Corbett Ryan ?

I have done this site especially for Corbett Ryan
in order to visit thishousewillexist.org

Sorry for my poor english translation.



Presentation of Patrick G. Ryan
New risks, what capacity?
Risk is part of the business reality. And we live in a world where risks
are increasingly complex. The need for effective risk management has rarely been
as important today, when we try to cope with
consequences of the events of last year: the terrorist attacks in the month of
September, shaking experienced by some of our largest companies, such
Enron, Arthur Anderson, WorldCom ... and the uncertainty about the future of the economy
World. We live in a highly interconnected world, where risk can be
consequences as sudden and deep.
The risk is not entirely bad, it is only taking a few risks
on behalf of its shareholders that a company can create value added.
Every business knows the risks of his job, she overcomes with its expertise
creating value for its shareholders and at the same time each company has to
face other risks that control well, and it is therefore trying to manage or
transfer through mechanisms such as hedging or insurance. Managing risk is
not only avoid catastrophic losses but also how to enjoy the benefits
competitive.
This year has asked Aon CFO Research Services (which is part of the Economist)
a study in the United States and Europe to find out how companies
integrate risk management into their strategic objectives (study published under the title:
"Strategic Risk Management: New Disciplines, New Opportunities"). The importance of
risk management profession in creating value for shareholders is
highlighted by the Risk Manager of Duke Energy, Richard Osborne, quoted in
Report, which says: "Our responsibility is to identify areas where the expertise of Duke
Energy can create the best return for its investors, given the risk. "
This research also confirms the importance of risk management as a tool
Competitive: 49% of companies surveyed said that a strategic approach to
Risk management can provide a competitive advantage. CFOs believe
it essentially allows better allocate resources and take into account
risk more effectively key industry.

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For centuries the insurance and reinsurance have proposed well-known instruments
and tested to fund non-essential risks, enabling companies to
do business by focusing on the exploitation of their skills. Thus,
many innovations and investments can take place without the support of a
Insurance to cover construction risks, guarantees and political risk.
The first type of insurance was probably marine insurance - which allowed the
development of trade here on the Mediterranean coast. Since then a
range of new insurance products, mainly non-marine, was developed
to cover individuals and businesses at risk of accident and
damage to property. Innovation, in partnership with brokers and other holders of
willing to finance risk exposure or transfer their own customers, resulting in
the creation of various insurance products to cover new needs and growing.
Once the most industrial enterprises were, with tangible goods (factories,
buildings, machines) to ensure, now with the rise of services
in the global economy, intangibles (trademarks, image, patents) have become
key sources of value.

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This trend is clear from investigations conducted by Aon in recent years
with risk managers in the UK. Asked what were
the risks they have identified as priorities in 1975 they cited the damage to property,
1977 the environmental risk and terrorism, and in 1999 the environment and loss
operating. In the last study in 2001, they put forward the loss and picture
protection of the mark. This confirms the growing importance of 'intangible' by
compared to physical goods. Trademarks and patents can be worth millions of
dollars. At Aon we work with the insurance markets to develop
solutions in the field of intellectual property, covering risks such as
counterfeits, revenues generated by licensing and enforcing patents.
Operating loss stood still in second place in the 2001 study, reflecting
current production systems with their lean and minimal inventory
create, in the value chains of today, a strong dependence on both visa-
vis suppliers and customers. This message was reinforced by the claims related
WTC, including losses by suspension of operations will be most important.

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The Legal Responsibilities of companies that operate in the modern world
constantly increasing, as are their duties to their partners. Insurance
base for employees (accidents, employer liability) and customers
(Professional liability, product liability) continually refined
to take account of new risks. The stress at work, for example, concern
More and more British. However, today it is very difficult in several countries
find the capacity to cover certain types of professional liability
or commercial. The disappearance of several insurers in Australia, for example, caused
a lack of cover for professional liability is the origin of
difficulties in the construction industry and health.
The social insurance mandateurs is another sector which is a narrowing of
Capacity: premiums and deductibles rise astronomically, and the insured are
forced to accept a share of co-insurance important. Companies in sectors
industries affected by the scandals - telecom, technology, energy trading and,
part, financial services - are most affected because it has more confidence now
neither the capacity nor the directors of companies in the reliability of reporting systems
Financial.

