Insurance & Corporate Treasury

Commentary

We first held a session on insurance eighteen months ago [report here]. Like that one, this was a very lively discussion, with a lot of experience sharing and common issues. 

The main topical insight was that, compared to the past three years or so, the market has ceased hardening, or is doing so more slowly. Experiences were mixed, but, even if premiums are still increasing, the rate of increase has slowed down. Pressure was significantly lower in the US property market, due to a less severe hurricane season, and D&O. Several participants also reported that the cyber market seems to be maturing. Even so, the environment remains challenging, with a net increase in premiums often happening, if only due to the rise in the value of the assets being insured. Real estate valuations are rising, while inflation and changes in supply chain structures are causing inventory values to rise.

A lot of the call was spent discussing structural and strategic questions. I strongly encourage people to read the detailed report, but the main items were:

• Where does insurance belong? Again, no simple answer, but one participant suggested it may depend on the company: it sits more naturally in treasury for asset intensive companies; while HR might work better for service industries.
• How much cover to buy, versus how much risk to keep in house? There is no magic formula. Most took the view that the cover purchased should not vary according to the cost of premiums, but it does happen in some cases. One suggestion was that the approach should vary according to the company’s ability and willingness to absorb risk. It is likely that a company which is owned by pension funds may tend to buy more cover to reduce earnings volatility, while