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Corporate Defence refers to the measures, mechanisms and processes in operation within an organisation with the objective of helping to protect and safeguard the interests of the stakeholders. Similar to "National Defence" it addresses the structures in place to address accountability and responsibility for the operational line management of defence related activities.
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Introduction and Definition
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Corporate Defence has been defined as “an alchemy of both science and art, aimed at defending an organisation from a multitude of possible threats and vulnerabilities.” Corporate defence includes defending the interests of all the stakeholders, this includes defending the shareholders, the business partners, and its clients. Defending the company name also means defending its people, management and staff. Consequently the defence of the organisation is an extremely responsible station, as there are a large number of stakeholders who rely on this corporate objective to be achieved in an effective manner, in order to defend their diverse interests.
Types of Threats Global Concerns The following are examples of the types of potential global concerns which may have a subsequent adverse effect in the corporate world. - Effects of a potential energy crisis - Unprecedented level of natural disasters - Problems facing continuing globalisation - Race to develop nuclear technology - Worsening crisis in the Middle East - Competition from Asia’s economic giants - Conflict with leftist regimes in Latin America - Increased social unrest in old Europe
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Corporate Threats The following are examples of corporate threats: - Bankruptcies as a result of senior executive mismanagement and incompetence - Persistent increase in internal fraud and white collar crime - The continuous evolution and mutation of cyber-threats - Increasingly complex and sophisticated financial crime - Laundering of the proceeds from organised crime and terrorism - Financial misrepresentations and accounting fraud
Potential Hazards The following are examples of potential hazards in the corporate world: - Professional Negligence Prosecutions - Fraud, Corruption and Embezzlement - Accounting Irregularities - Insolvency, Liquidation & Bankruptcy - Regulatory Compliance breaches - Rogue Traders & Insider trading - Public and Civil Litigation - Product Liability Class Actions - Employee Theft and sabotage - Terrorism & Armed Robbery - Cyber Attacks, Viruses & Trojans
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- Organised Crime & Money Laundering - Espionage, Bugging & Spyware - Confidentiality and Data Protection - Intellectual Property - Natural Disasters
Corporate Defence Domain Corporate defence requires a strategic outlook, and the convergence and alignment of a number of disciplines, which need to be co-ordinated in a strategic manner (e.g. under the one umbrella). Many organisations already implement a variety of what could be best described as corporate defence related activities, in order to address potential threats. Each of these represents an important link in the chain to help corporations defend against internal and external threats, and to collectively work together towards a common set of objectives. Corporate defence related activities include the following: Corporate Governance Risk Management Corporate Compliance
Corporate Intelligence Knowledge Management Physical Security
IT Security Resilience Management Corporate Protection
Corporate Controls Corporate Assurance Corporate Investigations
The Corporate Defence Cycle For most corporate defence related activities, their defensive mission is generally to anticipate, prevent, detect and react to potential threats and vulnerabilities in a timely manner. It has been said that anticipation, prevention, detection and reaction represent the four cornerstones of a corporate defence.
Anticipation The timely identification and assessment of existing threats and vulnerabilities, and the prediction of future threats and vulnerabilities.
Prevention Taking sufficient measures to shield the organisation against anticipated threats and vulnerabilities.
Detection Identification of activity types (exceptions, deviations & anomalies etc) which
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indicate a breach of corporate defence protocol.
Reaction The timely response to a particular event or series of events, in order to both mitigate the current situation, and to take further corrective action in relation to deficiencies identified, and to prevent these events re-occurring in the future. Defending the organisation is not a once off, point in time, assignment. The challenge of defending against threats and vulnerabilities is without end, it is a constantly evolving process which requires ongoing vigilance and an iterative loop, in order to ensure constant revision and continuous improvement.
The Future of Corporate Defence Using advanced technologies it is possible to create this fusion and eliminate any “chinese walls� which may exist. The most robust organisations seek to have the highest pre-emptive capabilities in place, as it is the reaction times to potential threats which determine the magnitude of the initial impact and the subsequent collateral damage.
See also Governance Corporate governance Corporate responsibility Corporate social responsibility Risk Management Enterprise Risk Management Operational Risk Operational Risk Management Compliance (regulation) Governance, Risk Management, and Compliance Litigation Insurance
Business intelligence Market Intelligence Competitive intelligence Operational Intelligence Knowledge Management Enterprise content management Security Physical Security Computer Security Information Security Internal control Control environment
Resilience Business Continuity Planning Disaster Recovery Crisis Management Occupational health and safety Emergency management Assurance Due Diligence Audit Fraud Forensic Accounting Asset recovery
References Lyons, Sean (2006). Corporate Defence: Are Stakeholders Interests Adequately Defended? The Journal of Operational Risk, Vol. 1, No. 2, ISSN 1744-6740 Lyons, Sean (2006). Challenges Facing Contemporary Corporate Defense. The RiskCenter, 12th December 2006 Lyons, Sean (2007). The Corporate Defence Continuum (Part 4): The Quest for a Holisitic Solution. The RiskCenter, 13th February 2007
Further reading Rochette, Michel (2007). Actuaries: Masters of the Non-Tradable Risks. The Society of Actuaries, Actuary of
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the Future, May 2007, Issue No. 22
Lyons, Sean (2006). An Introduction to Corporate Defense Management (CDM). DM Review, 15th December 2006 Lyons, Sean (2006). Why Corporate Defence Management is a Strategic Imperative. The Bank Director, 16th October 2006
Lyons, Sean (2006). An Executive Guide to Corporate Defence Management (CDM). GRC USA, 4th April 2007 Bourbon, John (2001). Corporate Defence and Risk Management. Speech 18th January 2001, Managing Director, Cayman Islands Monetary Authority (CIMA)
External sources Cranfield University, Defence College of Management and Technology The Bank Director: Corporate Defence and CDM Papers
The Corporate Board Member: CDM Paper The RiskCenter: Corporate Defence and CDM Papers
Risk and Insurance Management Society (RIMS) : Corporate Defence Paper Risk Management Association (RMA): CDM Paper GTNews: CDM Paper
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Catastrophes, insurance and government intervention James R. Heywood, Associate Lecturer, Oxford Brookes University Business School and Consultant to Axco Insurance Information Services Ltd, London. MA, Katholieke Universiteit Leuven KUL, Belgium; postgraduate Certificate in Management Studies, Oxford University: MA, Oxford Brookes University Business School. Introduction Large financial catastrophes are at the outside edge of normality. They occur infrequently and their size is difficult to predict. Markets as a whole may find it difficult to absorb them. Individual market participants do not find it easy to build enough technical reserves or shareholders’ equity to withstand them. Governments sometimes become involved in the attempt to provide sufficient capacity at a price which is affordable to consumers. This study looks at large insured losses (basically above EUR 1bn each) which have affected five major European Union states in recent decades. It investigates how some of these events have led to changes in market practice, or to calls for government intervention. The underlying question can be stated as follows: given that major catastrophe losses are infrequent but very disruptive, what is the structure which best combines an affordable cost to consumers, a stable contribution by the financial sector and a reliable ultimate “deep pocket” support by the state? Some parallels are drawn between the subject-matter of this study and the characteristics of large losses in other areas of finance such as banking or capital markets. The author has had a long-term interest in these aspects of the “big picture” of financial markets, initially as a practitioner in property insurance and reinsurance. In a short article for an insurance practitioners’ magazine (Heywood, 1988) I discussed some problems inherent in a portfolio of catastrophic risks. My interest in economic history was enhanced by studies at KUL University in Belgium with Professors Hermann Van der Wee and Peter Solar. During a period of study at Oxford University, I wrote a paper on financial accumulations and the catastrophe problem (Heywood, 1995) under the supervision of Professor Colin Mayer, and presented it to a conference held at the Royal Society, London in 1996 under the auspices of the UN International Decade for Natural Disaster Reduction. In 2006 I presented a paper on government intervention in insurance (Heywood, 2005), prepared at Oxford Brookes University, to the UK insurance economists’ annual conference held at Nottingham University’s Centre for Risk and Insurance Studies. This paper is set out as follows. The literature review includes some recent evaluations of the problems inherent in catastrophic risk, its financial treatment and the related action of government. The methodology of this investigation is described and the findings are presented. The interpretation and conclusion round off the paper.
