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Bjorn Wolrath's career has come full circle.

After 16 years as CEO of Stockholm, Sweden-based Skandia Insurance Co. Ltd. -- he retired in December 1996 -- the 54-year old Mr. Wolrath is going back to school.

The Swedish government has appointed him as a member of the board of the University of Stockholm. Not only is this Mr. Wolrath's alma mater but also was his first employer after graduating in 1968. He was assistant to the Stockholm University president for two years, joining Skandia in 1970.

Through his new consulting company, Momentum A.B., located just a block away from his old Skandia offices, Mr. Wolrath will pursue a long-standing personal ambition of promoting greater linkages between academic institutions and industry. As partners, the two should work together to address new needs in education and social welfare, which governments no longer can afford to fund, he says.

Skandia and its Norwegian subsidiary, Vesta Insurance Co. Ltd., will be in the forefront of this drive, he hopes.

Meanwhile, Mr. Wolrath continues to represent Skandia within the Swedish Insurance Federation, and has been elected chairman of the Swedish Insurance Society.

Skandia provides insurance and financial services throughout Scandinavia and approximately 26 countries worldwide, with more than half of its total employees outside Sweden.

In addition to its operations in Sweden, Norway and Denmark, Skandia has a cooperation agreement with and minority shareholding in Finland's Pohjola Insurance Co. Ltd.

Skandia in September sold most of its reinsurance operations worldwide to Hannover Re, focusing its core operations on life insurance, pensions and annuities and direct non-life insurance.

Mr. Wolrath recently spoke with Correspondent Maria Kielmas about the global insurance market.

How have you seen the global insurance business change over the past 30 years?

Thirty years ago, you only had local insurance companies taking care of their home market. Either you were a big player with a lot of contracts or a small player, but you still kept your territory. You had customer loyalty. Once you were a Skandia customer, you kept on being a Skandia customer. There was an ambition to merge with other companies, but it would be a domestic company. Buy a competitor.

From a world perspective, you have to remember that in those days there were many nationalizations. It was not a question of increasing private ownership of insurance but the other way around. Governments were taking over the whole industry. It was probably related to national pride; colonies became new countries and insurance was seen as part of the welfare system. Brokers were not important.

So the shift has been with the freedom of trade. Freedom of services comes as the next step. The World Trade Organization has still not succeeded in bringing about freedom of insurance services. It will come, but I think it will take some time. I think that currency devaluation problems in a number of countries in Southeast Asia recently will delay freedom of services. They will be none too keen on letting in outside operators.

Do you think the trend toward mergers between banks and insurance companies will continue?

If you merge two companies, it normally leads to just one thing: You are cutting down on staff. Then you have cut costs and try to live happily ever after. The question is, are you achieving anything? Are you providing a better service or becoming a creative group? I think it's easy to overlook the fact you need to focus on internal growth. How do we create new products and services in order to grow?

When the bank Kreditkassan and Storebrand Insurance Co. tried to merge in Norway, there was a survey that asked the public, "Do you think that the merged company will provide a better service?" The answer was no. "Do you think the products will be sold at a lower price?" The answer was no. "Do you think that the products will be better quality?" The answer was no. The fourth question was, "Do you think this company will be better placed to compete on a worldwide basis?" The answer was yes.

Isn't the fourth question the justification for mergers that management typically uses?

I think the management said this merger will make us more competitive, and they were able to sell that message to the public. But when the public thought, "What's in it for me?" They didn't think they were getting anything. If they had thought about how they answered the three questions, they would not have answered the fourth as they did.

Do you think the notion that a merger will make a company bigger and therefore better able to compete globally is just nonsense?

Yes, if the only thing you are doing by merging is cutting costs. You should not just sit there and say, "We are the biggest organization." You should look for new products and new business. That's what most companies are forgetting.

If we look at the Scandinavian region, there is no bank and no insurance company, with the exception of Skandia, which has any important presence internationally. They are all domestic. Even if a bank has an office in Hong Kong or the United States, they are only servicing Nordic clients. They are not selling anything to the public in Hong Kong or the United States. I think that's dangerous, because only those companies that have the ability to invest in new products, new services, do it another way and do it internationally will be able to survive.

So why did Skandia try to buy the Swedish state-owned bank Staatshypothek?

Staatshypothek was mortgage finance. It was a shrinking operation that we would have been able to buy at a good price, have a good return and at the same time free resources as the business was shrinking. The capital could have been used in our case to expand our life and pensions business. In the meantime, we would have had a good return on business that was on the books.

It was like doing a rights issue. Unfortunately, the government decided to merge it with another bank. The outcome of the deal was they lost 4 billion Swedish kronor ($523.6 million).

So where are the new products and services? Where are the new markets?

Take insurance. Companies are buying bits and pieces from specialists. You have product liability, currency risks. You can collateralize, securitize, and put it on the capital market. This is being done slowly.

On the other hand, you have pensions. Governments say the pay-as-you-go system will support you in the future, we think, but we don't know. So you are moving from pay-as-you-go into funding. What this will lead to, you don't know, but it is moving more money into financial institutions. These funds will look for a home. They can be put into bonds of a different flavor; some will be insurance-linked.

