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The Actuary The magazine of the Institute & Faculty of Actuaries

Sober mood at Association of British Insurers’ first conference

We sensed an introspective mood at the excellent first insurance industry conference convened by the ABI which took place on 10 April – the day after the Budget and the fall of Baghdad. The themes of the conference were neatly balanced as between the problems of the industry itself and those of its customers.

Digby Jones of the CBI explained the difficulties his members were experiencing with the rapidly rising costs of pensions and insurance, and was echoed by incoming TUC secretary Brendan Barber. There was frustration, shared by industry speakers, with the apparent lack of interest on the part of government in the decline of occupational pensions. Mr Jones was also critical of the government’s lack of real interest in the problems of employer’s liability insurance, where substantial rate increases have led to many firms operating without compulsory cover. He did pose one challenge to actuaries suggesting that rating apparently failed to take account of differential experience – ‘why can there not be a no-claims bonus for employer’s liability insurance?’

More sustained challenges for the actuarial profession were suggested by the opening and closing conference sessions on industry regulation and future ‘Sandler regime’ products respectively. Sir Howard Davies reviewed change in insurer regulation, drawing on the recent assessment of the FSA’s performance by the International Monetary Fund. ‘Much done, much more to do’ was the tone of his remarks as he nears the end of his time as FSA chairman.

Capital adequacy
The FSA’s move to banking-style assessment of solvency and capital adequacy for life and general insurers was welcomed by industry speakers, although Iain Lumsden acknowledged the relative vacuum in standards as compared with the Basel process in banking. He said it was now time to move on approaches which had been under discussion for 20 years – a challenge to actuaries?

A note of caution on general insurer capital adequacy was sounded by Ian Dilks who quoted estimates of capital insufficiency of £15bn to £20bn. Nevertheless the FSA and European Commission seem determined to implement probabilistic test of adequacy, even if confidence levels have to be increased gradually over some years.

‘Sandler’ products
Ron Sandler defended strongly the thrust of the recommendations in his 2002 report, while acknowledging that more work was required to create ‘products’ which could be purchased or employed by the mass market without advice. The challenge, to which actuaries surely can contribute, is to make available tools and information with which customers can make their own asset allocation decisions.

‘Some commentary has implied that the whole industry is on its uppers, and about to go out of business’, said Sir Howard Davies. ‘Against that background, it might be thought surprising that there are so many people still here today.’ This sober assessment was in tune with ABI chairman Mike Ross’s opening remarks, and director-general Mary Francis closed by encouraging the 500 delegates to engage with the industry and customer issues which the day had underlined.