International Association for the Study of Insurance Economics "The Geneva Association" Where is our business going? Lecture by Henri de Castries

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1 International Association for the Study of Insurance Economics "The Geneva Association" Route de Malagnou 53 Tel CH-1208 Geneva Fax THE PRESIDENT S LECTURE Strategies in Financial Services Lecture: HENRI DE CASTRIES (CEO, AXA Group) Comments: WALTER KIELHOLZ (Chairman, Credit Suisse Group) The Geneva Association Lunch On the occasion of its 30 th anniversary Geneva, 25 November 2003 Where is our business going? Lecture by Henri de Castries 1. The last three years were marked by an unprecedented recession which significantly shook the sector. simultaneous decrease in rates and the stock markets. strong increase in disasters (WTC, AZF, German floods ). loss of portfolio values, difficulty for some companies to pay out guaranteed returns or claims. financial weakness in the sector whose ratings lowered with fears about its solvency and its future. Is the future compromised? 2. Paradoxically, the recession has strengthened fundamentals. Of course, the players are not as rich, but: demand is stronger: they are better managed. risk aversion, awareness and prevention are greater. End demand is stronger, prices are higher, job prospects are better. the savings shortage, the necessity to fill it and the difficulty in managing it are also well known. Savings needs are stronger than before the recession. the operators are focussing on their business and are more efficient because the pressure on their resources is stronger: lowering costs. improving processes and services. business remains a strong growth business in a world which is strongly growing, but 3. The good fundamentals must not hide the fact that the market and customers are going to be a lot more discriminating than in the past. In this framework some elements are key for success. The difference will be made on: 3

2 balance sheet quality and financial strength. the ability to maintain ones profit margins. service quality. The winners will therefore have to have: much stronger management of their capital. The traditional approaches including the regulatory approaches are outdated. a much better control of their total loss experience and their costs. Industrialisation of the processes and economies of scale are going to become more discriminating, likewise the ability to quickly build new products. a true service quality where a lot of players are very bureaucratic. 4. In this framework, the Geneva Association is a quality melting pot where industry develops its ideas. on the nature of risks and their evolution. on the players management methods. on the methods of understanding their performances (accounting standards). It plays a discrete, but unique, role renowned by the players and their regulators. It will actively pursue its role of improving the knowledge of our business, its charm and its stakes. Translation by ETC * * * * * The GENEVA PAPERS on Risk and Insurance Issues and Practice MAJOR TOPICS Include: Risk Management Bank Assurance Financial Services (regulation and management) New Perspectives in the Welfare State Developments in the Health Sector Studies on Gradual Retirement Technological Issues Insurance Law and Economics KEY FEATURES Quarterly publication of the renowned GENEVA ASSOCIATION Covers strategic developments in insurance and risk management Bridges the gap between academics and practitioners working in insurance Now available on-line to institutional subscribers Founded by The Geneva Association in 1973, this prestigious journal still leads the field, publishing papers which both improve the scientific knowledge of the insurance industry and stimulate constructive dialogue between the industry and its economic and social partners. For insurance plays a key strategic role in the modern economy. Published quarterly, this international journal is essential reading for insurance professionals, researchers in insurance and academics who are searching for a deeper insight into the strategic options for their sector. It bridges the gap between these groups, highlighting converging zones of interest and helping insurance professionals to find a common direction. 4

