Key challenges for Risk and Financial Officers: Risk and finance strategies in the 21st century
17 – 18 September 2008
Swiss Re Centre for Global Dialogue,
Rüschlikon/Zurich
About 50 specialists, mainly CFOs and CROs, from various companies throughout Europe joined some 25 Swiss Re participants for this conference at the Swiss Re Centre for Global Dialogue on 17 - 18 September 2008. The theme could hardly have been more topical with the market turmoil that started on 15 September highlighting the need for rigorous and skilful risk management and solid financial strategies.
In his welcoming address, Martin Albers reminded the participants how the revolution in the financial markets has been characterised by a high degree of deregulation over the last twenty years, permitting a lot of innovation with creation of new assets but also new liabilities. Increasingly complex financial instruments often have their shadow sides, including a distinct lack of transparency when trading is not public. With new banking models, the lines between banks and insurers are no longer so sharply drawn; risk ownership may be decentralised and the risk itself diffusely distributed. It may be unclear where a risk is located and who a credit counterparty is. So the risk transmission mechanism is gaining greatly in importance. It is not yet clear how these factors will be affected by the current situation, only that the financial markets will undergo profound changes.
Following this description of the overall framework, Professor Heinz Zimmermann gave a keynote talk on the subject of “Risk and finance strategies in the 21st century”. Among many incisive conclusions and comments, he stressed the importance of insurers as liquidity providers, the positive information gain from ALM (Asset Liability Management), and that the need for minimum or risk capital is an entrepreneurial rather than just regulatory requirement.
The panel discussion on key challenges for CFOs and CROs in the next five years, moderated by Marcel Kaufmann, yielded many interesting insights from experience to date, but inevitably stressed that much would depend on the as yet unpredictable fallout from the current crisis.
In a keynote speech on risk mitigation instruments, Martin Albers concluded that risk management touches all core functions of the company, that the risk landscape includes the firm’s position as well as the overall environment, that governance and culture must complement models and measures, and further that risk and capital management must provide solutions for the whole company.
AXA Winterthur CFO Thomas Gerber gave a further keynote presentation on CFO/CRO involvement in product development, recounting hands-on experience with two of his company’s new variable annuity products, and describing how the finance and risk management functions play a key role from the earliest stages of product design on.
In an interview on added value from models, Swiss Re’s CRO Raj Singh and Helvea analyst Timothy Dawson gave their viewpoints in their answers to questions put by Kai Uwe Schanz. This was followed by a panel discussion, moderated by George Quinn, on the implementation of models. In both sessions, it was stressed that the value of models depends on the accuracy of the underlying assumptions, and it was generally agreed that they are an adjunct to, but not a complete substitute for, thoroughgoing management.
In the final keynote, Jacques Aigrain talked about capital and liquidity management in the light of divergent interests of regulations and capital markets. He explained how efficient capital steering has to include a capital buffer against adverse developments, and he reiterated the point made by various other participants that the insurance companies are less affected by the credit crisis than their banking peers because of differences in liquidity and capital management between banks and insurers. On the issue of regulation, he was confident that views on capital will converge and that Solvency II will help to improve the risk culture.
