The Federal Advisory Committee on Insurance (FACI) met Monday in Washington with Federal Insurance Office director Michael McRaith to discuss several topics following up on an earlier meeting of the group in March. (Check out our earlier article for a primer on the committee, which was prescribed by the Dodd-Frank bill to advise FIO).
Chief among these items on the agenda was the "internationalization" of insurance. Mike Pritula of McKinsey and Co. presented an international view of the P&C and life insurance markets. Most of the current and projected revenue growth in insurance will come from Asian and Latin American countries, he said. This makes multinational insurance giants increasingly important players.
He added that for the largest European insurers, 65% of their revenues come from outside their home country — only 12% for American companies.
This prompted a skeptical response from Brian Duperreault, president and CEO of Marsh & McLennan Companies, who leads the advisory committee. Duperreault supposed that because European companies do so much business in their closely neighboring countries that it stands to reason that they would have such a high percentage of "international" business.
But even if you took that into account, the amount of international business "would probably be about 20%," Pritula said. "There's still more outside their region on average than American or Asian insurers."
McRaith then asked why it is assumed that growth in those markets would mean more opportunities for offshore companies: "You get to a percentage of foreign ownership in these markets that I'm not sure is sustainable," he said.
Duperreault agreed, noting that like American insurers, Chinese insurers' revenue streams are heavily domestic: "They'll be so engorged with the volumes they're getting domestically they won't think about international expansion. I think there will be a whole bunch of Chinese companies drive their way into the top 40" insurance companies. (McRaith also pointed out this little tidbit: There are 100,000 new drivers each day in Beijing.)
But regardless, Pritula said, the point is that insurance growth is going to take place largely in these emerging economies. All you have to do is look at the M&A numbers, he says: 80% of M&A activity comes from large international companies making buys, both to move into new markets and consolidate their presences at home. McKinsey looked at the top 50 P&C deals from 2004 to 2009.
"Interest in doing deals is falling to companies with cross-border operations," he said. "About 40% of that is outside the home country as well."
Other items of note at the meeting included:
- The international regulatory scene. Pritula contended that even though America's marketshare in global insurance is falling, "today is when the U.S.'s voice is strongest in regulatory matters, so doing more sooner is probably best from an FIO perspective." McRaith also chimed in with a tidbit on Solvency II requirements: "The timeframe for Solvency II may or may not be delayed, but the substance of it is largely in place." Mcraith is keeping an eye on COMFRAME, a project of the International Association of Insurance Supervisors to come up with a framework for regulation.
- The domestic regulatory scene. Because the insurance industry traditionally has been regulated at the state level, the FIO has been viewed somewhat skeptically since its announcement. McRaith, as he has many times in the past, reiterated his commitment to working with state regulators to reach a consensus, even as insurance regulation increasingly goes international: "We need to step away from the false dichotomy of state vs. federal and do what's best for our country. In regard to what's best for the E.U./U.S. dialog, it's been a tremendous cooperative success thus far and we will continue our work on a daily basis."
- Access to insurance. This subcommittee to the FACI is chaired by District of Columbia insurance commissioner William White. While still in the early phases, White said the committee had settled on a definition of the issue at hand: "The central personal and commercial insurance products can be obtained in the marketplace can be obtained by those who need the products at a reasonable percentage of income."