3 International Association for the Study of Insurance Economics "The Geneva Association" Route de Malagnou 53 Tel CH-1208 Geneva Fax THE PRESIDENT S LECTURE Strategies in Financial Services Lecture: HENRI DE CASTRIES (CEO, AXA Group) Comments: WALTER KIELHOLZ (Chairman, Credit Suisse Group) Déjeuner de l Association de Genève A l occasion de son 30 ème anniversaire Genève, le 25 novembre 2003 «Où en est notre métier?» Intervention de Henri de Castries 1. Les trois dernières années ont été marquées par une crise sans précédent qui a très fortement secoué le secteur. baisse simultanée des taux et des marchés d actions. forte hausse des sinistres (WTC, AZF, inondations allemandes ). perte de valeur des portefeuilles, difficulté pour certains à servir les rendements garantis, ou à payer les sinistres. affaiblissement financier du secteur dont les ratings ont baissé, craintes sur sa solvabilité et son futur. Le futur est-il compromis? 2. La crise a, paradoxalement, renforcé les fondamentaux. Certes, les acteurs sont moins riches, mais : la demande est plus forte. ils sont mieux gérés. l aversion du risque, sa reconnaissance, sa prévention sont plus grandes. La demande finale est plus forte, les prix plus élevés, le métier mieux perçu. l insuffisance d épargne, la nécessité de la combler, la difficulté à la gérer sont aussi mieux reconnues. Les besoins d épargne sont plus forts qu avant la crise. les opérateurs se concentrent sur leur métier et sont plus efficaces parce que la pression sur leurs ressources est plus forte : baisse des coûts. amélioration des process et services. le métier reste un métier de forte croissance dans un monde qui croit fortement, mais 3. Les bons fondamentaux ne doivent pas dissimuler que le marché et les clients vont être beaucoup plus discriminants que par le passé. Dans ce cadre quelques éléments sont clés pour réussir. La différence va se faire sur : la qualité des bilans et la force financière. 5

4 la capacité à maintenir ses marges. la qualité du service. Les gagnants devront donc avoir : une gestion beaucoup plus rigoureuse de leur capital. Les approches classiques y compris réglementaires sont dépassées. une maîtrise bien meilleure de leur sinistralité et de leurs coûts. L industrialisation des process et les économies d échelles vont devenir plus discriminants, de même que la capacité à construire rapidement des produits nouveaux. une vraie qualité de service là où beaucoup d acteurs sont très bureaucratiques. 4. Dans ce cadre, l Association de Genève est un creuset de qualité où l industrie fait progresser ses réflexions. sur la nature des risques et leur évolution. sur les modes de gestion des acteurs. sur les modes d appréhension de leurs performances (normes comptables). Elle joue un rôle discret, mais unique, reconnu par les acteurs et leurs régulateurs. Elle va poursuivre activement son rôle pour faire mieux connaître et mieux apprécier notre métier, son attrait et ses enjeux. * * * * * Recent Special Publications of The Geneva Association Etudes et Dossiers, Working Paper No 275 / November 2003, 19 th PROGRES International Seminar The Regulation of Financial Services in Relation to Risk, Geneva, September 2003 Ventures in Insurance Economics: 30 Years The Geneva Association, edited by Patrick M. Liedtke, printed by Blackwell Publishers in London, May 2003 The Search for an International Accounating Standard for Insurance, special report to the Accountancy Task Force of The Geneva Association, by Gerry Dickinson, published by The Geneva Association, February 2003 September 11 One Year After: Impact, Lessons and Unresolved Issues, edited by Patrick M. Liedtke and Christophe Courbage, published by The Geneva Association, August 2002 The Future of pensions and retirement : 10 Key questions by Geneviève Reday-Mulvey, Geneva Association / GINA, in cooperation with R.Sigg, O.Seld, D.Bridel, I.Hoskins et A.Stuckelberger, Geneva, March 2002 Strategic Issues in Insurance edited by Walter Kielholz and Patrick M. Liedtke, published by Blackwell, Oxford, Years of The Geneva Association: Ventures in Insurance Economics by Patrick M. Liedtke Secretary General 6