Literature Review This section notes some relevant literature of about the last 20 years on the subject of catastrophes. The statistical problem of the unusually severe loss has received much attention. A spectrum can be imagined. At one extreme there are incalculably devastating events such as meteor strikes whose probability is infinitesimal. Material on their financial effects is limited and very theoretical, given the scarcity of historical data (see Kovacs and Hallak, 2007). Perhaps slightly less extreme, the picturesque description of black swan events by Taleb (2007) includes the factors of rarity, extreme impact, and retrospective (though not prospective) predictability. Thus the Deepwater Horizon event in 2010 has already been described as a market-changing event, not least because it was a man-made disaster with a cost of say USD 40bn based on the BP 2010 pre-tax charge. Insurers have begun to make a dramatic reevaluation of exposures and prices, even though the oil giant BP was self-insured (Berg, 2010). Further along the spectrum are infrequent but somewhat expected events. Garmaise and Moskowitz (2009) compare the characteristics of severe earthquakes, hurricanes and terrorism events, considering that terrorism is particularly difficult to evaluate and quantify, has an endogenous risk because of human action, but can cause damage even greater than that inherent in natural phenomena. Towards the less harmful end of the spectrum are small-scale natural events and the generality of small losses which can be financed by mass insurance, deductibles or pay-back mechanisms. A key “fat tail� aspect of insurance modelling is the method by which insurers reserve or allow for the possibility of a catastrophe. The former equalisation provisions (established by accumulating a percentage of premiums received) were in principle not accepted as a liability under new IFRS accounting requirements, because they relate to events which have not yet happened. The move towards 200-year return periods for estimations of value at risk led to higher levels of reinsurance purchase, for example in Germany (Coppack, 2009). The UK regulator said in 2008 that even the best-prepared firms would need considerably more time to finalise the complicated testing needed for Solvency 2 standards (FSA, 2008). The European regulators released their catastrophe standardised scenarios in June 2010 (CEIOPS, 2010) but there were some inadequacies, and smaller insurers could perhaps be faced with a difficult choice between higher capital requirements and higher costs of modelling and approval (Swiss Re, 2010). A report by major insurers (Geneva Association, 2010, p74) on lessons learned from the 2008 credit crisis stated that insurers routinely tested catastrophe models against 2,000 year time horizons, but confessed that there were no data to build such models for the terrorism risk. Kousky and Cooke (2010) look at USA evidence and suggest that the tail risk is worsening, insurance in the market is too expensive and state schemes are under-priced for political reasons. They are sceptical that catastrophe bonds will be able to fill the gap because the same tail risk exists, and repeat suggestions from earlier writers that perhaps tax-free hypothecated catastrophe reserves (apparently of a type already discarded under IFRS!) could be introduced for insurers.
The related difficulty of coordinating catastrophe return periods of many years into a 12-month accounting period is described by Jaffee and Russell (1996) as “the intertemporal problem of how to match a smooth flow of annual premium receipts to a highly non-smooth flow of annual loss payments” (p1) though they are less correct in saying (p20) that the government bears the risk by reinsurance in most of the world’s developed countries. Schwarze and Wagner (2006) state that after the catastrophic German floods of 2002, the insurance sector had to make its basis of calculation more severe; from a maximum amount of EUR 2.5bn and a return period of 100 years it was changed to a maximum of EUR 15bn and a return period of 200 to 300 years. Although the technical characteristics of other institutions such as banks and financial funds are different from those of insurance, the questions of their market capacity, modelling, solvency and consumer protection provide useful comparisons. At the time when catastrophe insurance contracts were being introduced to the derivatives market - 1992 in Chicago - modellers tried compound Poisson distributions which were modified to simulate a catastrophe event, or borrowed the concept of Brownian motion from botany and physics and added an extra “jump” component (see Lane and Lobo, 1993 and Cummings & Geman, 1994). In recent years, Lo (2008, p13, written before the world financial crisis really took hold) is critical of some estimation methods of the statistical possibilities of significant loss events for hedge funds, because they do not cater enough for the extreme event; he is perhaps too optimistic in saying that catastrophe reinsurance thrives because of that market’s “full knowledge of the loss profile and probabilities” but he also warns of its periodic shake-outs after overcapacity and consequent inadequate pricing. Paulson et al (2010) investigate weather derivatives using Kriging and Markov chain Monte Carlo techniques; they conclude that the systemic risk in a severe period still recommends wide geographic diversification or financial back-up in the form of reserves or reinsurance. At the Bank of England, Haldane (2010) describes tail risk in banking as impossible to calibrate in required capital ratio terms. Earlier (in Haldane, 2009, p2) he criticised the failure of stress-testing with the truism “the model was wrong. Of course, all models are wrong. The only model that is not wrong is reality and reality is not, by definition, a model.” But he also described pre-2008 stress tests as insufficiently rigorous, a point which now seems ironic since the July 2010 Europe-wide results of bank stress testing under the auspices of the Committee of European Banking Supervisors were similarly criticised by the markets (Murphy and Jenkins, 2010). The August 2010 assessment of new bank regulatory requirements (BIS, 2010) indicated a needed tripling of core capital to meet moderate permanent effects of a banking crisis; this change was so highly demanding that it would probably need a five-year staggered introduction. This paper is mainly concerned with the cost of events – i.e. insurers’ liabilities. There is of course a large amount of attention to their assets. The investment risk as such is beyond the scope of this paper, but the strategic interrelation of assets and liabilities is relevant. Allen and Gale (1999) disagreed partly with writers such as Krugmann (1998) over whether the existence of government guarantees modifies the behaviour of financial market participants, believing that such guarantees may exacerbate a crisis but are not necessary for its creation. Their discussion was mainly about asset bubbles, but they were also concerned about contagion. Some statements from insurers indicate that insurers such as AIG and Fortis suffered large losses in the world 2008 crisis only where they had engaged in other activities, but that
insurance activities were considered as sound (Geneva Association, 2010). The OECD (2010) believes that insurers were largely bystanders in the crisis, except for the important supporting role of their financial guarantee products. Risks of correlation between insured catastrophes and financial market risks such as increases in defaults have to be monitored as a question of diversification (see for example CRO Forum, 2005). However there are current concerns about whether diversification holds good under extreme circumstances because of tail correlation (see Jones, R. et al, 2009 and Rochette, M. 2009). The aleatory relationship between economic loss and insured loss is an much-observed question. Whereas insured loss can be measured initially by insurers’ provisions and finally by their paid losses, economic loss is based partly on actual claims but largely on estimates. It is difficult to find what would have been the economic effect without the catastrophe, so estimates vary. Seligson and Eguchi (2005) provide an updated estimate of economic loss for the 1994 Northridge earthquake. Initial insured loss estimates of some USD12bn later rose to USD15bn, whereas total economic loss was first estimated at 44bn but ten years later at 57bn in constant terms. Significant contributions to the increase were business interruption and the costs of casualties. Kunreuther and Michel-Kerjan (2007) indicate that a low ratio of insured to economic loss exists in developing countries where the insurance market is limited, but also in industrialised nations where there are no minimum insurance requirements. They cite some of the known low ratio examples such as the Kobe 1995 earthquake in Japan (3% of USD 110bn) or the Chinese floods of 1996 (2% of USD 30bn) as compared with a ratio of probably at least 25% of USD 170bn for the USA’s hurricane Katrina of 2005. In Germany the floods of 2002 had an insured ratio estimated at 20% of the economic loss of EUR 9bn, and the storms of 1990 had an insured ratio of 46% of EUR 7.8bn (Axco, 2011). A very provisional estimate of the March 2011 Japan earthquake and tsunami would be an insured loss representing 10% of an economic loss of USD 300bn. In many countries the state has had involvement in certain areas where the boundaries are blurred between insurance and other types of cover (medical insurance schemes, work accident compensation). In former socialist economies such as eastern European countries, this concept was extended to state monopoly insurance not only for automobile liability but also for domestic property (see Heywood, 2005). State intervention in cover for catastrophic loss is a continuing feature of insurance markets of industrialised countries (Axco, 2011). Schwarze and Wagner (2006) criticise the 2003-4 decision by the German national and federal finance ministers not to provide a state guaranteed stop loss for natural disasters because of budget problems over an exposure of EUR 22bn, saying that the government would instead be expected to supply larger amounts of general aid in the case of future events. A key feature of discussion after major disaster events is the need to learn risk management lessons. In the industrial environment this is a normal activity; see for example the Seveso Inspection series reports (EC/HSE, 2006). For natural disasters there are known problems which are politically very contentious. They include non-respect of planning regulations and earthquake building codes - for example in Italy - and the building of houses on flood plains in many countries (Axco, 2011). These problems regularly surface after disaster events but steps to resolve them are slow.
