Risk Lounge

Kiln launches first contactless payment insurance product

2011-10-25T14:37:00.001+01:00

Specialist insurance and reinsurance underwriting group, Kiln has launched the first insurance product to protect mobile phone users against losses arising from ID theft and unauthorised payments, following a significant rise in the use of ‘wave and pay’ technologies.

As risk managers at the recent FERMA conference in Stockholm put Cyber Crime as their biggest concern, the increase in smartphone sales combined with the evolution of contactless payment technology has given rise to increasing concern over ID theft as more people store sensitive personal details on their mobile phones.

The launch follows Google’s announcement last month that it has launched a new smartphone application which allows people to pay for products in stores using their mobile phones on the Sprint Nexus S 4G network in the US. The ‘Google Wallet’ will enable consumers to store the details of a multitude of plastic cards and keep track of their spending on their mobile phones.

Kiln said its new insurance product will enable retailers, airtime providers, financial institutions and manufacturers to offer added financial protection to their consumers. In addition to standard mobile phone theft and damage insurances, the policy will cover unauthorised contactless payments and financial losses arising from identity theft as a result of a stolen mobile phone. The insurance product can also be applied to other ‘wave and pay’ technologies, including credit card and debit cards.

Martin Headdey, Underwriter in the Affinity Programmes team at Kiln, which forms part of its Enterprise Risk division, said: “We constantly strive to develop new insurance products which are ‘ahead of the curve’, particularly in the world of high technology. Increasingly, the boundaries between conventional products are blurring, as in this case with mobile telephones and payment cards. We are geared up to meet the insurance challenges presented by these latest innovations. Our new insurance product will also prove a very valuable customer retention aid in this highly competitive and lucrative business.

“At Kiln we also have the advantage of global distribution both through Lloyd’s licensing and uniquely through local offices in many major overseas territories either as Kiln, or our parent company, Tokio Marine. Our products are therefore designed with global applications in mind and we are able to manage these with a local presence, unlike many of our competitors.”

CEA hits out at US insurance tax proposals

2011-10-21T12:51:00.002+01:00

The CEA, the European insurance and reinsurance federation, has issued a stinging rebuke to the US House of representatives over its latest proposals on the issue of taxation on foreign underwriters.

In a statement the CEA said it “strongly oppose” bills currently being debated in the US House of Representatives by Congressman Richard Neal and the US Senate by Senator Robert Menendez. The association said both bills would increase the tax burden on foreign insurance providers in the US, leading to their possible withdrawal from US markets and therefore reduced US insurance capacity and ultimately increased prices for US businesses and consumers.

“The proposals are discriminatory, would have a negative impact on the US insurance market and would violate US double-tax treaties,” said Michaela Koller, CEA director general.

The proposals would disallow tax deductions on reinsurance ceded by non-US companies to offshore affiliates. The CEA said: “This would create an unlevel playing field with US re/insurers, as it fails to take into account the tax treatment in the country in which the affiliate is domiciled. EU insurers already pay substantial rates of tax.”

The association said it is also concerned about the impact of the proposal on the status of US commitments regarding insurance services under the WTO General Agreement on Trade in Services (GATS), which stipulates that (re)insurers of any other WTO member must be treated no less favourably than US suppliers of such services.

An economic impact study by economic consultants the Brattle Group estimates that the tax proposed by the Neal bill would cost consumers more than $10bn a year and would reduce US reinsurance capacity by 20%.

“Non-US insurers and reinsurers provide a significant proportion of the cover for US natural catastrophes. At a time when many US states face difficulties obtaining sufficient, affordable cover, enacting such legislation would be against consumers’ interests,” said Ms Koller.

The CEA is co-signatory to a letter by the Coalition for Competitive Insurance Rates to members of the US House of Representatives Committee on Ways and Means opposing the tax proposals.

Willis fills Inmarsat broker space

2011-10-12T16:37:00.001+01:00

Mobile satellite operator Inmarsat has announced it is to award Willis Group Holdings an exclusive appointment to act as its risk management advisor and placing broker for its new generation of satellites.

The agreement comes after a robust tender process which saw the company in detailed discussion with the market’s major space brokers.

The agreement covers the launch and in-orbit operation of Inmarsat’s highly anticipated broadband satellite network, Global Xpress, and the additional launch of the Alphasat satellite. The appointment also includes responsibility for Inmarsat’s current in-orbit fleet.

