Europe’s Risk Managers Meet as Financial Crisis Deepens

Europe’s largest companies take risk management seriously. So seriously that the Federation of European Risk Management Association’s (FERMA) conference last week in Brussels was a well attended event.

Although it wasn’t on the official agenda, the current crisis in the world’s financial markets was definitely on most people’s minds, especially the meltdown of AIG, and the Belgian-Dutch bank and insurer Fortis (See related article).

FERMA has traditionally met every two years, with an interim conference in off years, but this was a full-scale event. First day presentations concentrated on European Community (EU) legislation, as propounded by the European Commission (EC), the EU’s regulatory authority. The Solvency II financial regulations, which are scheduled to go into effect in 2012, topped the agenda, with a special focus on what regulations should be adopted for captive insurance entities.

There followed a discussion of the EC’s attempts to do away with the insurance industry’s anti-trust exemption, the “block exemption regulation,” or BER, which is scheduled to expire in 2010. The EC has also called for greater transparency in client/broker/insurer transactions, and has questioned certain aspects of co-insurance, or subscription market, dealings, notably the use of “best terms and conditions” to set equivalent premium rates.

The conference also examined the potential consequences, both intended and unintended, of the EC’s recent environmental directive, which faces growing questions as to whether it’s really needed, and what legislative changes it will require EU countries to adopt.

The second day featured the presentation of FERMA’s “Risk Management Bench Marking Survey 2008,” which underscored the increasing recognition by Europe’s biggest firms of the importance of a well run, integrated, risk management program.

But the financial crisis overshadowed everything else. In his opening remarks Thierry van Santen, Group Danone’s corporate risk manger, and FERMA’s past-president, said that AIG’s meltdown was “unanticipated,” but it now appeared to be part of a “worldwide financial hurricane.”

At a press conference the following day he went deeper into the crisis, describing it as a classic example of “poor risk management” on the part of the banks, who “sold uncontrolled products.”

By general consensus Europeans are concerned not only as to how the financial crisis can be managed, but also what the fallout from it will be. They fear the U.S. will go into another paroxysm of rule making, as it did after the Enron, World, Com, etc. scandals when Congress enacted the Sarbannes-Oxley (Sox) regulations.

“We’ll probably see more controls [regulations], more Sox,” said Paul Taylor, risk manager of Swiss-based Tetra Laval. “[This will] create huge costs and require more ticking of boxes, but basically it doesn’t change the mind set,” he added.

His response underscored the majority European view that setting overall goals and ethical guidelines are better ways to regulate company management than rules-based regulations, or “box ticking.”