In his home city of Dublin, Lukas Ziewer – MetLife’s chief risk officer for Europe, the Middle East and Africa – discusses Solvency II, risk culture and governance with Asa Gibson

Preparing for Solvency II has been a massive project for many firms, not least MetLife Europe, which undertook a major restructuring of its operations in anticipation of the EU directive coming into force.In this interview with InsuranceERM, Lukas Ziewer, who joined the firm as regional chief risk officer (CRO) in November 2013, explains the efficiencies that restructuring created and how the role of the CRO has change dramatically now Solvency II is in effect.

He also discusses the emerging issues with new regime – volatility of the balance sheet and expectations around capital surplus – and how governance and risk culture is treated at MetLife.

How did you land in your current role at MetLife?

I was a consulting partner for many years, where I worked with the big European insurance groups and their CROs on a range of topics including capital management, economic capital measurement, limit systems, but also the related governance aspects and organizational design. At a point in my own career, I decided that I wanted to ‘get my hands dirty’ so to speak, and run my own risk function and this was a great opportunity.

MetLife did a lot of restructuring of its EU entities ahead of Solvency II, turning its subsidiaries into EU branches. I suppose that has all finished now?

We have now completed what we set out to do a couple of years ago. The business portfolio that MetLife acquired as part of the Alico acquisition gave us a very good footprint in important markets across the European Union. Some are relatively small markets or hold niche positions in bigger markets. So the gains in efficiencies – operational efficiencies, capital efficiencies and also governance efficiencies – can be dramatic if we have one company doing business across all our countries, rather than having more than 10 subsidiaries.

“Many CROs were defined by their role in getting ready for Solvency II”

Presumably you’ve had your eye on life after Solvency II implementation; what projects are you working on now?

We believe the branch structure also allows us to be quicker and more efficient at managing change, and addressing the business opportunities across markets. While the cost aspects are important, I think it’s more about speed and responsiveness to market developments in getting products and services out there. This can be the most valuable benefit from the unique structure we have built.

Do you think the nature of a CRO’s day-to-day job has or will change significantly in the Solvency II era?

Many CROs were defined by their role in getting ready for Solvency II. That work alone took up two-thirds of our time, but has now reduced dramatically. In a sense, Solvency II has fundamentally changed our role because we have taken tools that have been used to manage risk, and brought them to the board and to the regulatory capital environment. The ORSA [own risk and solvency assessment] is a great tool, for example, as it is a key instrument for the risk function to work with the organisation to manage capital efficiency, and to decide where to deploy capital, what stress scenarios could be, and how to respond.

Is there anything about Solvency II that you would like to see changed?

Solvency II is the result of a lot of good work and we had the opportunity to stress test the new system during a real crisis. There are issues, for example, with the volatility of the balance sheet in particular for business with long-dated guarantees, and I think that this is something that Eiopa [the European Insurance and Occupational Pensions Authority] will continue to work on.

“I don’t think there is a lot of tolerance to hitting a 100% SCR”

Another risk is that the industry is forced to build buffers on buffers of capital. At least in the early days when Solvency II was being designed, the ratio of own funds and solvency capital requirement was seen as an indicator: if the ratio falls below 100%, management needs to take steps that get it back to above 100% but has some flexibility what steps it takes and how quickly, to avoid damaging the business. Instead, I feel this sense of flexibility is more and more lost, and I don’t think at the moment there is a lot of tolerance to hitting that 100%.

Are you doing anything to prepare for the public disclosure of Solvency II data in 2017?

We are in the early stages of developing our approach. The experience from banking, where ‘pillar 3’ is a well-established feature, shows that companies need to have a clear understanding of their audience to ensure that the right information is published.

How is your risk team structured?

I report to the head of regional risk management in the US; my risk function in Europe includes a central team that focuses on financial risk, and on most of the Solvency II work such as the ORSA and stress testing. Another group in my function is close to the businesses and focuses in particular on operational risk. They work as an integrated team, but sit in the different countries with the business.

Do you have a seat on the board, and if not, do you think you should have one?

Within our regional structure in EMEA, I am a director of a number of relevant entities and a member of our regional executive leadership team. Solvency II is very specific that the board takes ownership of the risk profile, and therefore it makes a lot of sense for the CRO to report to the board and be a conduit of information which enables the board to effectively challenge executive management.

I think the CRO needs to be a strong independent voice to the board, combined with a close, transparent relationship with the CEO, which is the way we have chosen to operate here at MetLife.

The biggest risk to the industry is the inability to remain relevant

Are you planning investments in any risk-related technology e.g. capital/risk modelling? Risk reporting systems or data analysis?

We’ve built new tools and sourced vendor tools for certain risk analytics, particularly in the investment and market risk side. We are now well equipped with what we need to analyse our risks appropriately. Further build out will be at the fringes, for instance, where we want to better ensure data quality across a broad spectrum. This is where we are more likely to look for solutions, so it’s more about integrating information rather than deep-dive analytics. But that’s because we have done the investments early on.

Is risk culture a big concern for you? How are you measuring it, and how do you go about promoting a good risk culture?

It means a great deal and is absolutely central to how MetLife operates. We invest in training so that all our colleagues have a strong understanding of their responsibilities in identifying, reporting and managing risk. Good risk culture is where it is second nature to use a clear and robust risk process to think about opportunities and make decisions.

In my work I see executives from a wide range of functions and businesses, with different styles, types of interaction, and different behaviours. You can make someone attend the risk committee, but what if they interact mostly with their emails on their mobile device? When we discuss risk issues in the executive team, there can be challenge, and even disagreement, but everyone is engaged.

What do you think are the greatest risks to the insurance industry?

I think the biggest risk to the industry is the inability to remain relevant. The industry – and this criticism has been around for a long time – has defined itself very much around traditional products and the legal content of the policy: ‘if this event happens then we give you this amount of money’. As an industry, we have to work to continue to be relevant to our customers and meet their ever-evolving needs both in terms of product and distribution. This customer focus is fundamental to MetLife’s strategy.

What do you enjoy doing outside of work?

I truly enjoy my work so I almost call this a hobby as well. Many people come with a mathematical background, including myself, and a keen interest in modelling and understanding relationships, maybe quantifying them and proving theories. The CRO role is one of those very few roles where you can use your maths, deal with people, build something and succeed within big organisations. I think the role is an ideal way of combining a wide range of interests.

I also have passions outside work! I love playing golf, and since my family moved to Ireland many years ago, I have become very attached to some of the most beautiful links courses.