15th International Conference - Fireside chat with Thierry Léger

First of all, good morning everyone also from my side. It's a pleasure to be here and I wanted to thank Insurance Europe to give reinsurance the stage first. I think that in the room everyone understands that reinsurance is one wheel in the bigger machinery of insurance and like every other wheel of this machinery it needs to be well-oiled and I will not repeat what Frederick has laid out for the whole industry overall to make sure all these wheels are well-oiled and play well together to make insurance something really relevant and working well. I think there's one thing that people forget and I wanted to bring this to the attention of everyone in Europe. Reinsurance, European reinsurers today are a global champion. We hold about half of the world market share. So European reinsurers have about half of the worldwide market share which is a very prominent position. So I would like to just use one minute to say that this is something that has been reducing over the last 20 years and it will probably continue to reduce in the next years. It's nobody's fault really. There is some normal competitiveness at play here. But I think you should never forget that this is a global champion. It's going to grow in the next 10 to 20 years well above GDP. So as Europe is talking about growth, that is a growth industry. We are a world champion and I think that there should be particular attention given to the European reinsurers. It's a relevant industry. Now turning to SCOR and to your question. For me when I took the helm of SCOR I was looking at the company and I felt it's a relatively static company after 20 years of interest rates coming slowly down and of relatively benign environment. I do remember 15 years ago a big French insurer came to speak to some reinsurers. The CEO of that company came to talk to us and was more thinking about will reinsurance be relevant still in 10 years right so that was a bit the mood. I think today reinsurance is fully back but you cannot be static in an environment that Frederick described already as volatile uncertain right so what I did was everything around this putting the company moving the company from static to dynamic so people organization leader organization more delegated empowerment clear accountability so the organization streamlining but also more dynamic capital allocation in the group ALM improvement treasury all of this the usual but I think it's a very strong move that we have made in the last two years from static to I would say relatively dynamic we still have two years to go but I'm very positive on the change that we have started.

Yeah. So some of what I will say it does not apply only to reinsurance. Some of it is also relevant for insurance but I think as a whole the environment we are in and I think the environment we are facing in the next 10 to 20 years more uncertainty more volatility I mean climate change digitization all the geopolitics around us I mean clearly risks are on the rise that's a trend it's like a tidal wave going up. So I think demand for reinsurance is clearly up. I think as an industry insurance and reinsurance we are perfectly equipped for such an environment. We understand risk is our business. So we understand risks. We're used to facing new risks and trying to put the price on a risk finding ways to absorb that risk through diversification on our balance sheet. That's the basic nature of our business. So you're not afraid of an environment that is more risky. It's an environment we actually quite like because it makes our job and our company even more our industry even more relevant. So I think that reinsurance and insurance must be in these uncertain times actually the safe haven or the rock in the stormy sea and I think we are perfectly placed for that positioning as really an industry that supports resilience.

Yeah, that's a good I think it's a very relevant question and Frederick mentioned the whole cyber space. So I definitely think that we are only at the beginning of that whole digitization with AI. There's even more new type of risks and needs for cover coming our way. So we will be challenged to find the right solutions to it. But then have we really seen the cyber cat events yet? No. Definitely not. We haven't seen the Tokyo earthquake in cyber yet. It's going to happen. It's only a question of time and so we will learn as we go. Frederick said there's always an unknown and I totally agree with that cyber has a lot of unknowns because we are at the beginning of that journey. But we have to lean in as an industry. We have to show leadership. We have to show particularly as reinsurers we have to show appetite to cover the risk right which means we take risks more unknown risks in cyber but I wanted to mention another thing and I think it's underestimated by the whole industry I think that diversification is everything isn't it in our industry particularly in reinsurance all we can offer is actually diversification right that allows us to offer much more efficient products and capacity to our clients. Now diversification is basically decorrelation between risks. So there's no correlation should not be between nat cat and mortality trend for example. So these are decorrelated risks. So generally we have been in a world of relatively clear static decorrelation. I think however that over the last years not the least with international globalization but also with digitization there is a form of recorrelation happening that is happening in a very subtle way and it's something to watch for our industry. So it's not dramatic. It's going to come a little bit like climate change step by step. But this recorrelation is a dangerous one and will be very challenging to see so we can look back but it's only going to be a partial answer to the future in this regard. So correlation decorrelation is an unknown for me in going forward that we have to watch as an industry.