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Society (through the legal system) and governments seem to want to impose
business duties and responsibilities more and more binding, which
adds to the financial consequences of old risks, and creates new ones like
environmental risks. Legislation on climate change, for example,
will expose companies to sanctions since 2005 for non-compliance, the
need to verify compliance with the performance standards and levels
emissions by accountants and other experts will create new risks associated with these
professional services, and the insurance market in an already overstretched elsewhere.
The evolution of each risk category gives the insurance industry the opportunity
to offer companies and individuals solutions to finance risk, their
to focus on value-added risk associated with their business while
transferrable most non-essential risk to an insurer and / or reinsurer.
That said, the insurance can not operate as a safety net to catch and
repay all risk problems in our societies. The industry
Insurance does not have a bottomless purse, I will address this issue by
on.

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The risk and responsibilities it creates, constantly changing. Technology, for
example, evolves, and the legal framework. These developments, however, will almost
always in the same direction, ie towards an increase (rather than decrease)
responsibility for our customers and potential financial burdens. This is because
worsen existing risks while new risks emerge. Sometimes the importance
This increased risk is not well measured, not by our clients or by their own,
before the occurrence of an incident, it was not until the declaration of a disaster that
remembers.
But as I said before, the ability of holders of financial risk is not infinite, and
it does not necessarily kept pace with the underlying risks. The
Recent examples abound.
Losses in all areas, are increasing. It took strengthen reserves
liquidation of certain claims to slow attrition losses still rising, and
frequency of losses is increasing both in excess of loss catastrophe.
Insurers also suffered falls of recent awards and many have been
forced to reduce sharply the value of their investment portfolios. We
see now with the announced results for the second half by several
major groups, such as Munich Re, Swiss Re, Zurich Financial Services, and Axa.
In fact, we have witnessed in recent years to a "withdrawal of risk" from insurers
and reinsurers. The available capacity for the traditional areas of damage
property and accidents has actually decreased. The pool that supports the continuation of activities
non-life has been more withdrawals of capital flows that - because of the building
reserves, losses, write-downs of investments and withdrawals
activity. Some major insurers have reduced their commitments in the sector
non-industrial life, withdrawing from certain types of business grow
preferentially in the personal insurance or life and health portfolios.
This is because they feel that business risks are a business too
volatile and not sufficiently profitable. Once the underwriting losses were
tolerated because offset by the returns, it is no longer the case. A
example is provided by CGNU, now Aviva, which has sold most of its portfolio
commercial non-life (including the United Kingdom, the USA, Germany and South Africa)
to strengthen its bancassurance operations and life insurance worldwide.

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Other examples: Winterthur, who retired aggregate risk, ACE seeks to rebalance
its operations into three equal parts devoted to damage to property,
assurance person, and accident / health. St Paul has left the sector
Medical professional responsibilities, one of its largest portfolios (and
an area where for decades it was number one in the U.S.). Citigroup sold
its operations in property damage, explaining that the risk / benefit ratio was less
favorable than for other operations in the financial services sector.
Several groups have left or are looking to spin off reinsurance operations in this
area. For example, Cigna, CNA, Generali, Gerling and Royal & Sun Alliance have
withdrawn from some or all of their reinsurance business. Zurich Financial
Converium services created to house the operations of Zurich Re, St. Paul announced his
intention to found Platinum Re, we hear about other similar projects.
All such withdrawals from life insurance sector came at a time when the
market had strengthened, with a level of premium subscribers who clearly favored.
Don Watson, when he worked for Standard & Poor's, said:
"This trend will continue for several years. Many companies
traded understood that the shareholders did not like the volatility of
income.
The volatility exists in life insurance for disasters through the
revised figures for previous years for cases such as asbestos and
Now mold. In the post-Enron, this is something that arouses
mistrust among investors. "
Given this strength of the market, customers are responding by using the methods
Alternative risk financing - increasing their retentions, using their captive
to underwrite more risks, studying the possibility of creating mutual with
other companies who share their ideas. Aon is the leading provider of services
management for the captives, and we can observe this trend closely. Our
main customers are turning to their captives at once to cover risks
treaty for which adequate coverage is no longer offered by the market
Traditional on acceptable terms, and to cover new risks for which
traditional solutions remain underdeveloped, as the risks
the environment, foreign non-payment risk, responsibilities vis-à-vis