Exceptional events may also reveal agency problems in the form of misaligned incentives, power plays in negotiations and particularly differences in quality of vital information. Haldane (2009, p11) comments as follows on the 2008 financial crisis: “Financial innovation lengthened the informational chain from ultimate borrower to end-investor. The resulting game of Chinese whispers meant that by the time information had reached investors at the end of the chain, it was seriously impaired.� It is interesting to note that a very similar comment was made about the effect of the 1988 Piper Alpha loss on the London market-based excess reinsurance capacity (see O’Neill et al, 2009). The hugely greater quality of modern communications in 20 years does not seem to have prevented such problems. Writing about the USA environment, Niehaus (2002) summarised a number of imperfections which hindered the efficient allocation of catastrophe risk and the greater use of financial market innovations outside the (re)insurance sector. To summarise: catastrophes present a number of areas of difficulty. They are statistically more elusive than the mass of smaller losses. The calculation of their future impact was probably simplistic under equalisation provision rules, but is disputable under scenario methods. Long return periods may not easily be compressed to translate into exposures in annual accounting periods. Best methods of severity loadings for tail risks are still being sought. Asset/liability correlation is unwelcome but must be considered as a feature of extreme conditions. The relationship between economic loss and insured loss in catastrophes may depend on the level of basic insurance appetite or perhaps on government requirements for minimum insurance cover. Governments may also wish to dictate the conditions of schemes to cover catastrophic loss. Arguments about government or private responsibility for risk management regularly resurface after disasters. And there may be agency problems including incomplete information at different stages in the transfer of risk between market participants. Methodology This paper is a case study of five major EU markets, all in the OECD top 10 country list, under four main headings: 1) The government mechanisms which modify free competition. 2) The catastrophe losses which have occurred during the chosen period. 3) Changes in market practice or state intervention which followed a major event. 4) Estimations of maximum exposure Except where otherwise noted, all data used for the findings of this paper was obtained in 2010 from Axco reports, by permission. Axco Insurance Information Services Ltd. of London, UK is well known in the international insurance industry as an independent provider of country by country insurance market information for its subscribers, which are major financial groups and market observers. All the base information was publicly available, widely used for other purposes and reliable. It is directly related to the subject-matter. In many cases it is included on regularly updated websites of national insurance regulatory authorities (which are organisms
within finance ministries, or autonomous public entities) or national insurers’ associations, and of major insurers, as well as in market surveys by international organisations. EU insurance markets have been generally free of distortions to competition for 20 years or more (Brittan, 1990). The liberalization of markets stopped the controls on policy wordings and premium tariffs, replacing them with much wider coverage – for example in natural hazards and societal risks – at freely calculated rates. Some government-sponsored mechanisms are however found; they mainly concern risks where it is considered necessary by the national government (and is allowed by the EU) to provide coordinated conditions, though there are variations in strategy and practice between EU states and specifically between the five major countries studied in this paper. We look at three types of risk to see whether governments intervene in this way. The first case is the main risk to property from industrial or human error causes. (We exclude sectors with only a handful of risks which are extremely specialized and need international coordination, such as the nuclear activity). The two other cases are terrorism and natural catastrophe. Free competition generally allows insurers choice of their offer of coverage, at freely determined prices, and with no monopoly elements in the insurance market or in reinsurance systems. The government mechanisms which we consider are therefore mandatory cover, regulations on price tariffs, monopoly insurance (or mandatory pool), and monopoly reinsurance (or mandatory pool). As suggested by the above classification of market mechanisms, we separate historical catastrophe events into three types: A) industrial, caused by a fault in process or human error internal to the operations of the insured B) societal, caused by human action - such as terrorism - external to the operations of the insured and C) natural, caused by a weather or geophysical change. One necessary element is some definition of a catastrophe. This study looks at property-based event losses, which are of large size – preferably at least EUR 1bn equivalent each in actual historical amount (with no adjustment for present value). We look at smaller events only where they provide a necessary perspective for larger ones. The concept of insured damage to fixed onshore property is mainly used as a basis, though the terms are somewhat elastic. For example, the Innovation department store fire in Belgium in 1967 is said to have been the first disaster in which virtually every type of insurance cover was involved (property, consequential loss, liability, personal accident, etc). The 1988 Piper Alpha oil rig disaster had its major effect in the non-marine insurance market, though it was located offshore. The 2001 AZF Toulouse loss was located in an urban area, so a significant part of the insured loss actually represents payments in respect of liabilities to local residents. The decision to use the comparatively high threshold of EUR 1bn prevents us from harvesting the useful information from many smaller losses, but it does allow us to see whether large losses have a special impact in changing legislation or market practice. The study looks at present day (2010) conditions of government intervention, but notes the catastrophes which have occurred during the period 1970 to 2010. This rather long period
allows an observation of the consequences to major events, which may be delayed by necessary consultations but can take the form of the passing of corrective legislation or a change in insurance market practice. Figures quoted are in actual historical amount (with no adjustment for present value). Where appropriate, EUR amounts are calculated using the fixed official rates for conversion from former European currencies. Findings The five countries in this survey are OECD top ten nations, with some broadly similar characteristics. In 2008 their GDP was in each case in the range of EUR 1,000bn to 2,500bn; their non-life gross premiums were in the range of EUR 25bn to 50bn with GDP penetration in the range from 1.9% to 2.7%, and their property gross premiums were in the range of EUR 5bn to 16bn, as can be seen from the following table: EUR bn in 2008
GDP
Non-life Property total premiums premiums
France
1,950 44.8
15.4
Germany
2,488 48.1
13.1
Italy
1,572 31.7
5.1
Spain
1,095 25.4
6.3
UK
1,825 49.1
16.0
So for example a catastrophe costing EUR 1bn in any of these countries would have a serious impact: at least 5% of the country’s annual gross property premiums or at least 2% of its total non-life premiums, before reinsurance. 1) What are the government mechanisms which modify free competition in 2010? A) Industrial This refers to the risk of industrial loss (caused by a fault in process or human error internal to the operations of the insured) in 2010. Property insurance has quite simple market conditions since the liberalisation of EU markets. Basically no a priori restrictions on competition exist now in these countries, except in the case of a few very specialised risks such as nuclear facilities, which we choose not to deal with here (because they are usually government or public owned, and competitive conditions do not apply). For most risks, cover is not in itself obligatory (though it may be required for mortgage finance or contractual reasons); rates are freely set by insurers, and no monopoly insurance or reinsurance conditions apply.
B) Societal The table below refers to the terrorism risk in 2010: Terrorism
Is cover obligatory?
Are rates mandated?
Is insurance a monopoly?
Is reinsurance a monopoly?
France
Quasi 95% (must be added to policy, and 95% of risks are insured)
No (but reinsurance rates are fixed by GAREAT pool)
No
Quasi (only CCR has state backing)
Germany
No
No (but rates for risks above EUR 25mn are set by Extremus pool)
No
Quasi (pool is partly state backed)
Italy
No
No
No
No
Spain
No (but insurers must exclude it, and the Consorcio cover must be added to each policy)
Yes (set by the Consorcio)
Yes, with state backing
Not needed
UK
No
No (but for reinsurance they must be acceptable to Pool Re if it is used)
No
No, but only Pool Re has state backing
National governments show a variety of responses to the financial threat of terrorism. At one end of the spectrum, Italy makes no arrangements – the cover is not mandated, nor are any insurance measures. Germany and the UK do not make the cover obligatory, but allow a certain authority for price-setting to the national terrorism pool, which has state involvement. They both provide some state backing. In the UK’s case this would protect Pool Re’s exposure above GBP 3bn. Germany has reserved the right to reduce its support (currently a reinsurance layer up to EUR 8bn) gradually from 2010. France has an almost closed system. The terrorism cover must be added to any property insurance policy, and for some years the local insurers’ association has stated that 95% of risks are insured. Any insurer can provide the terrorism cover, but rates are fixed by the pool which involves the state reinsurer CCR. The state provides a guarantee to CCR for its acceptance of aggregate losses over EUR 2.2bn. Spain includes terrorism cover in the scope of the Consorcio scheme; private sector insurers must exclude it. Limits are not quoted, but the Consorcio does have a state guarantee.
C) Natural The table below refers to the natural catastrophe risk in 2010: Natural hazards
Is cover obligatory?
Are rates mandated?
Is insurance a monopoly?
Is reinsurance a monopoly?
France
Quasi (CAT NAT must be added to policy, and 95% of risks are insured)
Yes
No
Quasi (only CCR has state backing)
Germany
No; a proposal was dropped in 2004
No
No
No
Italy
No; a proposal was dropped in 2005
No
No
No
Spain
No (but Consorcio cover must be added to each policy)
Partly (the insured must pay the Consorcio charge, even if cover is also bought from an insurer)
Quasi, because of the Consorcio cover
No
UK
No (but flood problems in 2007 led to an agreed “review period� until 2013)
No
No
No
National governments show a variety of responses to the financial threat of natural catastrophes. At one end of the spectrum, Germany, Italy and the UK have no set conditions, but each of these countries has had at least to consider the question in the last decade as a response to a national disaster. At the other end, France and Spain both have pervasive national insurance schemes. Germany investigated an obligatory scheme after the 2002 floods but discussions were halted about two years later. Budget problems in a possible state exposure of more than EUR 20bn were invoked. A recent statement indicated that only 26% of German households were insured against natural hazards for buildings and only 15% for contents (Diedrich, 2011). Italian earthquake insurance penetration is low; in 2009 it was estimated at less than 10% for domestic risks and only about 40% for commercial risks. (The federation of European insurance associations has commented on the Italian combination of low insurance penetration and high earthquake exposure as a problem which needed resolution (CEA 2005)). This situation exists because of a belief that the state will compensate losses. There are obvious drawbacks to this
reliance. The Italian interior ministry estimated that reconstruction costs for the 2009 L’Aquila earthquake disaster could reach EUR 12bn. One year after the event, many of the residents were still in temporary accommodation and there were fears that much of the city would not be rebuilt. Italian legislators have discussed a project for an obligatory natural catastrophe insurance scheme, but this has been in abeyance since 2005. One objection to it from the Italian competition authority was that there was no technical relationship between a fire risk and a natural disaster risk, so the proposed requirement that the fire insurer must offer the cover was not justified (see OECD, 2004). This point has some logic, but would preclude a Frenchstyle system which has exactly that feature. The UK floods of 2007 led to an agreement that measures to improve the flood risk would be studied by the government; the insurance sector then agreed to continue providing cover during a review period which lasts until 2013. There is still a debate as to whether the open market will be the best place for cover to be provided. A first national assessment highlighted the need for a dramatic increase in spending on flood defences over the next 25 years, just to stand still in terms of the number of properties protected (Environment Agency, 2009). Under the French CAT NAT obligatory system, the government takes a view that the risk is mutualised. The premium surcharge is applied irrespective of exposure (an apartment in the upper floor of a tower block contributes to a flood premium, and a risk remote from seismically active areas contributes to an earthquake premium). Because of severe losses under the system in several years, the state reinsurer has needed recourse to extra government funding – and, in the opinion of observers, the amounts paid for some losses have been reduced or treated outside the scheme for political reasons. There are periodic complaints that the system is vague – its perils covered are not defined (though the significant French mainland windstorm risk is excluded from its scope), so there may be political interference in the necessary ministerial declaration of whether an event is covered. The cover offered by the reinsurer CCR is state-guaranteed, so this provides in effect a costless renewal option for an insurer (whereas other markets can be subject to big changes in reinsurance availability and pricing). The scheme started in 1982 after severe floods in 1981, but it was financially imperilled in 1983 and 1999 by heavy losses, and the subsidence/heat claims of 2003 led to great technical problems. But the 95% penetration of property insurance combined with mandatory cover since 1982 means that France is the best example in our five countries of an almost complete system. The oldest national scheme is the Spanish Consorcio, which dates to the 1950s in its present form. Originally a state entity, it is now an independent public body. The Consorcio cover must be added to every policy and the insured must pay the charge even if cover is also bought commercially from an insurer; for that reason the Consorcio is almost a monopoly. Paid losses under the scheme appear to have been moderate.
