As president and CEO Swiss Re Canada, Sharon Ludlow is afforded a pretty lofty perspective of the insurance industry. Insurance Networking News sat down with Ludlow to get her take on everything from technology to the state of the market, to the waves of regulatory changes facing the industry.
INN: What is the biggest challenge you face today?
SL: Regulatory change. In Canada we have new reinsurance regulatory guidelines to deal with. Then there are all the international issues around accounting convergence and regulatory capital requirements. These are concerns, but they are also business opportunities as well.
For example, Solvency II may have a fairly profound impact on insurers globally over time. We are looking at these things and try to understand what the impact would be if we had a Solvency II-style test for Canada.
We do worry about regulatory issues elsewhere-how they are going to impact Canada and how we are going to converge all this. Mutual recognition or equivalence between regulators worldwide would be beneficial, but it is going to be very difficult to get an agreement of global regulatory capital standards.
However, because we all spend so much time focusing on those things, I worry that as an industry we are taking our eye off the ball. Who is worrying about the next new product, and what is happening in the marketplace? Are companies as proactive as they can be in business development or are they distracted by regulatory change? To wrap up all these changes in one word, it's "pervasive." One by one, none of them are necessarily bad. When we get there, accounting convergence and global capital requirements will be great, but on the road getting there companies will be distracted.
INN: What are the unique challenges in the Canadian marketplace?
SL: We'll have to see what happens during renewal season this year. We have had a significant amount of catastrophes globally. Pricing in the market is very much dependent on market dynamics but we can clearly see that the cost of reinsurance that insurers buy is getting more expensive.
INN: So are we seeing the market hardening?
SL: Even if you have the factors in place from a catastrophe point of view, you still have loads of excess capacity in this market. At this point, there is still a fair amount of capital to be absorbed. We haven't seen much change in pricing in commercial lines-it is still fairly soft. We have seen pockets [or rising prices] in the personal property lines area but not overall.
INN: Given the uncertainty surrounding inflation and interest rates, how would you characterize the industry's economic risks?
SL: Canada is using international financial reporting standards (IFRS), which tends to makes us more sensitive when interest rates change from an accounting standpoint. The question of what to do about it is difficult to answer because both the property/casualty and the life industry are pretty heavily invested in Canadian sovereign debt. The life industry needs the longest duration assets you can buy, 30-year bonds. The P&C industry tends to steer clear of equities. So we are all getting tied to interest rates. It is ultimately putting more pressure on the underwriting side because we are delivering suboptimal investment returns. So, you need to look at your portfolio very carefully and dissect the business you have and make sure you're writing the best business.
INN: What emerging technologies do you anticipate having the biggest impact on the way you do business?
SL: Anything that I can do make doing business with Swiss Re easier is a good thing, but that doesn't necessarily mean Facebook or Twitter. We want make sure we use the best technologies at hand but we are not attracting the consumer, we are attracting client companies.
INN: What about Big Data?
SL: We already have super-powered engines that model all different types of scenarios. That's just the mechanisms we use. And the mechanisms get better all the time; they have to. From an analytics point of view, companies are now segmenting their book down to the street they want to provide auto insurance for, so it's important to be able to manipulate and analyze the data at a granular level. We use it for everything from large scale risks such as earthquakes or to evaluate a small company providing auto insurance in Winnipeg.
