The rise and rise of the insurance CFO

The rise and rise of the insurance CFO

Do you remember when the term chief financial officer was just another name for finance director, or for treasurer? When insurance and reinsurance company CFOs used to be backroom people, the ones that signed the cheques and watched over cash flow: the steady Eddies.

Not anymore. The role of the insurance and reinsurance company CFO has taken on a wider, more dynamic, strategic role.

I know this because I have been speaking to some of the industry’s top company CFOs for the launch issue of Reactions’ CFO Risk Forum. Coming after editing several editions of CEO Risk Forum and its partner publication CRO Risk Forum, taking a look into the world of CFOs just seemed like a natural progression (you can download the latest issues of the CEO Risk Forum and CRO Risk Forum by visiting here).

In fact it was quite a revelation to discover just how influential CFOs have become in their organisations. To illustrate the point, here are some excerpts from the opinion editorials and interviews that will be collected in the CFO Risk Forum, to be published in September.

Peter Porrino has been CFO at XL Group for a year. He believes that top financial managers need to play vital roles in the development and execution of corporate strategy in the current environment. 

“CFOs must help our businesses manage through a difficult pricing environment, historically high catastrophe levels, new regulatory regimes, such as Solvency II, miniscule interest rates that have historically driven the bulk of earnings and equity markets that are currently valuing many companies at steep discounts to book value,” he writes. 

“P&C industry CFOs must assist in making critical corporate decisions on strategy, capital allocation, investments and resource prioritization. The successful CFO must be able to pull the right levers within the company to accomplish these goals,” Porrino says. 

But he goes on to define these levers in two ways: the “hard” levers, which cover many of the traditional responsibilities of a CFO, and the “soft” levers, which are less tangible. Surprisingly these soft levers include helping foster client relationships and also developing talent and culture in the company.

“The time when a CFO could spend his or her days focused on spreadsheets and hard financial metrics and ratios is long gone. He or she now looks at their role in a much broader way,” he concludes.

He’s not the only CFO to see things differently.

Over time, the CFO has increasingly taken on a strategic advisory role, advising the CEO on how the financial performance of the business can be improved, according to Hermann Pohlchristoph, reinsurance CFO at Munich Re. In addition, clearly, risk management has become a bigger part of the CFO’s day-to-day responsibilities, he says.

But the biggest change has been in the CFO’s involvement in strategic decision making, Pohlchristoph believes. “This casts the CFO as a ‘challenger’ of the CEO and the board over the financial aspects of the strategy. Where the board is more focused on business opportunities for example, I see the CFO has an important role to play in identifying the financial aspects and risks,” he says.

Discussing the expanding and increasingly complex role of the CFO across asset management and corporate finance, Hannover Re CFO Roland Vogel says that even the larger reinsurance transactions end up on his desk so as to ensure that there is no conflict with the various solvency, governance or accounting regimes.

“What is more, 20 years ago equity analysts and investor relations activities had far less influence on reinsurers. Now we are scrutinized by the analysts on a quarterly basis,” he says. “This development is of course helpful in some ways because tough questions force you to find good answers!”

Luke Savage, director of finance, risk management and operations at Lloyd’s, perhaps has a unique perspective on the evolution of the CFO: he works in a market that is home to a wide cross section of companies and cultures. Savage thinks that natural catastrophes – in particular 9/11 and then hurricanes Katrina, Rita and Wilma – put the allocation of risk-based capital firmly at the centre of CFO job descriptions.

A revolution in regulation partly as a result of the financial crisis, and the continuing uncertainty in the financial markets continued the shaping of the CFO. “Investment income and rates have both flatlined, and the previous management style of many CFOs (arguably summed up as tagging along with the enduring optimism of the typical underwriter) has evolved accordingly,” Savage notes in his candid op-ed.

Oliver Bäte, CFO of Allianz and head of the European CFO Forum, agrees that the insurance industry’s environment has changed dramatically since 2007/2008. “For instance, we're looking at extremely low – and now sometimes even negative – interest rates, incredibly volatile credit spreads and rating downgrades of several notches on what feels like a daily basis. That's just on the financial market side,” he says.

“It's an environment that changes dramatically every other day. When the financial turmoil started, it was labeled a crisis, but after a number of years we're calling it the New Normal. So it's become a way of life now. Assessing and managing risks and protecting the capital base has always been the core business of insurers, but it’s become a lot tougher over the last few years.”

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