2) What large catastrophe losses have occurred since 1970? Figures are insured losses shown in historical amounts of EUR (or GBP for the UK) unless noted Industrial
Societal
Natural
France
2001 AZF Toulouse - 1.1bn
No major insured losses (2005 urban riots - 200mn)
1981 Saone Rhone floods 1.5bn 2003 subsidence - 1bn 2009 Klaus storm – 1.7bn 2010 Xynthia storm – 1.5bn
Germany
1977 Ford Cologne – 150mn 2006 Thyssen Krupp 285mn
No major insured incidents
1990 Daria etc storms – 3.6bn 1999 Lothar storm – 1.3bn 2002 floods Saxony - 1.8bn 2007 Kyrill storm – 2.4bn 2008 Emma storm – 1.1bn 2010 Xynthia storm – 500mn
Italy
2008 ERG Sicily – 280mn
No major insured incidents
2000 Lombardy storms – 430mn 2009 Abruzzo earthquake – 1bn
Spain
2003 Repsol – 150mn
No major insured losses
2007 aggregate total - 180mn 2009 Klaus storm – 600mn
UK
1988 Piper Alpha - GBP 1.7bn 2005 Buncefield - GBP 1bn
1992 London - GBP 350mn (this was the original estimate) 1993 London - GBP 260mn 1996 Manchester – GBP 230mn
1987 storms – GBP 1bn 1990 storms – GBP 2.1bn 2000 floods – GBP 760mn 2007 floods - GBP 3bn
In this section we deal separately with the effects of losses in the three chosen specifications – industrial, societal and natural causes. There is of course a real risk of combined natural and man-made events such as earthquake or flood and fire or explosion; OECD (2006, p23) comments that there are formal risk management plans concerning this aspect, but that actual prevention and response can be inadequate. It is of course a dreadful exposure of the Japanese earthquake, tsunami and nuclear damage of March 2011. Industrial losses usually affect only one or a small number of insureds. They rarely reach EUR 1bn in size, so we have shown the largest historic loss in each country. Even so, superlatives abound – these are landmark events. For example, the 2005 Buncefield fire was described as Europe’s largest ever fire outside a war zone. The 2006 Thyssen Krupp fire was Germany’s largest ever single-insured loss. The 1977 Ford loss in Germany was considered at the time to be the largest ever fire in a single structure (Zalosh, 2003). The fire was contained within the firewall area which meant that the Maximum Foreseeable Loss or Amount Subject – basically a burn-out calculation – held good. (This calculation and the more subjective Probable Maximum Loss (PML) - assuming effective fire protection – are needed for most efficient use of capacity, but in the Haldane (2009) sense they are models capable of error.) Visitors to the plant several years later could see (as this author once did) the firewall line on the rebuilt floor.
The 1988 Piper Alpha disaster was the largest oil rig fire and most severe loss until Deepwater Horizon in 2010. Its financial impact was actually magnified because it was mostly insured in the London market at a time when marine and non-marine market participants had formed a “spiral” by incestuously reinsuring with each other, often several times over. A judge in a related lawsuit stated (Phillips, 1995): “The reality is that the opacity inherent in the gearing effect of the spiral made it impossible for any particular underwriter to make an informed quantative prediction of the level of original insured loss that would exhaust his reinsurance protection, or approach his PML.” AZF Toulouse, Repsol Puertollano and Buncefield were all on the “Seveso” list of oil/chemical risks, and therefore subject to the European safety requirements which followed the Seveso contamination accident of 1976. Seveso EU directive standards had to be reviewed after each event (see for example Buncefield 2007). A judge fined the companies involved in Buncefield (including some related to major oil companies) because of safety violations. The 2001 AZF Toulouse loss was described as the largest ever French non-natural disaster. The insured loss was only in part the own damage – a substantial amount represented liability payments to local residents; Deepwater Horizon in 2010 will be similar in this respect. The AZF Toulouse loss was one contributing factor (with others such as 9/11 in the USA) to sharp increases in French insurance premiums during 2002 and 2003. The ERG Sicily complex was also on the Seveso list, but the fire occurred at a nearby power production facility. The major part of the insured loss was business interruption from temporary closure. Societal losses are a constant threat and provoke outrage when they occur. But in actuality they have been relatively infrequent. In insurance terms at the end of 2010 France, Germany, Italy and Spain have not suffered costly incidents. France’s heaviest societal damage was caused not by terrorism but by urban riots involving ethnic minorities. Spain’s 2004 Madrid Atocha train bombing and the 2006 attack on Madrid airport did not have a major insurance impact; the Consorcio’s aggregate terrorism losses in those years were below EUR 20mn in each case. The UK has had a number of terrorist atrocities. The 1992 St Mary Axe event in London led to the establishment of Pool Re as a mechanism to provide cover. Pool Re was then involved in the larger nearby attack on Bishopsgate one year later. There were large attacks in London and Manchester during 1996. The London bus bombings of 2005 did not cause large losses for insurance. Events in Northern Ireland have been compensated by the government under special arrangements. Natural hazard losses have affected each of the five countries, though in Spain their impact has been small – certainly below EUR 1bn per event. Description of the impact of the many smaller losses is beyond the scope of this paper. It is however worth noting that the amount of premium remaining available for larger catastrophes is not vast. In France, which has the clearest example of a regularly tested high-penetration scheme, the annual premiums from the CAT NAT surcharge do not exceed EUR 1.4bn. Though mainland windstorm is excluded, the natural perils
events including flood and subsidence regularly consume a substantial portion of the premiums, the average annual loss ratio being close to 50%. We do not describe here in more detail the combined effect of events which hit more than one country simultaneously. This is a potential problem for earthquake and flood; it has happened on a large scale for storms – for example, 1987 and 1990 and Klaus in 2009, Xynthia in 2010. Natural events cause insurability discussions at the interaction of complex events and precise definitions. As insured travellers affected by the Iceland event learned in 2010, an ash cloud is not the same as the volcanic eruption which caused it. Storm surge is excluded from German insurance cover; the French CAT NAT system includes hurricanes in some overseas territories but not mainland windstorm. All loss adjustment needs technical expertise, but some violent external damage can be assessed quickly, whereas repair actions resulting from earthquake and subsidence are more difficult and may require specialist engineering expertise. France suffered a particular problem in the summer of 2003 when severe heat damage to buildings was widespread; some regions which had never known soil subsidence experienced it for the first time (see Corti et al, 2009). The CAT NAT system does not cover heat damage alone, and evaluation of insured subsidence is a slow process; many buildings had not been properly assessed when floods hit them later that year, and in the end the government exceptionally financed compensation for many heat claims outside CAT NAT. The French government had to put extra funds into its state reinsurer CCR after the 1999 storm losses. Because of low insurance penetration, some major events show very little insurance impact. Italy had earthquakes with high estimated economic loss such as Irpinia in 1980 (USD 10bn) and Marche/Umbria in 1997 (USD 4.5bn), in each case with insured loss not exceeding 4% of the estimated economic loss. 3) What changes in market practice or state intervention have followed a major event? Catastrophe
Change in market practice or legislation
France
1981 Saone Rhone floods AZF Toulouse 2001
Establishment of CAT NAT system in 1982 Law of 2003 on technological risks and faster indemnification of victims
Germany
Saxony floods 2002
(Unsuccessful) discussion of compulsory flood insurance
Italy
-
No direct consequences found
Spain
Storm Klaus of 2009
Ongoing discussion of new legislation
UK
Piper Alpha 1988 London terrorism 1992 Summer 2007 floods
Disappearance of LMX spiral Establishment of Pool Re New statement of principles on flood insurance provision to 2013
The insurance sector is important, its non-life premiums representing about 2% of GDP and significant investment capacity, so it is not surprising that it is involved in many public discussions about safety and compensation. Of course some major changes followed events elsewhere; the most notable is the 9/11 terrorist attack in the USA which led to a worldwide