Roger Bathurst, CEO of Willis Inspace, who led the bid team, said: "We are absolutely delighted to have been chosen to represent Inmarsat. This is the result of a tremendous all round performance and is the clearest possible illustration of the strength and depth of the Willis team. To be at the forefront of one of the most dynamic and exciting satellite projects in the world is a great honour."

Using high-power Boeing 702 type satellites, Global Xpress will deliver mobile broadband to the world at speeds of up to 50Mbps on devices as small as 60 centimetres.

Inmarsat’s Alphasat will be the first launch of The European Space Agency’s newly-developed Alphabus, the world’s largest communications satellite platform.

Willis will be charged with creating and implementing a risk mitigation strategy for Inmarsat’s suite of technology that can be effectively valued by the insurance community. The role requires a multi-disciplined approach, bringing together expertise in engineering, risk management, and technical analysis.

The appointment follows the selection of Willis as insurance broker to Inmarsat for all non space policies at the beginning of 2010.

Solvency II turns insurance business model on its head

2011-09-29T10:18:00.001+01:00

A leading actuary has told a meeting of insurers Solvency II is driving a marked increase in transaction activity as insurers look to change their business models in response to the new regulations.

Speaking at a seminar hosted by his firm, Nigel Masters, Head of Actuarial at Grant Thornton, said: “The perceived business wisdom that has held in the insurance industry for the last 20 years has broken down – with the advent of Solvency II, the game has changed. Historically, companies thought that it was best to specialise but under the new rules that position is going to be much less capital effective.

“The old adage says that there is no such thing as a free lunch. However, by aggregating a number of different risks, the capital required is lower and the return commensurately higher – proving that, in fact, risk diversification really is the only free lunch.”

He added: “Working with our clients it is clear that the market is moving much faster than anticipated as companies look to divest or acquire lines of business to optimise their risk capital position under the new regulations,” said Masters.

The firm believes that those companies that are considering a transaction are likely to act within the next 12 to 18 months.

“There is no real upside to a ‘wait and see’ approach,” Mr Masters explained. “Those companies that move quickly to restructure their business models will gain a significant first-mover advantage.”

He told the audience the types of restructuring under consideration include:

· A Part VII transfer – the number of notifications received by the FSA has doubled in the last six months; half the attendees at the seminar said they are considering a Part VII transfer in the coming year

· Entering or exiting a line of business through an acquisition or a sale – the volume of transactions in the Lloyd’s markets has jumped back almost to pre-2008 levels due in part to regulatory pressures and the drive for capital efficiency

· Entering into a reinsurance arrangement – quota share arrangements retain their attraction for insurers looking to diversify risk

· Changing risk profile through the use of derivatives such as cat bonds or industry loss warrants. Swiss Re issued a $50 million longevity cat bond in December 2010, paving the way for more widespread life securitisation

Holistic approach is needed to meet client demands says Plumeri

2011-09-22T14:08:00.004+01:00

Willis Group Chairman and CEO Joe Plumeri has said the industry needs to change its approach to the challenges their clients face.

Speaking in Hong Kong as part of a visit which saw the intermediary open a new office in the financial centre Mr Plumeri told a group of leading Asian businessmen that companies operating in today’s volatile economic, social and political climate require a more holistic approach to risk management.

Speaking at the KPMG “Captains of Industry” lunch hosted by the British Chamber of Commerce in Hong Kong, he explained that “insurance is not just about coverage and claims, but is about security and survival” against a backdrop of a challenging new risk landscape where threats like reputational damage, terrorism, cyber security, supply chain disruption, regulation and pandemics are on the rise.

Mr Plumeri added: “The right way to look at a company is holistically, not risk by risk or transaction by transaction.” He added that an approach that considers the commercial sustainability of the enterprise “best allows companies to manage their business and realize strategic objectives for the long term”.

His visit to Hong Kong coincided with the official opening of a new headquarters for Willis’ Asia Pacific, Middle East and Africa operations. The broker, which has tripled the size of its business in Asia and Hong Kong in the last six years, has taken a new floor in its current location in The Lee Gardens in Causeway Bay. The state-of-the-art new offices will accommodate 100 employees of Willis Hong Kong and will also house the leadership team for the Asia Pacific, Middle East and Africa operations.

Roger Wilkinson, Chairman and CEO of Willis Asia Pacific, Middle East and Africa, said: “Willis has been a proud member of the Hong Kong commercial sector since 1977. The city’s excellent infrastructure and proximity to all our other offices in the wider region makes it the ideal base from which to continue our successful expansion in Asia where we now have over 800 employees and 40 offices in 12 countries.”