You will see creative finance houses organizing the financing and insurance of risks and linking them to other things. If you have an investment banker that is creating the financial products and a company that is writing the insurance risks, then you will find new insurance products and new ways of covering risk. This will be big competition for the traditional insurer of multinational corporations.

Skandia recently sold its reinsurance operations. What will happen to the reinsurance market?

It's quite clear there will be only a few players on the world market. The problem for Skandia and the others is that in reinsurance you need much more money to do things that are interesting to insurers and brokers.

For Skandia, the basic Scandinavian business and worldwide life and pensions business is big enough and profitable enough. So it was a simple matter to quit reinsurance. It should be one way or the other. I think reinsurance companies will have very tough competition from other financial institutions. The big investment banks will be organizing coverage, such as options, for risks. They are very creative, like bespoke tailors.

The reinsurance industry is very traditional, very conservative, while for the banks, everything is a new situation. They are getting more money from savings, so they are very keen to increase their output of services.

Do you foresee a time when insurance is just another division of banking and reinsurance does not exist?

No, I don't think so, but it depends. A lot of reinsurance business is related to technical matters, and there will always be a need for specialists to go out and look at a risk. You have to know your trade. What reinsurers have realized is that they have to add on a new style of doing business to complement what they already have.

Will the European market be a microcosm of this world?


I think Europe is a very conservative part of the world where brand names matter. It will take time before a Spanish farmer buys his farm insurance from a German insurance company.

There will be a number of mergers, but among insurers. We will see boutiques appear to cover a specialist part of insurance.

Will any interesting new players come into the market from the former communist countries of eastern and central Europe?

No. They have a full job organizing their own markets; I don't see how they can provide anything that is not already provided today.

It's interesting to look at the Japanese. They have a very regulated home market with no competition. Ten years ago most Japanese insurers were in Europe or had plans to come to Europe. Today they are hardly here.


Because they don't offer anything that doesn't exist in Europe already.

What about U.S. companies?

The U.S. insurance industry is much more competitive because of its competitive situation at home. I'm a little amazed that while U.S. manufacturers have been around Europe since the war, there are not so many players from the U.S. financial institutions here, especially in the insurance fields. It's difficult to get a U.S. insurance policy in Europe.

Why is that?

U.S. insurers have been too involved trying to cope with their domestic problems; many have been hurt by high liability claims. More claims, less capital. But I think they are moving now, and you will see more U.S. companies here in the future.

How will the European Monetary Union affect insurance?

It will increase the competition in Europe because there will not be a currency risk. It is clear that there is more competition and companies will be more Europeanized and there is more international thinking. You will be able to insure a German risk from Sweden, if Sweden is in the EMU, which I doubt.

So will that Spanish farmer then buy a German insurance policy?

It will be easier. He will be offered something from a German company that will be in euros (the future European single currency) and will be recognized and compared directly with what is offered by Spanish insurers Mapfre or Fenix. It will pave the road, but he still needs to know the company and trust the company.

What are the origins of Skandia's captive management business?

Skandia held an internal study on whether to start up a captive operation. It was a matter of some concern, because we were big insurance providers for Swedish multinationals. If you start up a captive for them, then a part of the business disappears. It may go through your books, but it's like a sieve, and the holes are quite big.

After discussions and quarrels, we decided that if the customer really wants a captive, we could not stand against his wishes. So why don't we organize ourselves to be a good captive administrator? That was 20 years ago, and now Sinser is the second-biggest in the world and the biggest in Europe. In the meantime, we kept our relationship with the Swedish multinationals. Efficiency in risk management in Swedish manufacturing has been immense.

When did you start providing risk management services to clients?

In 1973, I was asked by top management to join a committee about risk management. I had come from the investment side; I was in charge of stocks and bonds. I thought that was what risk management was all about. We had the expertise because we were dealing with money. After a couple of meetings I realized that this was something new.

It has evolved into a situation today where it's a question of balance sheet coverage. In the old days it was more profit and loss. Then the only risk Swedish companies carried was $100, which is crazy. Now we are talking billions.

Where is Skandia going now?

We are following the big Swedish multinationals wherever they go. Whether we do it on our own or with Pohjola. We are keeping our strong card in the market. You will probably see more captives in company pension schemes; organized accident and insurance schemes.

What can the insurance industry do to help multinationals counter massive inherited liabilities as a result of the actions of environmental or political pressure groups?

I think it is necessary for the companies themselves to be ahead of the pressure groups. There is also a limit to insurance. You have to have people who are smart enough to think around corners. Let people with a more broader outlook be in on the discussion. People who will sit back and say that will not work.

Computer specialists and underwriters should be able to explain to all sorts of people how they see the insurance policy, the coverage and everything it relates to. With major risks you need people to look and say that there are other risks to be taken into account. These additional risks could be related to the effects of pressure groups (on a company's operations and its potential liabilities) and to the aggregation of various different risks in the case of catastrophes.