No, no, very happy to. So I think that in Europe the path we have engaged on already for decades is one of economic regulation. I think it's very good and I think we have to keep going on that path of a risk based economic regulation. I think anything uneconomic like floors you know non-economic floors should be avoided in my view because it doesn't fit the purpose and the model. But I'm fully supportive of an economic framework. I think it's never going to be perfect. We will have to adapt it and that's what we do with the Solvency II review. We can debate it. Is it going too far? Not enough and all of this. I get it. But it remains an economic framework and it's true when I look globally that a lot of the world's biggest countries move to economic frameworks. So that's good because it kind of more or less naturally aligns the playing fields. Now there are countries not the least one the largest one that in terms of insurance market that is non-economic as a regulatory framework and it does lead to distortion in competition that are very large now in a lot of the risks I think thanks to internal models and the way we have framed Solvency II it's okay we can compete. So we don't blame regulation if we lose market share. I blame my team right and not regulation. However on assets guarantees a regulatory framework that is economic will be very punitive for any asset related guarantees. If you are in a non-economic environment, you can just take as much as you want, right? Put whatever assets you want behind it and it will make you massively more competitive. So that's an area I think Europe has been waking up to over the last 12 months. And I've been warning Europe already for a while that if you compete in this asset-rich asset intensive with guarantees environment a non-economic framework will take over the other one. Right? So we need to put some barriers there I guess to prevent all the assets to leave Europe because if we want assets to stay here to be invested in Europe we have to watch that space. I don't want to be too alarmist generally I'm not but on this one I am a bit alarmed.

Yeah. So, you will be maybe surprised, but I'm quite satisfied with the regulations. You know, we've been very strong supporters of a regulator an economic scheme like Solvency II. So we really welcome Solvency II. We did welcome it before. We think it needs continuous work and that's what we see happening. So our message is make sure it stays economic. Don't introduce non-economic barriers that could actually really have an impact on our competitiveness and particularly reinsurers right they live off diversification that's only possible if risks everything can go on one central balance sheet where it then needs to be diversifying in an ideal way and so for this we need access to these markets right so you have to help us as much as you can to keep global access to all the markets so that we can bring the risks to our global or local to our main balance sheet and then keep the internal model for reinsurers alive in an economic way as they are today. These two ingredients are today given I can't see much risk on the internal model but in terms of trade barriers worldwide they're going up and that is it's not a risk but that is certainly reducing the efficiency of reinsurance but I'm not particularly worried at this point in time.

Yeah. So I'll it will probably be a bit more provocative than Frederick on this one. So you know the way I see it is natural catastrophes are with us for hundreds of years. Reinsurance exists since you know more than 150 years. It's an industry that has been going through wars and multiple huge earthquakes and devastating natural catastrophes. We have worked on our models for decades, refined them. We have balance sheets today that are again economically permanently optimized to make sure that diversification is maximized to be able to not only cover all of the risks that arise but also to put the most competitive price on it. And we do this under utmost competitive conditions, right? For decades. Okay. And here is Europe now wanting to create a monoline, totally undiversified with no history. Putting a price I don't know how in a non-competitive environment probably pretending that this could be more efficient than the reinsurance industry. Now all I want to say is I would really caution Europe to do this because we can see in the world similar undertakings that have failed multiple times always for the same reason. So if you think that because you don't like climate change and impact on prices for homeowners, I understand nobody likes that. But it's nobody's fault, right? Climate change is a fact and prices as a result will go up. So if you think naively that state-owned regional monoline is the answer to it it will fail. It will fail and here I will even allow something more today the industry the regulators everyone can blame the reinsurers for the prices to go up. If that reinsurer becomes state-owned, politically owned, they can't even blame anyone else, right? They have to blame themselves. So, you cannot hide. I'm just telling everyone, you cannot hide. We have an industry today and the European reinsurers are world champions in this. It's highly efficient. I'm in this industry for more than a quarter of a decade. It's highly efficient. You cannot compete against it. And I will tell you one more. We have plenty of capacity. Plenty of capacity for European risks. There's absolutely whatever you hear, there's absolutely no shortage of capacity for European risk. We would love to write more in Europe, it's not an issue. Frederick talked about prevention. I think that's the key, right, to insurability because if a house today is being flooded once, twice a year, that is not a risk anymore. It's uninsurable. So it needs prevention. We need to figure out and this is where the effort in my view should be from the states is how can we ensure that these houses become insurable again but that's not by creating a monoline in cat. It's not going to solve it. So the message is that Europe should stop thinking about doing your job and let you do it really well. Let the market that's a fair way to say let the market do the competition and then focus on doing the state prevention work and improving the houses the building codes the ways of addressing these risks so we need there's an example in Switzerland maybe some have heard this little village in the mountains and it became clear to the authorities that the mountain would come down and will cover the village so what do you do, right? I mean, what do you do that you know it's going to come down? Of course, you don't let the people there, right? So, you remove them and now what had to happen happened. The whole village has disappeared. And people are safe. The village is destroyed. But that's natural catastrophes. You cannot avoid it, right? So, you have to face reality that floodplains become more and more flooded. The answer has to be a different one, right? To the past. You have to find different ways tomorrow. It takes a significant amount of courage for a politician to look at his electorate or her electorate and say, 'I know you like your village. I know you've lived here for generations. We're going to move you, but it's for your own good. Please vote for me again.' Yeah, I agree. But, you know, we all have our jobs, isn't it? Ah, yes.