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employees, service interruptions in the supply of energy and
telecommunications, accidental contamination in the food industry. Aon
also works with companies in several industrial sectors to explore
opportunities to share some liability risks that are very difficult to
assure proper conditions.
In our experience, when an insured person turns to some of its risk to a
solution based on self-insurance, use of a captive or sharing, bonuses
concerned will long to return to the traditional - or will
lost forever.
Feedback from our largest customers during these periods of stronger
market shows that they believe that insurers apply the rate increases
too broadly, without enough to distinguish good and bad risks.
This often results in the departure of the clients with the level of risk and
claims most favorable to other forms of financing, while the market
Traditional is just bad risks. Consequently, the averages of
market lowered further.
Some old claims continue to weigh on the profitability of insurers - including
asbestos. A new risk that may be comparable - some commentators
do not hesitate to talk about a new asbestos - is that linked to toxic mold.
Toxic molds are especially topical in Texas, but are becoming an
national problem in the United States. There were claims related to toxic mold in
at least 17 states (which are home to over half the U.S. population, according
Aon's calculations). The first trial with award of several million dollars
damages for health problems caused by the presence of mold
a building was delivered in 1997. Since then more than 10 000 shares were
brought by individuals or families seeking compensation for
damage caused by these fungi. According to A. Mr. Best, the frequency and amount of
these claims have increased 100% to 800% for 18 months.
Losses due to mushrooms or moisture are excluded from BOP policies and
policies covering commercial buildings. Legal Liability Insurance in
Pollution, insurers are adding amendments that specify either the total exclusion of damage
caused by fungi or their explicit support.

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California and Texas have passed laws to handle the situation. Recommendations
published by the State of New York have become the default standards for good
practices in the fight against the risks associated with toxic mold. As I said
Furthermore, governments must sometimes intervene to minimize the exposure of
insurers in catastrophic situations.
It is difficult to believe that toxic mold can ask the same industry
amount of problems and delays that asbestos settlement - but it is also
difficult to anticipate emerging risks that could cause a new outbreak
issue with its suite of costly judgments.
The situation is sometimes overwhelmed by not identifying a new risk but
re-evaluation of a former risk. Usually this follows a major disaster with
catastrophic losses. Hurricane Andrew of 1992 was not just a lot
more important than any other disaster-generating property damage he had
more stressed the importance of an insurer to control the accumulation of risks in its
Portfolio damage, resulting in an acceleration of the implementation of
computer models for assessing such exposures accumulated.
Somehow terrorism, as we have seen Sept. 11, was a
new risk. I think anyone, or at least few of us had never
considered an event as far off the scale of horror. However, it should make
tribute to the reactions of the industries of insurance and reinsurance. The principle of
sharing of risk has worked well, and most importantly the loss of history has been absorbed
by a variety of insurers throughout the world. According to Standard & Poor's, about 50%
losses caused by attacks on the WTC would be reimbursed by insurers here
in Europe, and about 35% of European reinsurers.
Clearly, the events of September 11 have changed our perception of other risks.
Not only in terms of size and cost of a single disaster, but also in
regarding the relative shares of the damage and operating loss and the possibility
catastrophic losses not only in property damage but also
against accidents at work and life insurance. Again, it was necessary that insurers
respond by improving their ability to control accumulations of risk in a
sector (in accidents and life as well as in damage) and aggregations of
risk across several sectors.

We believe at Aon, having implemented good risk management practices before
September 11, but the events of that day showed very clearly that
improvements were still possible. Like many other companies around the
world, we have reexamined the distribution of our key resources - people, offices,
computer systems. Now we will avoid concentrating too many people
in a given location, and we will divide our operations in New York with an office in
center and another farther away. We also implemented a system of exercises
safety and we want all our staff are trained and trained to cope with
a crisis. We also devoted time to better ensure the continuity of our
operations.
The insurers have not only struggled with their risk portfolios;
the unfortunate experience of recent years they have also learned that their
investment portfolios were highly exposed. With the stock market collapse and a
growing number of defaults among issuers of corporate bonds, several
major insurers and reinsurers have been obliged to depreciate significantly
value of their investments - which reduces the capital available to support
subscriptions. It is now easier to manage the risk of a mismatch between assets and
commitments by developing models of active / passive computer (also
called DFA models, or dynamic financial analysis), we use
now with many of our insurance clients to analyze their capabilities
and retention requirements of risk transfer.
New capital entered the industry last year, but they do not compensate
those who have gone through transfers to reserves for losses and
devaluation of investments; overall industry capacity has shrunk. Moreover
is, new capital have focused on the 'old' risks -
surpluses and disasters in the sector breakdowns and accidents - rather than
"New". As I already said there are categories where the low capacity
becomes critical, for example the responsibility of corporate officers in the U.S.,
accidents in the UK.
Naturally, the risk has been the largest since the revaluation one year
is terrorism. Following September 11 there was virtually excluded from most
reinsurance treaties, putting insurers in the unenviable position of being in
the obligation to provide insurance against terrorist acts without being able to
reinsure.