demand for terrorism cover and a simultaneous withdrawal of capacity, leading to higher insurance premiums. Some proposals for significant change arise from other sources; the Italian draft law on obligatory insurance of disasters was not specifically a by-product of a disaster, but of the country’s attempt to arrange budget criteria in preparation for entry into the euro (see Amendola et al, 2000). In addition, some relevant legislative changes arise from events which in themselves did not cause property damage within the scope of this paper; examples are the “Seveso” rules. We show here only those innovations which appear to follow directly from disaster events in the territory itself. This list could perhaps be extended, but it shows a rather partial relationship – the disaster events listed in the above table appear to lead directly to market or legislative change, but other events (just as important in themselves) do not do so. 4) What estimations of maximum exposure exist? In industrial risks, the principal source of exposure estimation is the insured. The basis is property damage and business interruption. We have however seen that liability can add hugely to this, as in the case of the AZF Toulouse 2001 loss in France – and in other countries the record is now the USD 40bn of the (comparatively uninsured) BP Deepwater Horizon disaster. Losses have not exceeded the historic GBP 1.7bn of the offshore risk Piper Alpha in 1988 or the French AZF Toulouse loss of EUR 1.1bn in 2001. Target or top-value risks will have values of at least EUR 500mn (Germany) and reinsurance treaty capacity for large industrial risks can routinely reach GBP 600mn or more (UK). There are probably only a handful of individual risks – probably energy-related - in Europe with values approaching EUR 5bn, before the impact of liability or other exposures is added. In societal risks, the unusual features of great infrequency and endogenous criminal activity mean that calculating exposures is extremely difficult. The terrorism target is more likely to be an isolated large risk or a number of properties, for example in a city centre. The best guide of exposure is any aggregate level to which state support applies: above EUR 2.2bn in France, up to EUR 8bn in Germany and above GBP 3bn in the UK (Italy has no system and Spain does not prescribe a limit). In natural hazard risks, the exposure affects a large number of risks which may be spread over a very wide area. For this reason geo-mapping and similar techniques have helped to produce more scientific estimates, which can then be incorporated in scenarios for an entire national market and separately for any one of its participants. In our chosen five countries, the examples with the largest numbers are usually flood possibilities: EUR 15bn for one river basin (or exceptionally EUR 30bn for two river basins) in France or Germany, GBP 30bn for Thames flooding in the UK. We have already mentioned that disasters may present extra severity because of the combination of phenomena, such as the perhaps rapidly increasing possibility of the combination of a natural and a man-made disaster. One famous example of this was a statement by legendary investor Warren Buffett. Writing about the 2000 results of Berkshire Hathaway’s huge insurance activities, he expressed optimism about the following year, “absent
a mega-catastrophe”. After 9/11/2001 he revised his comment by saying “We did not, however, price for manmade mega-cats, and we were foolish in not doing so.” (cited in Hagstrom, 2004, p35). Other aleatory sources of aggravated risk exist. In both 1990 and 1999 there were several separate major European storms within a very short period of time; this can test coverage and reinstatement conditions - as happens with “hours” clauses for earthquakes or the 9/11/2001 event(s) definition in the New York World Trade Center litigation. The effect of large-size losses on layered market placements and reinsurance recoveries under stress has been a concern ever since Piper Alpha in 1988. There have been warnings from “near misses”; both Seveso in 1976 and the Icelandic ash cloud of 2010 led to disastrous emissions rather than full-blown physical damage disasters. Because insurance and its reinsurance sector are global activities, estimates of exposure or impact on a wider basis are relevant. Examples are statements that a USD 50bn insured loss could have a major effect on insurance premium rates, whereas a USD 150bn event could cause a prolonged market change (Guy Carpenter, 2011). Even so, an insurance industry loss of USD 100bn was only a few years ago described as unthinkable to many insurers, whereas an alert insurance group had calculated its own exposure to such an event - as a fully covered figure of not more than 5% (Buffett, 2005). Interpretation and Conclusion The five countries in our study share some similarities because their insurance markets operate within EU competition rules, but there are interesting differences. France has the combination of high property insurance penetration and extensive obligatory schemes for both terrorism and natural risks. It has regularly suffered highcost natural events. Germany does not mandate terrorism or natural cover. It provides support to the terrorism pool, but may reduce this in coming years. Floods and storms have been very costly. Italy has a combination of low insurance penetration and no requirements or government involvement in insurance mechanisms for societal or natural hazards insurance. Direct government compensation for its costly earthquakes is therefore expected by its citizens, although the budget implications of this have been questioned. Spain has the longest history of a public-sector mechanism obligatorily covering the terrorism and the natural disaster risk. Though its loss cost for disasters has been relatively light, a reassessment may follow the 2009 Klaus storm loss. The UK does not oblige insureds to buy terrorism or natural cover. A concern over the continued threat of attacks has led to continued support for the insurers’ terrorism pool. There is no pooling for natural risks, but the high cost of floods (as well as storms) has forced the state to accept some responsibility for measures which would allow the insurance market for flood to continue functioning.
The five countries have non-life and specifically property insurance markets which are able to absorb the mass of small losses and also many medium-sized losses. For larger disasters and particularly those which have an insured cost of EUR 1bn or above, reinsurance or pooling provides a smoothing mechanism for individual insurers. Industrial losses – even AZF Toulouse and the UK’s Buncefield – do not seem to cause capacity constraints. But the combination of unpredictability in timing and the possibly huge size of terrorism and natural risks creates uncertainty for markets – and for governments. Without the ability to build equalisation reserves for the largest losses beforehand, insurers will have to price the cover adequately (where they are allowed to do so) and use permitted scenario testing. The question remains whether the scenario (the model, in the Haldane 2009 sense) is sufficiently severe to reflect the worst reality. The relationship between economic loss and insured loss varies greatly from one country to another. To the extent that governments are budget-constrained, they may be content to reduce their non-contractual responsibility for compensation if the insurance market can absorb more of the loss. But governments of the three more “free market” countries (Germany, Italy and the UK) have all found this a difficult subject to negotiate in the last ten years, and France’s natural disaster scheme is regularly criticised for political interference. This also brings out a risk management argument between national and local government, for example over the extent of building permitted on flood plains. The cost to the consumer has to be seen not only in the level of insurance premium but also in terms of availability of cover. Schemes such as the French and Spanish natural hazard arrangements deal with this. The present UK discussion of cover after 2013 is difficult; it is expected that the private-sector insurance market will probably have to continue in operation, which would probably renew complaints about pricing. In its recent analysis of the world credit crisis, the Geneva Association (2010, p71) stated that as insurance hazards are typically uncorrelated, “absent extreme catastrophe events the failure of one insurer does not necessarily predict failures of other companies.” The same report later (p148) records as one of its six summarised opinions officially expressed to the finance ministers and central bank governors of the G-20 countries “Overly prudent capital requirements should not be imposed on the (re)insurance industry.” The purpose of this paper is to continue the discussion of how extreme is a catastrophe, and by implication how well can a capital requirement be judged. Part of this discussion relates to our fear of “the big one” – the mega-catastrophe which has not yet happened but which could combine the worst features of past events or “near misses”. Harking back to the spectrum of severities described at the start of this paper, it seems that industrial losses are relatively well controlled and societal losses such as terrorism are too infrequent to warrant constant changes in coverage structures including government involvement. The current most difficult area is the rise in threat from natural disasters, probably including a higher degree of man-made aggravation. We may not often see these events well in advance, though in comparison we may believe the banking or capital sector should be more prescient; but we share with those sectors the problems of tail risk.
Our underlying question was as follows: given that major catastrophe losses are infrequent but very disruptive, what is the structure which best combines an affordable cost to consumers, a stable contribution by the financial sector and a reliable ultimate “deep pocket” support by the state? The answer is not easy to find. The truly devastating event labelled as “the big one” has happened recently in the banking and capital markets sectors, but not yet in European insurance; catastrophe scenarios contemplate much larger potential exposures than any historic event has produced in claims. Some changes in market practice and legislation have followed larger losses, but there are continuing arguments between (re)insurers and governments over the best structure for national schemes. The distribution of loss between the insured (particularly the domestic household), the insurance sector and the state in our five large EU countries shows considerable variation in historical cause and in current practice. Spain has the longestlasting scheme, but it has been comparatively untroubled by massive events. France has the heaviest combination of mandatory insurance penetration and state support for the insurance mechanism, but its natural disaster scheme is criticised as being politically manipulated and it has been heavily hit in some years. Both Germany and the UK have had a difficult climate for some of their discussions about the level of state involvement. Italy has seemed content to set no requirements, leading to possible discontent when households are unable to seek compensation for earthquake losses. At the very least it seems that, because of such different national philosophies, a pan-European system with coordinated state involvement could be unlikely.
