The Pan American Surety Association (Pasa), a 104-member organisation of companies operating in surety and credit insurance and reinsurance based in Sao Paulo, Brazil, has held its 17th international seminar in the Dominican Republic.
The annual meeting had a record turnout of 218 delegates from 115 companies and kindred institutions in 32 countries.
Client loyalty, underwriting skills and capital issues, the three main topics picked by members in a recent survey, were focused on in the opening speech. The academic programme included a combination of conferences, panels and round tables focusing on some of the main issues facing the industry today.
A panel on “Surety business in a global environment: surety as a complementary product to banking “addressed whether banks and sureties can cooperate and under which conditions.
It was noted that demands from the regulatory authorities and the capital markets might open up new opportunities for cooperation. In particular, banks might be interested in setting up partnerships with sureties to lower their capital allocation cost and/or achieve a better risk diversification in their portfolios.
“In both cases, the arrangement could prove to be mutually beneficial,” says Peter Schmidt, Pasa’s president.
Surety bonds exist in a myriad of forms: there are various types of cover and even the “same “type of cover may have differing scopes and characteristics in different countries. Uniform underwriting criteria and methods, however, can be applied in all cases. The panel on “Underwriting governance in surety “focused on best practices regarding internal mechanisms to ensure underwriting quality and transparency, as well as profitability and permanence of the product in the market.
A session on “Regulatory environment in the surety and credit business “revealed that regulatory regimes worldwide are rapidly developing towards a realistic, market-consistent risk-based solvency framework. Such regimes will lead to internal models for calculating solvency capital and provide an incentive for risk management in each company’s underwriting process.
Accordingly, an agreement on industry-wide standards for economic valuation and risk measurement will have to be developed, it was said.
“The industry needs to ensure that capital allocation takes into account the specific nature of the underlying business and gives benefits of diversification within and beyond single lines of business,” says Schmidt. “Finally, the new capital standards should give full credit for reinsurance risk transfer and other risk mitigation techniques.”
A progress report on “The PML (probable maximum loss) study “was also provided. This study, initially focused on trade credit insurance and supported by a large number of insurance and reinsurance companies, aims at helping “the outside world “(ie, rating agencies, regulators and others) to understand the industry’s risk management capability and, overall, assist in setting realistic capital allocation requirements.
“All of which is crucial to the future of the surety and credit industry,” Schmidt ponders.
In a session on “Credit and crime: fraudulent bankruptcies and early warning signals ‘, a set of early warning signals were presented on the basis of which large-scale accounting frauds can be recognised in an early stage. By reviewing the accepted book of risk according to these criteria, credit insurers have the chance to implement an additional and valuable risk management instrument.
Furthermore, a series of workshops allowed participants to hone their underwriting skills by working on real life cases under the guidance of experts. Participants were also invited to join Pasa’s working committees at their annual meeting to discuss their current and future research projects.
The accompanying social programme was especially organised by the local companies Seguros Banreservas and Seguros Popular C por A to provide participants with an environment intended to stimulate networking and the exchange of ideas while enjoying a unique perspective of the host country, the Dominican Republic.
Debates within Pasa are not limited to its meetings. Members are in contact throughout the year via an electronic bulletin board and working committees. The latter is engaged in a series of projects of major relevance for the industry as a whole. A good example of this is the PML study, which Pasa’s credit committee spearheaded. The final results of this study will help rating agencies and other institutions to understand the risk management capability of the industry and assist in setting realistic capital allocation requirements.