5 1. Introduction to The Geneva Association The International Association for the Study of Insurance Economics, or by its short name The Geneva Association, is a unique world organization formed by a maximum of 80 chief executive officers from most important insurance companies in the world. Our main goal is to research the growing importance of worldwide insurance activities in all sectors of the economy. We try to identify fundamental trends and strategic issues where insurance plays a substantial role or which influence the insurance sector. In parallel, we develop and encourage various initiatives concerning the evolution in economic and cultural terms of risk management and the notion of uncertainty in the modern economy. The Geneva Association also acts as a forum for its members, providing a worldwide unique platform for the top insurance CEOs. We organise the framework for our members to exchange ideas and discuss key strategic issues. The Geneva Association serves as a catalyst for progress in this unprecedented period of fundamental change in the insurance industry. It seeks to clarify the key role that insurance plays in the further development of the modern economy. 2. The Foundation and Aims of The Geneva Association The Geneva Association was founded under the initiative of a committee that met for the first time on September 22, 1971 in Paris. The Constitutive Assembly took place in Paris on Febraury 27, 1973, at the headquarters of La Paternelle (today part of the AXA Group). The following companies were represented by their President or Chief Executive Officer: Allianz, Münchener Rück, Aachener & Münchener, and Victoria for Germany; Commercial Union, Royal and Mercantile & General for the UK; Erste Allgemeine for Austria; Royale Belge for Belgium; UAP, AGF, Paternelle, Préservatrice and SAFR for France; Generali, RAS, Reale Mutua, INA and Fondiara for Italy; Nationale Nederlanden for the Netherlands; and the Swiss Reinsurance Company for Switzerland. A first report to the assembly of members in 1974 by the Association s first President, Raymond Barre, contained a clear statement of the Association s aims, as follows: The Geneva Association has been founded to make an original contribution to the progress of insurance through objective studies of the interdependence between the economic environment and insurance activities and this on the assumption that: In order to achieve this aim, The Geneva Association shall highlight the role of insurance in the economy and in modern society. For, at a time when the need for security is increasingly acute, it is in the interest of all parties to stand together to face the growing risks of a changing world. The very design of the Geneva Association s logo brings into sharp focus this priority of concentrating both on these interface areas of risk, where insurance meets the risk management problems of its clients in all sectors ( microeconomics ) and the uncertainties of the global economic environment ( macro-economics ). For the last almost 30 years, The Geneva Association has constantly followed these main goals by setting up various types of research activities at these interfaces. At the outset, The Geneva Association had 20 members in 8 European countries. It now has 80 members (the statutory maximum number) in all 6 continents: Europe, North and South America, Asia, Africa and Australia. The members are the Chief Executive Officers of most of the leading insurance companies in the world, who are members in a personal capacity. The General Secretariat consisted in 1973 of the General Secretary and one assistant, while today The 7

6 Geneva Association has 10 employees in Geneva and about a dozen regular research collaborators the world over. Besides it can draw on about experts in various fields connected to insurance and risk management and manages over contacts world-wide through the different networks that have been established over the last three decades. 3. An Overview of the Activities of the Past 30 Years The Geneva Association now has been operating successfully for 30 years and the following overview of activities carried out during this time-span bears testimony to the extraordinary energy of all people involved and the very high resource productivity. From 1973 to 2003, The Geneva Association organized: - 2,340 interviews of at least one hour for our various studies: 1,080 interviews with industrial companies, 510 with universities and research centres, 750 with other financial institutions, insurance companies and risk management organizations; meetings (seminars, colloquia and conferences) for a total of over 9,000 participants; - and 330 universities have been contacted, 180 of which on a continuous basis. From 1973 to 2003, The Geneva Association published: issues of The Geneva Papers (107 issues of The Geneva Papers on Risk and Insurance Issues and Practice and 27 issues of The Geneva Papers on Risk and Insurance Theory); Etudes & Dossiers, our working paper series; newsletters of different kinds; - and was directly involved in the publication of 38 books. From 1973 to 2003, The Geneva Association furthermore: - has provided information to over 10,000 people on insurance economic questions and on the activity of the Association, including those using the Association s library; - has granted or negotiated research work with 189 persons: 65 university researchers, 21 Ernst-Meyer Prizes, 35 scholarships, 13 contributions for publications, 17 small research contracts and negotiated 38 contracts with professional researchers; - saw 585 lectures delivered in the name of The Geneva Association (by its Presidents, the Secretary General and the Heads of the Research Programmes); - has constituted a specialized library on risk, uncertainty and insurance economics in Geneva that is freely accessible to researchers; - and has created its own website, the information hub on the internet for all activities of The Geneva Association; - as well as the website, a repository and information for insurance researchers and academics. 4. Moving into the Future The Geneva Association made important progress during the 4 years ( ) of the Presidency of Mr Walter Kielholz, until recently CEO of Swiss Re and now Chairman of Credit Suisse and Vice Chairman of Swiss Re. The membership structure was reinforced and strengthened outside of Europe, our historic base. Mr Kielholz also supervised in 2000 the transfer in responsibility from the first Secretary General, Professor Orio Giarini, who had built the association during the 27 years of his tenure into the unique entity that it is today, to Patrick M. Liedtke. In the three years that followed, the internal organization of the General Secretariat was overhauled and adapted to the demands placed on a global organization going into the 21 st century. The research mechanisms were strengthened and the outside visibility enhanced. What next? We will certainly continue with our basic mandate in the future. The research programmes will become more refined and tuned to the new and emerging demands of an ever faster developing world, where insurance is increasingly moving centre-stage. We will make an effort to broaden our communication interfaces and to accompany research work a little longer 8

