Interestingly a much smaller number of around one-third expect a positive impact on their profitability, perhaps reflecting concern that a higher cost of capital could push down margins
Stronger performance through improved risk and capital management
Although regulatory change is undoubtedly an issue that keeps senior insurance executives awake at night, it is not the only driver behind strengthening risk and capital management. When asked about the priorities for improving these areas, respondents point to better risk-based decision-making and improved allocation of capital as being their main areas of focus. Complying with regulatory change comes a long way down the priority list. This suggests that the primary reason to strengthen risk and capital management is to improve business performance, not just react to regulatory change.
In general, insurers questioned for this research are reasonably confident about their company's ability to elevate risk information to board level and ensure that risk reports are relevant and appropriate for the intended audience. There are doubts, however, about the level of risk expertise at board level, which suggests that, while information about risk may be reaching the right people, the recipients lack the knowledge to respond to it, or provide the leadership that is necessary to instill a broader risk culture.
Better coordination between risk functions and other areas of the business
The twin drivers of regulatory change and internal pressure to improve business performance are encouraging companies to build stronger bridges between risk functions and other parts of the business. Among the steps that insurers are taking to improve risk and capital management, the top three relate to improved coordination and collaboration. They want to build stronger links between the risk and finance function, increase the involvement of the risk function in strategic aspects of the business, and facilitate better conversations between risk and lines of business. These findings suggest a real appetite to embed risk management more deeply in their business.
Zurich, 11. November 2009
For further information, please contact:
KPMG AG
Andreas Hammer
Head of Public Relations
Telephone: +41 44 249 48 20
Mobile: +41 79 335 75 06
E-mail: kpmgmedia@kpmg.ch
http://www.kpmg.ch/
