Editorial: Today's Key Issues and Opportunities

No. 15 , February 2015 EDITORIAL Today?s Key Issues and Opportunities By Etti Baranoff+ This 15 th issue of the Insurance and Finance newsletter is dedicated to featuring the key insights from the 10th Insurance and Finance Seminar on ?Today?s Issues and Opportunities? that was held in London, 4 November 2014. Each article in this newsletter is from the seminar?s speakers. The seminar coverage article, provided on page 4 of this newsletter, supplements the articles with description s of this insightful event. From the three panels and three keynote speakers , which included CEOs, Insurance e xecutives and industry experts , we gleaned many challenges that lead to major oppor tunities. In discussing the c hallenges, alternative capital and low interest rates emerged as the main challenges. All panellists noted that ( re)insurers are challenged by the liquidity available in the markets due to alternative capital. The availability of capital has been generated from the prolonged period of low interest rates and the search for higher returns. Speakers emphas ised that , a t this stage, collateralise d reinsurance and catastrophe (cat) bonds have dominate d the alter native capital market. This alternative capital puts pressure on pricing and profitability, esp ecially because of low catastrophe losses in recent years. There are many positive aspects to the liquidity trend, showing the attractiveness of the insurance industry. In addition, since the liquidity is not coming with risk management expertise , there are many opportunities available for insurers to utilise and promote their expertise. Underwriting and risk -based pricing are in the insurers? domain and are valuable in the marketplace. Further more, the pressure on underwriting and profitability requires the development of new fields and products. This could be done through the use of big data analytics in search of new trends and also by moving talents from profit centres to centres for innovation. All the speakers in the seminar noted that the industry was well positioned to take a leadership position in big data analytical patterns through models and new discoveries. One area already explored was ?uninsured markets. ? The technical presentations by the industry executives showed that i nsurers are able to manage through the low interest rate environment with asset/liability matching and investments that support their products and products innovation. An example was provided by a U.S. insurer that was able to successfully create appropriate asset/liability management in order to take over pension liabilities of large corporations, despite the low interest rates. O ther challenges and opportunities discussed were on the assets side . Since insurers are also investors , they are increasingly less protected. Regulators have increasingly tend ed to protect the debtor, not the creditor. In addition, t he extraterritorial reach of some national governments has become problem atic for insurers. On the other hand, + Research Director, Insurance and Finance, The Geneva Association.