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Les métiers de l'actuariat Les métiers de l'actuariat Mikael le Mer 20 Aoû - 13:44
Etude réalisée par l’Observatoire de l’évolution des métiers de l’assurance La FFSA (Fédération Française des Sociétés d’Assurances) et le GEMA (Groupement des Entreprises Mutuelle d’Assurances) ont crée une association : l’Observatoire de l’Evolution des Métiers de l’Assurance. Le site internet de cette association (www.metiers-assurance.org) présente dans une étude (qui date de février 2000) les métiers de l’actuariat et des études statistiques, ainsi que leurs perspectives. Nous vous recommandons vivement de lire le document, riche d’enseignement, situé à l’adresse ci-dessous : http://www.metiersassurance.org/fichiers/PARUS/ETU_MET/actuariat.pdf Pour une étude plus actuelle, mettant justement en perspective les évolutions d’un métier qui doit s’adapter à son environnement (complexité des produits d’assurance proposés, nouveaux besoins des clients...), nous vous recommandons l’étude située à l’adresse internet suivante : http://www.metiersassurance.org/fichiers/PARUS/STAT_PROS/profilactuaires.pdf. Nous vous présentons ci-dessous, la synthèse de cette étude réalisée par l’Observatoire : "Depuis la publication de notre étude réalisée en 1999, dont les synthèses et conclusions gardent toute leur acuité, quelles sont les évolutions que nous avons pu dégager à l’occasion de la réalisation de ce "cahier du profil statistique et prospectif des métiers de l’actuariat" ? En ce qui concerne les grandes caractéristiques quantitatives et qualitatives de cette population, trois points majeurs ressortent d’une manière dominante : - d’une part, la croissance des effectifs, montrant l’importance que les entreprises de la profession accordent de plus en plus à ces fonctions poussées par l’environnement, notamment juridique et fiscal - d’autre part, la féminisation grandissante de ces métiers historiquement très masculins qui attirent dorénavant une proportion non négligeable de femmes. Ce
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phénomène semble d’ailleurs n’en être qu’à ses débuts… - et enfin une élévation permanente du niveau des diplômes dans une des familles de métiers déjà les plus qualifiées et diplômées. Au-delà de ces trois éléments, pour les actuaires eux-mêmes en matière de profils et de compétences, on constate que l’évolution organisationnelle et la mise en place de groupes de projets, conduisent les actuaires, au-delà de leurs nécessaires compétences techniques, à acquérir une dimension d’animation et de management, à dépasser le concept initial de calcul, pour aller vers l’analyse, la réflexion, la participation à l’action et à la stratégie des entreprises. L’actuariat, porte d’entrée dans le métier, peut conduire l’intéressé, par l’acquisition d’une double compétence, à s’inscrire dans une perspective positive d’évolution de carrière, au-delà de sa famille d’origine, vers des évolutions promotionnelles pouvant ouvrir l’accès notamment à des postes directoriaux. Pour ce faire, les compétences individuelles en plus des savoirs et savoir-faire, à travers l’acquisition de la dimension comportementale, de savoir-être, constituent la valeur ajoutée humaine permettant à l’actuaire de se transformer de spécialiste en manager, en dirigeant. Un autre phénomène notoire apparu tout au long de cette étude et dont les premiers effets avaient déjà été décelés en 1999, est la présence d’un nombre de plus en plus croissant d’activités, de professions intéressées par le domaine de l’actuariat, avec en corollaire une relative insuffisance du nombre d’actuaires diplômés chaque année. Ces éléments peuvent à terme créer des pressions sur le marché du travail et des risques de turnover (de débauchage), entraînant de facto sur une tension salariale. Cet accroissement des besoins en actuaires devrait se confirmer à l’avenir, voire se renforcer. La transformation de leur intervention du passif à l’actif, de l’assurance au financier, de l’évolution des règles prudentielles en matière de répartition, mais aussi de la nécessité de transparence comptable et du provisionnement des engagements sociaux à l’égard tant des actionnaires que des salariés peuvent engendrer un risque de pénurie d’actuaires. Les utilisateurs se multiplient, les besoins augmentent. Le développement de cabinets d’actuaires spécialisés, du concept de conseil, phénomène relativement nouveau, montre d’ailleurs la mise en place d’ébauches de réponses spécifiques. Pour les compagnies d’assurances, et notamment en matière RH, cela implique une réflexion pour ne pas se trouver à moyen terme devant une impasse. Agir auprès de l’Education Nationale sur le volume de production de diplômes, mettre en place à travers les contrats de professionnalisation les moyens de faire accéder à partir de Bac+3 et/ou de Bac+5 aux diplômes d’actuaires, s’ouvrir à un recrutement à caractère universitaire vers les DESS en sus des écoles spécialisées... peuvent être une tentative de solution. La réponse à cette problématique n’est sûrement pas monolithique ni limitative ; elle implique une combinatoire des différentes perspectives envisagées cidessus.
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Mais, l’assurance se trouve encore plus interpellée en matière de recrutement sur sa propre problématique d’image. La profession doit se valoriser pour attirer, retenir les jeunes diplômés. Cette dimension est une des réponses face au développement de la concurrence. C’est entre autres à partir de cette action, que le couple historique, assureur et actuaire, pourra poursuivre son cheminement commun." Mikael Admin Messages: 502 Date d'inscription: 20/08/ Localisation: Paris
Secteurs d'activite en actuariat Mikael le Mer 20 Aoû - 22:49
Extrait d'un article signé par M. Michel Rochette dans la revue ANEA/ASNA (Association Nationale des Étudiants en Actuariat/Actuarial Students' National Association), volume 5, tome 2, automne 1993.
Compagnies d'assurance vie Ce secteur a toujours été l'apanage des actuaires. Ceux-ci oeuvrent au niveau de la tarification des produits d'assurance et d'accumulation – les rentes sont l'équivalent des certificats de placement des banques – à la fois sur base individuelle et collective. Certains travaillent à la division du marketing et d'autres sont impliqués dans le processus d'évaluation de la solvabilité de l'institution financière. Compagnies d'assurance IARD C'est un secteur très vaste. Il est un peu plus difficile d'y accéder étant donné que certains risques s'évaluent et se tarifient sur une base annuelle et, par conséquent, les comptables et les souscripteurs ont beaucoup d'influence à ces niveaux. Cependant, avec la nouvelle loi des assurances qui exige la signature d'un membre de l'Institut Canadien au moment de la préparation des états financiers, les actuaires occuperont sans doute une place plus importante surtout pour l'analyse des risques. Compagnies de réassurance Les actuaires qui évoluent en réassurance occupent essentiellement les mêmes types d'emplois que ceux mentionnés précédemment mais le font à l'intérieur d'organisations qui ont un lien direct avec les assureurs. Ces compagnies sont le plus souvent des filiales de grandes sociétés internationales. Bureaux de consultants Deuxième secteur en importance pour les actuaires. Ceux-ci travaillent au niveau de la rémunération de l'entreprise mais surtout, à la mise sur pied des régimes d'avantages sociaux, en particulier les régimes collectifs d'assurance et de retraite. Évidemment,
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une fois les régimes en place, l'évaluation des engagements en découle. Avec la mise sur pied des régimes à cotisations définies, surtout sur base collective, en remplacement des régimes à prestations définies, ce secteur ne connaît plus la croissance d'il y a quelques années. Mais, la mise en vigueur des normes sur la comptabilisation des bénéfices post-retraite autres que le régime lui-même – actuellement aux Etats-Unis par l'entremise du FASB106 et bientôt au Canada – devrait créer un renouveau dans ce secteur. Aux Etats-Unis, certains sont impliqués dans l'assurance-maladie alors que d'autres oeuvrent au niveau de la solvabilité des CCRC, soit des Continuing Care Retirement Communities. Entreprises privées Ces actuaires, généralement engagés dans l'évaluation des régimes de retraite et des bénéfices sociaux pour des géants comme Entreprise Bell Canada, CP, CN, Alcan et AT&T, sont aux grandes entreprises ce que sont les consultants pour les petites. D'autres travaillent à l'évaluation des risques financiers auxquels fait face leur entreprise, soient des risques de taux de change pour les multinationales ou des risques environnementaux. Secteurs gouvernementaux Ces actuaires sont chargés de la vérification de l'application des différentes lois. Par exemple, au niveau de la solvabilité des institutions financières, soit au Bureau du Surintendant des Institutions Financières au fédéral ou pour l'Inspecteur Général des Institutions financières au Québec, pour l'équivalent provincial. D'autres veillent à l'application des lois des accidents du travail à la CSST, des régimes de retraite publique à la Régie des Rentes du Québec ou la Social Security Administration aux Etats-Unis, de retraite privée à la Commission Administrative des Régimes de Retraite et d'Assurances au Québec ou le Pension Commission of Ontario, de l'assurance automobile à la Société de l'Assurance Automobile du Québec, de l'impôt à l'Internal Revenue Service aux Etats-Unis ou de l'assurance maladie à la Régie de l'Assurance Maladie du Québec ou le Health Care Financing Administration aux Etats-Unis. Compagnies d'informatique Au service des compagnies d'informatique, ces actuaires développent des produits adaptés aux différents secteurs des assurances ou des régimes de retraite. Enseignement Plusieurs actuaires sont maintenant enseignants et chercheurs dans les différentes universités. Compagnies servant le marché des assurances Plusieurs actuaires travaillent pour des entreprises, généralement sans but lucratif, dont le mandat est d'assister une industrie en particulier. A titre d'exemple,
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l'Association Canadienne des Compagnies d'Assurance de Personnes ou pour l'équivalent américain, le American Council of Life Insurance. D'autres oeuvrent pour Limra, le US National Council on Compensation, l'Auto Insurers Bureau, la Society of Actuaries, etc. Secteur bancaire Il y a déjà des actuaires dans ce type d'institutions financières mais ceux-ci sont surtout impliqués dans les opérations d'assurance à venir des banques canadiennes. D'autres travaillent pour des "Investment Bankers" aux Etats-Unis mais toujours rattachés aux secteurs de l'assurance ou bien sont impliqués au niveau de l'évaluation des risques de crédits des portefeuilles de prêts des banques. Je crois que l'évaluation du risque de crédit promet beaucoup pour les actuaires qui voudront s'y impliquer. Cependant, la formation à acquérir devra être beaucoup plus large que celle donnée jusqu'à maintenant. Celle-ci devra être beaucoup plus financière et non seulement axée sur les assurances. Secteur des investissements Certains travaillent surtout au niveau de l'établissement des politiques d'investissement des régimes de retraite. Si ceux-ci décident de s'impliquer dans des transactions, ils deviennent par conséquent plus des courtiers que des actuaires. Finalement, il est important de réaliser que ces types d'emplois ne sont pas statiques. Certains sont en croissance alors que d'autres stagnent. Source: http://www.act.ulaval.ca/cole/quest_ce_quun_actuaire/secteurs_dactivites_en_actuariat/ Mikael Admin Messages: 502 Date d'inscription: 20/08/ Localisation: Paris
Temoignage en assurance IARD Mikael le Mer 20 Aoû - 22:54
Jean-Denis Roy (FCIA 1997, FCAS 1997) a terminé ses études de baccalauréat en actuariat à l'École d'actuariat à l'Université Laval en 1993 et il est maintenant à l'emploi de AXA Canada Le domaine de l’actuariat en assurances I.A.R.D. Le domaine de l’I.A.R.D. (incendie, accidents et risques divers) comprend tous les types d’assurances autres que l’assurance de personnes. Cela inclut donc l’assurance automobile, habitation, biens des entreprises, responsabilité civile, responsabilité professionnelle, etc. L’actuaire en I.A.R.D. œuvre principalement dans deux champs d’activités : la tarification des polices d’assurance et l’évaluation des réserves.
