Changing with the times
Against a backdrop of capital entering the industry more easily than it has ever done, does this mean XL needs to be more nimble in the way it allocates capital between jurisdictions and businesses?
The inflow of capital from new sources and the additional capital from continued profitability of Bermuda re/insurers over the past several years has certainly created an increasingly competitive environment. Re/insurers are challenged with allocating capital to lines of business and products which provide adequate returns for shareholders.
This may lead to re/insurers facing pressure to enter new lines of business in new territories around the world to utilise excess capital. Re/insurers are also challenged to find new business opportunities through product innovation to better serve our clients.
XL has been a long-time user of risk transfer structures such as sidecars. What challenges do these present in terms of capital management?
We have had relationships with alternative capital providers for over a decade. We constantly need to balance bringing capacity to our clients with maintaining adequate returns for our shareholders. Partnering with alternative capital providers, and their lower cost of capital, is an opportunity to provide our clients with capacity at a competitive price.
In terms of capital management, we continue to explore how we can most effectively utilise alternative capital for the risks in which our alternative capital providers have the most interest, and allocate our own capital to opportunities in other lines of business.
With so many regulatory requirements emerging at global and national levels, sometimes designed along conflicting lines, what challenges do these present you as a CFO in terms of ensuring XL remains compliant in every part of the world it operates?
As a global reinsurer with offices located in 13 countries around the world, it is certainly challenging to keep pace with the rapidly changing regulatory environment in the jurisdictions in which we operate. That being said, we understand the importance of regulatory compliance and the protections they provide to our clients. Therefore, we remain active in working with our local regulators to ensure that they understand how we operate our businesses, manage our risks and manage our capital.
It is also important that we actively participate in the discussions regarding new or proposed regulation which will govern our business in the future. The goal here would be to ensure that any proposed regulation is in the best interest of the industry and the clients we serve.
What are the other challenges facing you or, more generally, other reinsurance CFOs in the industry at the moment?
More than ever before, CFOs need to be trusted business partners with their CEOs and business heads. We need to actively participate in the pursuit of new business opportunities, be advocates of innovative thinking and also ensure that we are organised and operating in the most cost-efficient manner.
I believe that the market challenges we are facing today place us as CFOs in a unique position to create value for our companies’ clients and shareholders.