IIS Conference Hears Views of Industry Leaders

July 17, 2003

The International Insurance Society’s 39th Annual Seminar, held at New York’s Waldorf Astoria Hotel, concluded yesterday with a gala dinner at the United Nations. Attendees heard CEO’s and top managers from the four corners of the world express their views on the industry’s problems, and offer some solutions and practical advice.

The roster of speakers was a virtual “who’s who” of industry leaders. After a keynote speech by NYC Mayor Michael Bloomberg, Douglas Leatherdale, former CEO of the St. Paul companies, introduced AIG CEO Maurice “Hank” Greenberg, Ewald Kist, CEO of the Netherlands ING Group, and Kunio Ishihara, the President of Tokio Marine and Fire (part of the Millea Group).

Kist set an international tone. “Divergence is not good,” he said, referring to the current differences, political and otherwise, between the U.S. and Europe. He cited different accounting standards (U.S. GAAP vs. IAS rules) corporate governance, and changing demographics (aging populations, etc.) as major areas of concern.

After discussing the current sate of the Japanese market, Ishihara stressed the need for transparency and the necessity of creating business models that address capital problems by concentrating on “asset liability management” that are not “fragile to business risks.”

Greenberg emphasized the changes wrought by the Sept. 11 attacks, which he feels have taken away risk management flexibility and made it more passive. “Our job is to manage change,” he said, adding that in the last three years there have been quite a few. He also pursued some of his favorite bugaboos – the U.S. tort system and the need to reform class action lawsuits, the recent calls for outside corporate directors (unjustified), regulations to implement “fair value accounting,” which he said “has no place in the insurance business,” and the apparent failure of any meaningful legislation to control runaway asbestos claims.

In the question and answer session that followed their presentations all three men expanded on their original remarks and emphasized the industry’s need to adapt to the changed circumstances, primarily by emphasizing underwriting discipline, and recognizing that it’s no longer possible to rely on investment returns to make up for underwriting losses.

Greenberg bridled -predictably- at Kist’s mention of favored status in China, taking it as a reference to AIG’s unique position in the country as the only foreign insurer with 100 percent ownership of its subsidiaries. He pointed out that AIG had begun talking to the Chinese in 1975 about opening the Chinese market when most companies were ignoring it, and the efforts it had made to get China to join the WTO.

Tuesday’s session concentrated on the issue of corporate governance in the wake of the Enron, World Com, Tyco, and other scandals. Lord Colin Sharman, Chairman of the U.K.’s Aegis Corp. and Zurich Financial Services CEO James J. Schiro addressed problems that included how to keep management honest, how to help company leaders deliver on their promises and to adequately reward them for doing so, without stifling the “entrepreneurial flair” that introduces needed innovations to a company’s operations. “You need to create an environment that encourages it,” said Sharman,” but at the same time you have to control it.”

Tuesday afternoon a panel of technical experts took over to discuss “Best Practices in Information Technology” (IT). The panel noted that IT had become so pervasive that it was really no longer a question of examining the technology itself, but rather addressing the ways in which it can be used to cut costs, increase business value and provide the necessary information to those who need it.

The final plenary session Wednesday morning, moderated by ACE Limited CEO Brian Duperreault, featured Edward G. Creasy, the CEO of Kiln Plc, one of the largest Lloyd’s underwriters, and Anton van Rossum CEO of the Belgian-based Fortis Group. Creasy noted that Lloyd’s has historically taken the lead in introducing new products to insure new industries, and assured the audience, along with Duperreault who asked the question, that Lloyd’s reforms and the newly initiated franchise system would enable the London market to do this even better in the future.

Van Rossum stressed Fortis’ position as a world leader in combining banking and insurance (bancassurance), noting that it works both ways, but not in all countries – notably not in the U.S and the UK. He got a good laugh when he observed that while accountants accuse insurance executives of not understanding “fair value accounting,” it was really the accountants who don’t understand the insurance industry.

That statement could serve, even to those in the industry, as the leitmotif of the IIS conference. Every CEO agreed that to understand the problems, whether financial, political, technical or legal, is of primary importance. Even more important is seeking solutions to those problems.

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