Russell Monte Carlo 2011 Review

2011-09-19T11:21:00.004+01:00

Monte Carlo 10 – 15 September 2011: Russell Group, the leading risk management software provider to the specialty (re)insurance and global insurance market, this week announced the launch of its new solution for enterprise wide multi-class risk management. The solution comes in response to a growing market demand for group wide solvency analysis and marks a change in the company’s approach from providing line of business specific software to providing enterprise level solutions.

“ALPS Enterprise is the culmination of the knowledge, experience, and existing product range that Russell has built up over the past 15 years of working with the specialty insurance and (re)insurance markets” commented Suki Basi, Managing Director at Russell. “The product builds upon the strengths of the ALPS existing line of business solutions in aerospace, marine, energy, and non-marine and extends into cross-class aggregation analysis and enterprise wide portfolio modeling.”

Russell’s new multi-class framework was received positively by the wider global insurance and (re)insurance market and is in tune with current market needs. Russell had a succession of market presentations and the response to the ALPS Enterprise, Multi-Class offering is one that senior executives were conveying offers them a total, innovative solution to underwriting complex risk. When asked about what he believes to be the reason for such a positive response Mr. Basi commented “We believe the ALPS Multi-Class Model provides maximum benefit to our clients and gives them a level of flexibility and transparency not available in other aggregated underwriting solutions”.

The theme which formed the topic of conversation at this year’s Monte Carlo was, “Implications for the insurance market. Time to change the way we look at risks” “This year’s Rendezvous was an ideal platform for us to launch our initiative and we have witnessed some interesting debate and commentary on this theme from the leading (re)insurers and brokers all conveying the same discourse” remarked Mr. Basi. The specialist insurance and (re)insurance and risk fraternity has always been positive when how it operates requires change. When companies are trying to underwrite complex risks they need to have in place the most comprehensive systems and models to minimize their loss exposure and ultimately minimize their risk.” remarked Mr. Basi.

“We are in a transitional period, one which demands our industry to continue to innovate and maintain its commitment to change, the ALPS Enterprise Multi-Class solution offers the (re) insurance fraternity the chance to do this.

“Overall we are confident that what we are providing to the market gives them the control structure and sophistication of analysis to meet internal and external risk management requirements imposed by shareholders, CEO’s, regulators, and rating agencies” concluded Mr. Basi.

Airline losses at five year low says broker

2011-09-14T15:45:00.002+01:00

While the market has been debating its worst year in history for catastrophe claims the airline industry has seen losses hit a five-year low.

To the end of the third quarter losses for the airline industry stood at $794 million, according to the latest data from the Aerospace division of global broker Willis Group.

Willis’ monthly Airline Insurance Insight report indicates that the insurance market has remained remarkably stable, with no change from the drivers of capacity and claims. The lack of fatalities in the three major losses that did occur in July reflects excellent safety performance of the industry, which has delivered some good fortune for underwriters in the wake of an extremely volatile year for other industries.

Commenting on the report, Steve Doyle, Business Development and Sales Director for Willis Aerospace, said: "With the current neutral market situation there appears to be a repeated clamour to understand the ramifications whenever a loss occurs. It must be remembered that responding to losses is the function of the market. The market is there to service the needs of an increasingly exceptionally safe industry and, therefore, needs a shift in overall trading conditions to significantly change."

Despite the healthy climate, July was one of the busiest periods of the year in the airline insurance market, according to Willis. The renewals again witnessed the trend for low single digit premium increases against higher levels of exposure sectors.

One positive result is that increased exposures do not directly translate into claims, though Willis observes that the flip side from an insurer’s perspective is the market has been unable to translate that growth into comparable premium volumes. The most influential market factor remains the level of capacity, which does not look set to diminish any time in the near future.

The three major losses that occurred in July represent a continuation of the trend for high valued hull losses. While this type of loss is a direct drain on the cash reserves of underwriters, it also provides some certainty on liability.

Russell Group announces the launch of ALPS Enterprise at Monte Carlo Rendezvous, its new solution for the integrated risk management of specialty line

2011-09-11T16:24:00.000+01:00

Monte Carlo 10 September 2011: Russell Group, the leading risk management software provider to the specialty (re)insurance market, today announces the launch of its new solution for enterprise wide multi-class risk management. The solution comes in response to a growing market demand for group wide solvency analysis and marks a change in the company’s approach from providing line of business specific software to providing enterprise level solutions.