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Tarification : L’actuaire doit établir un tarif qui maximise le profit en équilibrant compétitivité et rentabilité. Pour ce faire, il doit identifier les caractéristiques des bons et des mauvais risques et établir une structure tarifaire qui privilégie les bons risques. Ce processus donne lieu à l’utilisation de multiples variables qui, combinées, donnent plusieurs millions de possibilités. La compétitivité est donc très complexe à mesurer. Évaluation des réserves : Dans leurs états financiers, les assureurs doivent avoir une réserve pour les sinistres survenus mais non encore payés. Il y a plusieurs raisons qui peuvent faire qu’un sinistre n’est pas encore payé : 1- le client ne nous a peut-être pas encore averti du sinistre, 2- le client n’est peut-être pas encore au courant du sinistre (fréquent en responsabilité), 3- tant que toutes les réparations ne sont pas effectuées, il est impossible de savoir le montant exact, 4- les cas de responsabilité peuvent traîner des années devant les tribunaux avant que nous sachions si notre assuré est vraiment responsable, etc. Tous ces sinistres non payés peuvent représenter des sommes considérables et l’évaluation doit en être faite de façon très rigoureuse. L’actuaire doit donc prédire ce que coûteront les sinistres passés. Eh oui, prédire le passé… Au delà de ces deux champs principaux, l’actuaire est responsable de multiples tâches et analyses comme les mesures d’exposition aux tremblements de terre, la modélisation des catastrophes (naturelles ou financières), les projections financières, l’achat de réassurance, etc. En fait, l’actuaire est l’expert pour comprendre tout ce qui est mathématique dans une compagnie d’assurance. Et dans une compagnie d’assurance, il n’y a pas de produit physique, tout y est purement mathématique. Pourquoi choisir l’I.A.R.D. plutôt qu’une autre spécialisation? Raison #1: La science est jeune: L’implication des actuaires en I.A.R.D. n’existe que depuis environ 30 ans et ne s’est réellement développée qu’au cours des 15 dernières années. C’est donc un domaine qui vit encore une évolution phénoménale. Il offre ainsi plus de place pour l’initiative, le jugement et le développement de nouvelles méthodes. Les actuaires se font confier plus de défis intellectuels et moins de tâches administratives. Comme c’est un nouveau domaine, la plupart des collègues et patrons ont 30 ans et moins et cela résulte en un environnement de travail très dynamique. Raison #2: Grande variété des mandats et défis: - Plusieurs produits très différents (ex.: Automobile vs. Responsabilité professionnelle vs. Biens commerciaux). - Produits plus complexes, car soumis à l’influence d’une multitude de facteurs extérieurs : conditions climatiques, les facteurs politiques et évolution des lois, les changements dans les habitudes de consommation et modes de vie, etc. Raison #3: Meilleure perspective d’emplois et de promotions:
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Il y a 7 Fellows en assurance vie pour chaque Fellow en assurance I.A.R.D. dans le monde et pourtant, en Amérique du Nord, le volume-prime en Assurances I.A.R.D. est désormais équivalent au volume-prime en Assurance-vie. Il reste donc énormément de place pour des carrières intéressantes. D’ailleurs, aux Etats-Unis les salaires des Fellows sont plus élevés qu’en assurance-vie et en pension. Nous n’avons pas d’analyse détaillée pour le marché canadien. Raison #4: L’I.A.R.D. traite de risques concrets : Que l’on parle de technologie comme les freins ABS, les systèmes antivols, l’antipatinage et les matériaux plus résistants, ou de psychologie de comportement des individus comme la négligence, les quartiers à risque, la conduite dangereuse et la rage au volant, on jongle souvent avec des concepts qui font partie de notre entourage quotidien. OK, mais quelle est la différence entre travailler pour une compagnie plutôt que pour un bureau de consultants? Bien que pouvant offrir des défis variés, un bureau de consultant se limite à la portion strictement technique de l’actuariat. Dans une compagnie, l’actuaire est confronté aux enjeux d’affaires forcés par un marché très compétitif. L’actuaire d’une compagnie a beaucoup de relations avec les autres départements comme le marketing, la souscription ou les sinistres et est appelé à participer activement au processus décisionnel plutôt que de limiter son rôle aux recommandations. Dans une compagnie, l’actuaire doit donc développer une solide mentalité d’affaires en plus de ses compétences techniques. Dans une compagnie, il n’y a pas de pression d’honoraires chargés et l’actuaire peut donc se permettre de faire plus de recherche et développement. Une compagnie peut offrir des perspectives de carrière très variées dans d’autres départements que l’actuariat. La science actuarielle occupe une place prédominante chez AXA: AXA est le plus important employeur I.A.R.D. au Canada. Chez AXA, la haute direction est très sensibilisée aux enjeux actuariels et soutient les efforts dans le développement de la science actuarielle et l’exploration de nouvelles idées. AXA s’est dotée de bases de données et outils informatiques sophistiqués permettant des analyses complexes que peu d’autres compagnies sont en mesure de faire. Les meilleurs résultats techniques, obtenus par l’industrie année après année, démontrent bien une maîtrise supérieure des concepts actuariels. Jean-Denis Roy AXA Canada Source: http://www.act.ulaval.ca/cole/quest_ce_quun_actuaire/secteurs_dactivites_en_actuariat/le_d Mikael Admin
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Messages: 502 Date d'inscription: 20/08/ Localisation: Paris
Témoignage en réassurance Mikael le Mer 20 Aoû - 23:01
Le domaine de la réassurance Jean-Sébastien Lagacé (Fellow de la Casualty Actuarial Society-2002) a terminé en 1992 ses études de baccalauréat à l'École d'actuariat de l'Université Laval, titulaire d’une maîtrise en informatique de l’Université Laval en 1994 et il travaille maintenant à Paris pour AXA-Cessions. LA RÉASSURANCE Peu connue du grand public, la réassurance est un secteur de l’économie indispensable à l’activité d’assurance. De plus, elle constitue un instrument de premier plan pour toute organisation soucieuse de la bonne gestion de ses risques. Bien qu’utilisée dans tous les secteurs d’activité de l’assurance, elle demeure fortement orientée vers l’assurance non-vie. La réassurance est un mécanisme permettant de transférer en tout ou en partie le risque accepté par un assureur vers un réassureur afin de limiter ses engagements. A ce titre, la réassurance est familièrement qualifiée d’assurance au deuxième degré dans la mesure où elle consiste en une véritable assurance des assureurs. En conséquence, elle représente un des secteurs d’activité les plus méconnus du public en raison d’une absence de relation directe entre les réassureurs et les assurés. Contrairement aux sociétés d’assurance dont l’exercice de leurs fonctions est localisé à un niveau régional, provincial ou national, la réassurance se veut essentiellement internationale. Ainsi, le réassureur acceptant en général des risques de faible fréquence mais à un coût potentiel élevé peut améliorer la mutualisation de ses risques en les répartissant à l’échelle mondiale. Cette mutualisation géographique peut même conduire, par exemple, à la couverture des tempêtes européennes, des tremblements de terre au Japon et des ouragans aux Etats-Unis à l’intérieur d’un traité de réassurance unique. I. Historique de la réassurance ? La plupart des historiens font remonter l’origine de l’assurance aux premières activités du commerce, essentiellement maritime. Quant à la réassurance, il semble que la première véritable opération date de 1370. Une assurance maritime couvrant les risques d’un voyage entre Gênes et les Pays-Bas fut complétée par un deuxième contrat : la portion de trajet qui paraissait la plus dangereuse – de Cadix à l’Ecluse – fut réassurée. Cette mention, véritable acte de naissance de la réassurance, figure dans la police d’assurance. Il faut attendre le 17ème siècle pour voir apparaître dans les textes législatifs ou
