Tightening regulation of the insurance industry continues to impact companies in terms of corporate governance and operational management and is also opening up further jurisprudence issues for businesses. This is according to presenters in two of the sessions on the final day of the World Insurance Forum which took place at the Fairmont Southampton Hotel last week.

Participants in the Leaders Forum led by Michael Butt, chairman of AXIS Capital Holdings Ltd. acknowledged that good regulation should not necessarily be something for management to fear, and had the benefit of encouraging discipline and accountability among company management.

However, they felt that the objectives behind the increasing regulation the industry now faces needed clearer focus. And Mr. Butt put forward for discussion several concerns from the industry perspective about the direction regulations are taking.

?Prevailing issues include the trend for regulations to be more detailed rather than principle-based, that they will stifle innovation, that regulations are becoming global in scope, and that the costs of compliance are increasing,? he said.

Mr. Butt added that at the political level regulatory issues will likely become even more intense and another concern was that regulators are dramatically increasing sanctions for regulatory breaches.

?Right now is regulation mainly driven by the need to ensure solvency among companies in the industry or is it only a consumer protection activity?? said John Coomber, CEO of Swiss Re Group. ?In my opinion it should be the former.?

He also felt that attempts to implement standardised regulations on a global level reflect how businesses operate today. ?We?re in the business of diversifying risk across products and countries, so regulatory initiatives could follow suit,? he said. ?But there should be some kind of impact assessment on the costs and benefits of regulating on a global level, possibly through an organisation like the International Association of Insurance Supervisors.?

?Regulation is good; it forces us to be very sound in our practices,? said Joe Plumeri, chairman and CEO of Willis Group. ?And if you get your economic model right for your company, you should be in a better position to withstand any ultimate negative impact increased regulation might have on any of your revenue streams.?

Brian O?Hara, CEO of XL Capital, stated that the higher levels of transparency in accounting practices as well as corporate governance policies being demanded by regulators could also become a competitive issue. He stated that unless all players in the industry are complying with the transparency requirements, those who commit to full disclosure and follow through accordingly may be at a competitive disadvantage when releasing information for regulatory purposes.

He also suggested that the influence of the rating agencies is increasingly relevant in this context and that they are de facto regulators. This is because if a company?s ratings go down, market perceptions about everything from its creditworthiness to management competency are affected, which can in turn damage business and shut it down.

The panel brought together for the session covering issues from the perspective of analysts, rating agencies and regulators discussed a similar point, with moderator James Scanlon, partner at PricewaterhouseCoopers, asking who is really running the industry now.

?There?s no question in my mind that management runs the industry,? said Mark Puccia, Managing Director of rating agency Standard & Poors. ?But they have to choose how they want to perceived based on the way they manage their companies. Our job is to try and evaluate good management and to recognise when it is and is not happening.?

Thomas Cholnoky, managing director of Goldman Sachs agreed: ?It?s up to management to decide what they want to offer customers and at what price. The rating agencies and analysts are looking for certain things to be in place, like pricing competency and disciplined risk management policies, disciplined management overall.?

He suggested that bearing this in mind management teams have to make even tougher decisions, for example about walking away from certain types of business even as they try to protect market share. John Baily, former president of Swiss Re Capital Partners said that management in companies are ?under the gun? in the current regulatory climate with the enactment of legislation such as the Sarbanes Oxley Act and he felt that analysts, at least for public companies, have ?greater clout.?

?The role of boards is being re-evaluated; auditors are taking a tougher role than they have in the past and management have more constraints than they have had in the past,? he said. But he felt that some positive developments from the tighter regulatory environment are emerging.

?One of the best emerging practices is audit committees paying specific attention to executive compensation,? he said. ?Boards have not rolled up their sleeves and focused on that. There is not enough transparency yet on executive compensation plans and incentives, people have been focused on the wrong variables.?

Responding to a question from the audience, Thomas Cholnoky suggested that companies who wished to demonstrate sound management and fiscal responsibility should not only ensure they are fully compliant in terms of regulations and disciplined in their management practices. ?They should also give back capital when they have no real way to use it, via, for example, special or increased dividends? said Thomas Cholnoky. ?Companies resist doing that mainly because of rating concerns.?

Mark Puccia added: ?Fundamentally, they should ensure they have the right tool set or systems in place to help them understand market cycles and recognise negative trends early, in order to manage and protect their business.?