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Reinsurers have somewhat softened their position, but the needs of
market were partly covered by insurers that offer coverage
Independent risk of terrorism. Aon has placed a lot of contracts in this
market on behalf of its clients, and subscribers are the most important Berkshire
Hathaway, Lloyd's, AIG, Axis, ACE, Renaissance Re, Montpelier and Srir. In this sense it
This is a new venture, and some capacity has been created.
But on the other hand, the reactions of the industry before the risk of terrorism posed a
Another issue to its customers - that of uncertainty. Formerly it was normal for a
reinsurers to advise clients on what they could sign or not according to
terms of their treaties, and then following the September 11 reinsurers were all prepared
provisions excluding explicitly terrorism - but not everyone used the same words.
And insurers are working under different legal systems, with obligations
national or regional variations in insurance against terrorism: no
coverage, insurance limited to property damage, fire or extended warranty
which may result. In addition there are the accompanying measures taken by states or
governments (as Pool Re in the UK). In practice, this results in a
uncertainty for policyholders, who do not know what is covered by the terms
in their basic policy relating to criminal damage or resulting from demonstrations,
This is supported by government systems, and what is guaranteed by
independent policies on terrorism - and who do not know whether there are gaps in
all that.

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The issue of terrorism goes back to a point already raised, the relative roles of
the insurance industry and governments in the provision of insurance against
disasters, or against any hazards that must necessarily be funded by companies,
but for which they are not in commercial markets coverage
sought. The government will always have a role to play - there are risks, like
of terrorism, which at times are not likely to be assessed in advance -
and certain risks, which because of their frequency and magnitude, can not be
considered incidental but rather become systematic. Governments
may also play a key role by acting through legislation to limit the scope and
the extent of legal liability of companies in terms of accidents, and for that
Some risks do not become uninsurable, reforming the law on crimes and
negligence and trying to limit the damages awarded by courts.
10
How can we help our clients manage the ever increasing risks
they face in their business? The study on the AON CFO
Strategic Risk Management shows that client priorities are to improve
their reactions to the whole range of risks to their business, to allocate more
their resources effectively, to achieve a competitive advantage, protect against
income volatility and lower the cost of risk transfer. As a provider of
solutions for strategic risk management, Aon is always looking to increase the
array of tools, experts and solutions it can offer to meet
new risks.

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I think everyone would agree that a new risk can not be
managed, financed or insured if it can not be measured in any way. Since 11
September, brokers, insurers and companies that specialize in modeling
have made tremendous progress in modeling risks of terrorism. We
multiplied our efforts with our customers to impose detailed modeling and analysis
risk, whether old or new risks, before any appeal to markets
insurance. Without analysis of risk, insurers can not set a realistic price;
without risk analysis, customers can not compare the costs and benefits
other forms of coverage: self-insurance or risk transfer. We note
also that the replacement of a tactical vision or market oriented (too
backward-looking to insurance) by a more strategic view of risk, whether
old or new, opens the door to more creative and unique solutions that may
attract the attention of the subscription and free up capacity which
a conventional program would not have had access.
The lesson we must all learn from these events is that the insured become
increasingly skeptical whenever the first industry reaction to a
increased losses or a new venture takes the form of a series of exclusions and
a decrease in capacity. If this reaction existed, and if it were to continue, industry
marginalize themselves by making it less useful to its customers. We all recognize that
we live in exciting times: the economy is truly global, and bad
News travels fast. The outlook for the global economy are currently fragile
- Investors lack confidence and the markets are volatile. Clients, brokers and
insurers must work together in partnership to ensure the presence of a
sufficient capacity to cover insurable risks which have a vital impact on insured
- To enable them to concentrate on developing their business
value.

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