Expert fears capacity loss following mergers & acquisition

Newly elected Ferma board member Dirk Wegener fears that the current spate of mergers and acquisitions (M&As) in the insurance industry may reduce the capacity available for big European corporates.

In an interview with Commercial Risk Europe Wegener also discussed his new role at Ferma and how he can contribute to discussions on multinational programme compliance, the treatment of captives under Solvency II and raising the profile of insurance.

There is currently an abundance of insurance capacity available in the long running soft market. Some observers are however concerned about the impact of recent M&As on capacity.

After years of little activity recent months have seen XL take over Catlin, Tokio Marine buy HCC Insurance, a likely merger between Endurance and Montpelier Re and Axis Capital in merger talks with Partner Re. Then, last week, ACE announced plans to buy Chubb.

“There may be a lack of capacity looming,” Wegener told CRE. “The question remains as to whether the new entities continue to offer the same capacity as the individual insurers in total were willing to provide for individual risks before the merger,” he said.

Wegener, who is Deutsche Bank’s global head of corporate insurance, is pleased to have joined Ferma’s board.

“Ferma is a very important association,” he said. “Needless to say, most regulation and law initiatives that impact risk managers originate at EU level. Thus it is important to have a voice there speaking for risk and insurance managers.”

Wegener believes he will be able to contribute to Ferma’s board and hopes he can bring his experience to bear.

Before joining Deutsche Bank Wegener managed the corporate insurance function of car manufacturer Daimler and headed its captive’s supervisory board. “I have enjoyed working in two different industries,” he said. “I hope I can share this experience with my colleagues on the Ferma board.”

Wegener is also a board member of German in-house broker association BfV and is a committee member at DVS, the German risk managers’ association. He said that DVS head Alexander Mahnke and BfV boss Hans Jörg Schill encouraged him to take on the new role at Ferma. He hopes his colleagues in Germany will benefit from his new position.

“Communicating Ferma initiatives to my German colleagues and seeking their support is part of my role,” he said.

Wegener sees international programme compliance as a big issue facing risk and insurance managers. He hopes to contribute to solutions in his role on the Ferma board.

“There is always the threat of being non-compliant,” Wegener said. “I would be happy to support the current discussion on behalf of Ferma.”

Insurer Zurich started discussions with risk managers, brokers and other market players to tackle the thorny topic of international programme compliance earlier this year. Wegener said Ferma will discuss the issue internally and decide how it can support the initiative.

Another key topic for Wegener is the low esteem in which insurance is held within many companies.

“Large European companies see that their balance sheet is larger than that of their insurers and that their profit margin is high enough to absorb losses…So they ask themselves why they should buy insurance,” he explained.

Mr Wegener believes this view is short sighted. You cannot only focus on the cost of insurance and claims when determining the value of industrial insurance, he said.

“We have to find another way to assess the value of insurance,” he said. Some companies have developed formulas to accurately calculate its value, viewing it as a potential replacement for capital. “However, we lack an overall mechanism or evaluation method to assess the value of insurance,” said Mr Wegener.

Mr Wegener, who is chairman of Deutsche Bank’s captive supervisory board, is also concerned by the impact of Solvency II on captives. “There has been a lot of progress on this issue,” he said. “However, there is still a lack of clear guidance as to what Solvency II really means for captives.”

Although the principle of proportionality will apply, it is not yet clear how. “It is too early to say,” said Mr Wegener. “We have not reached the stage where we have a 100 per cent picture as to what will be