The 16th annual AM Best Review/Preview conference just wrapped up. As usual, a ‘must see’ event for AM Best rated companies and a beautiful location (Westin Kierland, Scotttsdale, AZ). Unfortunately, that beauty contrasted with the ugliness in the investment arena discussed there.
I was unable to go to all of the sessions. However, the general themes seemed to be: (1) enterprise risk management (ERM) is important, and (2) we are very concerned about investments.
Some interesting highlights:
ERM is not a ‘one size fits all’ requirements, but Best sure would like to see companies making some progress in this arena, depending upon size, type of business, etc.
One of the ‘keynote’ speakers was Raj Singh, Chief Risk Officer, Swiss Re. Raj, a very intelligent gentlemen, outlined their ERM process in quite a bit of detail and kept telling us that he took over these responsibilities in early 2008. Yet, has not Swiss Re incurred mammoth investment losses that required a ‘Buffett bailout’ at something like 12% interest? The company calls itself, “Your expert in capital and risk management”. Experience must be the best teacher of all.
The other ‘keynote’ speaker was Rob Henrickson, Chairman, President and CEO of Met Life. In a more rousing speech, Chairman H. noted that he felt ‘fine’ with the current status of Met Life and how they have managed through this financial crisis. They’ve got an unusually large amount of cash – a rather defensive position – and although they could have probably qualified for TARP money, to my knowledge, they have not applied. This sounds a lot like the first class passengers on the US Air flight that was heroically piloted to a safe landing on the Hudson. It was the folks in coach who saw the waters rise, while those in first probably were finishing their drinks.
Although much of what Best stated about the importance of ERM and a focus on investments was said before, I found it interesting that they will be spending more on the economics of the investment portfolio, beyond the accounting treatment. An example of this: For P/C BCAR, there is a cap on how much the unrealized loss can reduce capital. However, Best noted they will go beyond this if the cap is ‘maxed out’, and ask questions about the impact of not using the cap in their analysis of BCAR. Let us all remember about the power of ‘analyst adjustments’ in the BCAR model…for both Life/Health and Property/Casualty insurers.
Importantly, Best expects more OTTI and other realized losses during 2009, starting as earlly as Q1.