Mandatory requirements must be introduced in risk management

The financial crisis and the surprises associated with it have led to the growing importance worldwide of the liquidity and solvency of banks and insurance companies. Not only the state but also the shareholders themselves have realised that the threat exists not only for their own companies. The public is also taking part in this debate on an unprecedented scale.

This concerns not only Europe. In essence, it can be stated that everyone is increasingly focusing on the interplay between Solvency II and Basel III. In the CIS, this is food for thought for insurers owned by banks or operating within the same financial group as them. The relationship between the liquidity and solvency of a bank and its insurance company is becoming increasingly important.

No player wishing to raise money on international financial markets, and no major bank, can opt out of this or shield itself from it. The same applies to insurance companies. Admittedly, the specifics of banks and insurance companies must always be taken into account. They have completely different business models and therefore need different control criteria, differing in both number and quality. But the main thing is to observe the fundamental principle that the risks a company assumes must be covered by capital. In this regard, the role of the reinsurer is being reassessed. The capital provided by reinsurers should be assessed not only quantitatively but also qualitatively.

Today, investors are mostly more concerned with which risks can be assumed. I can only speak from the perspective of a professional reinsurer: reinsurers that have their own models and adequate capital have not reduced their risk appetite — on the contrary. However, in Russia and the CIS two significant factors are added: first, already heavy and complex risks being burdened with additional exotic extensions of cover, and second, political risk arising primarily from insufficient legal protection for investors, among whom I also count reinsurers.

I am confident that risk management has a great future, because when risk management improves, all participants benefit:

• policyholders, because their risks are in safe hands;
• insurers, because they have a better understanding of the risks they assume and thereby become more efficient in all their business;
• the state, because it obtains higher standards of better consumer protection;
• shareholders, because an insurer is an attractive investment.

Conclusion: improving risk management ultimately increases the well-being of society.

Is the insurance market ready for the introduction of a single minimum risk management standard?

Minimum requirements must be introduced as mandatory; there is no alternative. In addition, rules that are equal for everyone must be introduced. The rules of the game must be uniform, known, verifiable and enforceable. Otherwise, we may leave policyholders at the mercy of what are most likely financially unreliable insurers. The entire financial system will become unstable, because such insurers will "spoil" the market with dumping prices and the like.

As to whether high-quality risk management can attract investors and clients — without it there will be no investors in the future. It is very difficult for a professional reinsurer to work with a primary insurer that has no clear view of the risks it has assumed. Such an insurer is not certain either of what reinsurance it is buying or of its price. Moreover, it in turn represents a default risk for the reinsurer if, for example, it is unable to pay the reinsurance premium.

Based on materials from the "Expert RA" agency