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réglementaires des références à la réassurance. Ce n’est qu’à partir du 19ème siècle que la réassurance fut pratiquée dans la branche Incendie. Le 15 décembre 1821 est signé le premier traité de réassurance incendie entre la Royale de Paris et les Propriétaires Réunis de Bruxelles. A partir de la seconde moitié du 19ème siècle, le traité de réassurance devient fréquent en Europe. C’est en 1852, à Cologne en Allemagne, que sera créée la première compagnie uniquement spécialisée dans les opérations de réassurance, la Kölnische Rückversicherungs-gesellschaft. L’incendie de Hambourg en 1842 qui détruisit une grande partie de la ville fut le fait générateur de sa création. Il fallait en effet disposer d’une structure capable de répondre aux besoins importants de réserves pour couvrir les dommages importants. Le 19ème siècle peut être considéré comme la période la plus fertile dans le développement des compagnies d’assurance et de réassurance. Entre 1850 et 1950, 6 sociétés majeures ont été créées dont la Compagnie Suisse de Réassurance et Munich Re. Les compagnies d’assurance ont vu leurs besoins de réassurance croître de façon exponentielle. Les traités de réassurance obligatoire, qui permettent la couverture d’un portefeuille et non plus d’un risque isolé, se sont développés pour finalement devenir prépondérants. C’est en 1870 qu’apparaît le premier traité de réassurance impliquant plusieurs réassureurs. Le 19ème siècle a également été caractérisé par la création de nouvelles compagnies de réassurance dans de nombreux pays. De plus, les assureurs directs ont accru leurs activités de réassurance. L’ascension de l’industrie de l’assurance a été amorcée avec la révolution industrielle. De nos jours, Standard & Poor’s émet une liste des 150 professionnels de la réassurance et de 2000 assureurs directs qui proposent une activité de réassurance. Malgré la présence de nombreux réassureurs à l’échelle mondiale, le Marché de la réassurance poursuit son processus de concentration, la part de primes détenue par les 5 premiers réassureurs s’élevant à plus de 57% à la fin 2001. Cette concentration du Marché s’est accentuée depuis septembre 2001 en raison de la défaillance de nombreux réassureurs à la suite de la survenance du sinistre World Trade Center. II. Rôle de la Réassurance? es sociétés d’assurance doivent s’adapter en permanence à la réglementation en vigueur afin de préserver leur statut d’assureur. En particulier, elles doivent respecter certaines mesures de solvabilité permettant de limiter le risque de défaillance, ce dernier étant étroitement lié à la forte volatilité de la sinistralité. Cette caractéristique rend nécessaire :
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- La constitution de provisions prudentes pour sinistres à payer qui intègrent la volatilité de la « sinistralité »; - Une réassurance qui permet d’écrêter les sinistres graves; - L’existence de capitaux propres importants qui permettent d’amortir les écarts de sinistralité. Le recours à la réassurance permet donc de répondre à 2 objectifs précis : - Protection BILAN : l’assureur transfert des risques aux réassureurs, cette cession se traduisant en quelque sorte par un « prêt de capitaux propres » à l’assureur. Dans cette optique, l’assureur cherche à déterminer le meilleur équilibre entre son risque consolidé et sa probabilité de défaillance due à une insuffisance de capitaux propres. - Protection RÉSULTAT : l’assureur transfère des risques aux réassureurs afin d’assurer une stabilité de son résultat technique dans le temps. En raison de la modification du Marché de la réassurance à la suite du WTC, la mutualisation des risques à l’échelle mondiale ne suffit plus aux réassureurs pour maîtriser certaines affaires. En conséquence, le terrorisme et l’amiantose sont devenus des risques jugés non réassurables par le Marché. Au-delà de sa contribution financière au bon fonctionnement de la société d’assurance, la réassurance apporte et transmet expérience et compétences à travers une collaboration technique dans l’évaluation des risques, leur souscription et l’élaboration de nouvelles couvertures à savoir : - Compiler et présenter des sources de données de souscription partout dans le monde, - Evaluer les risques spéciaux et les risques « de pointe », - Aider certaines sociétés d’assurance pour investir leurs capitaux, pour trouver des partenaires, etc… Leur vision globale du Marché permet aux réassureurs d’aider les sociétés d’assurance à développer de nouveaux produits et de leur apporter de précieux conseils dans la bonne sélection et gestion des risques. III. Rôle de l’actuaire La réassurance étant par nature fortement liée à la gestion des risques, l’actuaire y exerçant devient en conséquence un évaluateur de risques. A l’aide d’outils informatiques très adaptés tels les logiciels de modélisation des catastrophes naturelles ou de modélisations stochastiques, il peut exercer pleinement son métier et apporter des solutions innovantes et concrètes à une bonne gestion des risques. Contrairement à l’approche d’analyse du risque retenue en assurance reposant essentiellement sur la loi des grands nombres et l’utilisation de la loi normale, l’actuaire en réassurance utilise plutôt la théorie des valeurs extrêmes pour correctement quantifier le risque. En effet, cette théorie est adaptée pour modéliser correctement les processus aléatoires de réassurance caractérisés par une faible fréquence mais un coût de sinistre élevé, la loi normale étant complètement inadaptée
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dans de telles situations. Dans la pratique, les termes cession et rétrocession en réassurance sont utilisés pour définir respectivement le transfert de risque d’un assureur vers un réassureur ou d’un réassureur vers un autre réassureur. De plus, le terme acceptation en réassurance est utilisé pour définir les risques souscrits par les réassureurs. En conséquence, la pratique de la réassurance peut se faire à 2 niveaux : - En acceptation de réassurance : l’actuaire intervient dans la quantification des risques, la bonne gestion des cumuls, la détermination des risques à conserver et éventuellement les risques devant être rétrocédés sur le Marché de la réassurance. Cette fonction s’apparente étroitement à celle exercée dans l’assurance des risques industriels. - En cessions de réassurance : l’actuaire concentre son expertise dans l’identification des risques à céder aux réassureurs et l’optimisation de ces cessions ou rétrocessions sur le Marché en s’assurant que le risque net de réassurance retenue par la société n’expose pas de façon trop importante ses fonds propres. Enfin, l’actuaire en réassurance doit aussi développer un sens pratique de communication et de coopération. La réassurance étant fondée sur un partenariat entre l’assureur et le réassureur, l’actuaire en réassurance doit établir et maintenir de bonnes relations avec les cédantes, les réassureurs et éventuellement les courtiers afin de faire fructifier ces relations dans lesquelles chaque partie y trouve son intérêt. Jean-Sébastien Lagacé Axa Cessions Source: http://www.act.ulaval.ca/cole/quest_ce_quun_actuaire/secteurs_dactivites_en_actuariat/le_d Mikael Admin Messages: 502 Date d'inscription: 20/08/ Localisation: Paris
Inside Careers Guide to Actuaries (2007-2008) Mikael le Dim 31 Aoû - 18:23
Le guide est telechargeable gratuitement a cette adresse: http://www.insidecareers.co.uk/__8025731800504835.nsf/downlookup
Dernière édition par Mikael le Dim 31 Aoû - 18:34, édité 1 fois
Mikael Admin Messages: 502 Date d'inscription: 20/08/ Localisation: Paris
http://www.forum-actuaires.com/t11-les-metiers-de-l-actuariat
2011-06-29
Les métiers de l'actuariat
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Careers guide efinancialcareers 07-08 Mikael le Dim 31 Aoû - 18:25
Le guide est telechargeable gratuitement a cette adresse: http://www.finance.pamplin.vt.edu/careers/careerguide.pdf Mikael Admin Messages: 502 Date d'inscription: 20/08/ Localisation: Paris
Careers in Financial Markets 2007-2008 Mikael le Mar 21 Oct - 16:32
Guide disponible ici: http://www.efinancialcareers.co.uk/pdf/CIFM-UK-0708.pdf Un site lié: http://www.insurancecareers.cii.co.uk/ - actuariat: http://www.insurancecareers.cii.co.uk/2.1.actuarial.html - réassurance: http://www.insurancecareers.cii.co.uk/2.13.reinsurance.html - risk management: http://www.insurancecareers.cii.co.uk/2.4.risk.html - broking: http://www.insurancecareers.cii.co.uk/2.2.broking.html Mikael Admin Messages: 502 Date d'inscription: 20/08/ Localisation: Paris
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Georgia State University Digital Archive @ GSU Risk Management & Insurance Dissertations Risk Management & Insurance 5-11-2006 Operational Risk Capital Provisions for Banks and Insurance Companies Edoh Fofo Afambo kfofo@yahoo.com Recommended Citation Afambo, Edoh Fofo, "Operational Risk Capital Provisions for Banks and Insurance Companies" (2006). Risk Management & Insurance Dissertations. Paper 15. http://digitalarchive.gsu.edu/rmi_diss/15 This Dissertation is brought to you for free and open access by the Risk Management & Insurance at Digital Archive @ GSU. It has been accepted for inclusion in Risk Management & Insurance Dissertations by an authorized administrator of Digital Archive @ GSU. For more information, please