Yeah. So, I think that given the changing risk landscape, insurance, reinsurance is forced to innovate constantly because there are new risks emerging. We have to find new solutions. I mean, electric vehicles didn't exist 15 years ago. Now, they exist. So, we have to find a way to ensure these. We know that the risk profile is different. Needs are different. So that's the way for us to innovate. So I think it's an industry that innovates. By the way, I don't blame regulation for it. But I will say that because it is a regulated environment, it does set the entry barriers a bit higher and in my view leads to a little bit of complacency across the insurance reinsurance industry because it's not that easy to replace it. So we have seen a lot of attempts with new startup startups but actually it's not more than needle sticks to an elephant right it didn't really have an impact and ultimately they're getting bought by incumbents so I do believe that the devil is more inside and it's more called complacency it's an industry that has been faring relatively well and it's not the burning platform to innovate it is just less in our industry. So I think the only way to really create more profound innovation is to kind of shake it up a bit. But again from outside in it's going to be difficult because of regulation. I'm not blaming regulation where it exists and it has to but yeah it makes it harder for newcomers to come in and revolutionize the model. So you're calling for the industry to step up on innovation. Yeah, I think we should step up. I think AI is a great opportunity to prove that we can do more profound changes. I think that AI enables an industry and I won't repeat what Frederick said, an industry that is all about data, isn't it? I mean just particularly reinsurance is all about data. It's all about experts. We have thousands of people from the best universities in the world. They're all scientifically trained in mathematics in actuarial science or anything else right so these are all people that will embrace AI very positively we will put it at work on operations we will put it at work on underwriting for example I think that the underwriter of today already but definitely tomorrow will be one augmented by AI I think that soon people will not read a contract anymore that will be done by the machine compared and you know I think also that part of the pricing will be done automatically helped and supported it doesn't need always AI understand me well but AI can add to this process I had a project that was leading years ago it cost about 15 million each year and it was all about something we wanted to solve a problem on the contractual side and after about four or five years spending at least 50 million we got to an okay point. Now the same attempt started three months ago with the help of AI and in like one or two months we got further than in five years before. So that just shows the power of AI and I think it's going to be not so visible to the world but it's going to allow for more efficiency better even you know we will be able to remove the boundaries of insurability and all of this. I think it's going to really help the industry to get more efficient and ensure insurability.

Yeah, it's you know when you I speak mainly for the reinsurance industry because that's the industry I know the best, but it's fair to say that you very rarely meet the person and then you ask why did you join reinsurance? Did you kind of was that your dream as a boy, right? So I can tell as a boy you had the usual dreams of pilot. Yeah. I know my family says I wanted to become a bank director. I have no idea why. I think you got better. I think you got better. Yeah. I don't know where they get this from, but anyway, but you can see I got to know reinsurance by complete coincidence. But once you're in and you work on incredibly relevant topics, you work with global teams, global experts fully collaboratively you work with great clients. I mean all these insurance companies and you have challenges all the time again. I mean it's such an amazing environment so dynamic and intellectually stimulating but also I think you create friendships across the world. It's super exciting. I have no worries for the reinsurance industry in terms of talent attraction also when I see just the interest coming in our way it's really very positive and I think it will go from strong to even stronger in the years to come as resilience becomes more of a purpose to people and you know resilience is the purpose of the reinsurance industry it's what we do. So, as resilience becomes hip, we will become hip.

Yeah, I think that we are clearly in a world of volatility and uncertainty. So I think what is important for companies is that you delegate power, you delegate decision making you empower people and you make them however also accountable. I think that's important. So you cannot keep everything central. You need to delegate, right? But you cannot delegate blindly, right? And you have to tell people, but you are not just you don't just have this power, you are also accountable for what you're doing. So if you think as a leader in this environment, you know it all, then I guarantee you you're wrong. Right? So as a leader, you have to rely on your people. So you have to instill trust in everyone. People must feel that trust, that empowerment. They also must feel that yes, sometimes things go wrong. But the next time we try it, we will avoid the same mistake. I do believe so trust, delegation, empowerment, accountability, these are the big themes today. But there's one thing that is particularly close to my heart is all about resilience. So reinsurance is all about offering resilience. I think it starts with making sure our employees have that same resilience because I do believe that when you live in a world that is so uncertain that the workplace should be able to provide some of the resilience that today geopolitics don't give. So we spend quite a bit of time around things like caring for example in companies we are not an NGO but it becomes a theme that is important.