7 along the way into the business and public world. The Geneva Association will escort the extraordinary voyage of insurance into the future by providing research intelligence, opening up new horizons, discussing the role and importance of efficient risk management and insurance solutions (including their limitations!), bridging the gap between researchers in different fields and academia and the insurance professionals. We will continue to help and stimulate other organisations that deal with insurance and risk management issues. The Geneva Association will also continue its broad output of books, studies, articles, and other publications, be it in printed or electronic format. At our recent 30 th General Assembly, the members of The Geneva Association decided to create a Development Working Group, which will analyse in detail the options for our future development. This is a tremendous chance to increase the value that our organization adds to the insurance world and beyond. Under the guidance of our new President, Mr Henri de Castries, Chairman of the Board of Management of the AXA Group, we will tackle these issues. * * * * * The Research Programmes Insurance Economics: Patrick M. Liedtke Theoretical framework for insurance, insurability, public/private etc. Risk Management: Walter R. Stahel Non-fin. RM, nat. cats, risk analysis, prevention & mitigation etc. PROGRES: Knut Hohlfeld Regulation, Supervision and Legal Issues (incl. liability) etc. 4 Pillars: Geneviève Reday-Mulvey Social security, pensions, old-age savings and investments etc. Health and Ageing: Christophe Courbage Health Insurance, Demographics, Biotechnology etc. Insurance and Finance: Gerry Dickinson Fin. RM, Accounting, Solvency, Ratings, ART etc. 9

8 IX. Conferences organised and /or sponsored by The Geneva Association November Paris CFO Insurance Accounting Roundtable, hosted by AXA Group 25 Geneva President s Lecture on the occasion of the 30 th Anniversary of the Geneva Association Zurich Seminar on The Economics of an Ageing Society: The Future of Funded Systems in Europe in co-operation with SwissRe Rüschlikon Dialogue Centre and Fondation Avenir Suisse December 4 Zurich Meeting of The Geneva Association s Communication Advisory Council, hosted by Zurich Financial Services 4-5 Zurich 1 st Chief Communication Officers Meeting, hosted by Zurich Financial Services 9 Paris 3 rd International Conference on Risk and Insurance Economics, co-organised with the FFSA 2004 January 13 New York Joint Industry Forum for P&C Insurance Industry, co-sponsored by The Geneva Association February 6 Amsterdam 6 th Meeting of the Geneva Association s Amsterdam Circle of Chief Economists (ACCE), hosted by ING tba Seoul 4 th Insurance CEO Summit in Asia, co organised with the Asia Insurance Review May Madrid The 31 st General Assembly of The Geneva Association (members only) September Marseille The 31 st Seminar of the European Group of Risk and Insurance Economists (EGRIE) October Trieste 2 nd Conference on Health and Ageing Zurich 2 nd Conference on Liabilities and Legal Developments in Insurance, co-organised with Swiss RE, Munich Re and SCOR tba tba 19 th M.O.R.E. Seminar (Management of Risks in Engineering) November 4-5 Geneva 20 th PROGRES Seminar on Regulation, Supervision and Global Trade Issues tba London Insurance and Finance Conference 10