“ALPS Enterprise is the culmination of the knowledge, experience, and existing product range that Russell has built up over the past 15 years of working with the specialty market” commented Suki Basi, Managing Director at Russell. “The product builds upon the strengths of the ALPS existing line of business solutions in aerospace, marine, energy, and non-marine and extends into cross-class aggregation analysis and enterprise wide portfolio modeling.”

Russell’s new multi-class framework provides a consistent level of functionality and analysis for direct, reinsurance, and retrocession underwriters across the various specialty classes with data management, aggregation control, inwards and outwards risk pricing, and portfolio modeling within a single installation. In addition to known classes there is also the ability for user’s to define their own classes using the underlying risk models and the generic logic within ALPS Enterprise.

ALPS also allows companies to take maximum advantage of third party data available in the various specialty lines. “Due to the fact we are not a proprietary data provider we are able to source the best third party data available in each of the lines of business and integrate this directly into our software” said Mr. Basi. “We think this provides maximum benefit to our clients and gives them a level of flexibility and transparency not available in other solutions”.

ALPS has been developed on a Microsoft platform and is an “open box” solution, giving users the ability to integrate the software within their company’s own IT architecture, and can be completely configured to represent the users view of the risks they are assuming. “We wanted to provide something that would meet the current and future needs of the (re)insurance underwriting and risk management community. Our software allows users to understand the risks they are underwriting, but is based on their view of risk not ours – something that we feel is very important” commented Mr. Basi.

“Overall we are confident that what we are providing to the market gives them the control structure and sophistication of analysis to meet internal and external risk management requirements imposed by shareholders, CEO’s, regulators, and rating agencies” concluded Mr. Basi.

Asia pricing still uncertain as losses yet to erode reinsurance capital

2011-09-08T09:25:00.003+01:00

In the run up to the Monte Carlo rendezvous Standard & Poor's Ratings Services said it believes the impact of the series of natural disasters between September 2010 and June 2011 on reinsurers' overall financial profiles are at manageable levels.

The company has issued a stable outlook on the global reinsurance sector but added that with the hurricane and typhoon seasons still active a series of major shocks and these include a collapse in global equity market could change their thinking. They said the current losses were earning events and as yet the reinsurance capital has remained untouched by the losses.

The report said: “Underwriting results for a number of global reinsurers with operations in Asia-Pacific were hit by the disasters, which included an earthquake and tsunami in Japan, two major earthquakes in New Zealand, and floods and a cyclone in Australia. However, outside Japan, regional domiciled rated reinsurers have limited or manageable exposure to the region's catastrophe events as they write mostly domestic business. As a result, we have not taken rating action or changed the outlook on reinsurers incorporated in Asia-Pacific recently. “

Insured claims from these Asia-Pacific events could amount to as much as $51 billion, according to information from AIR Worldwide. “Prospectively, we could see higher property catastrophe reinsurance premiums and tighter terms and conditions--especially in Japan, Australia, and New Zealand--as international reinsurers attempt to claw back some of the losses,” said S&P.

Reinsurance pricing in the rest of Asia (outside Japan) is uncertain, reflecting the counteracting effects of shrinking global reinsurance capacity and the competitive but rapid growth of primary insurance in the region. Nevertheless, soft reinsurance pricing is likely to continue in some parts of Asia markets, especially in those markets not prone to catastrophes, such as Singapore, Malaysia, and Thailand.

Sidecars in vogue as issuances rise

2011-08-31T16:08:00.001+01:00

Aon Benfield Securities, the investment banking subsidiary of Aon Corporation has released its annual Insurance Linked Securities (ILS) report, which examines the trends witnessed in the ILS sector over the 12-month period ending 30 June 2011.

The Report “Consistency and Confidence” reveals that 24 separate catastrophe bond transactions resulted in an annual issuance volume of $4.4 billion to June 30, 2011 – a slight decrease from the $4.7 billion across 21 transactions seen in the prior year period. Also, sidecars experienced resurgence in 2011, further demonstrating investors’ interest to continue to provide fresh capital after market losses. Catastrophe bonds outstanding at June 30, 2011 totaled $11.5 billion, with $37.6 billion of cumulative catastrophe bond issuance since 1997.

Paul Schultz, President of Aon Benfield Securities, said: “Consistency in issuance, including strong participation from repeat issuers, demonstrated the continued reliance of both sponsors and investors on capital markets capacity. Renewed interest in sidecar structures also demonstrates the flexibility of the ILS market to provide fresh capital following market losses. Despite the effects of both the Great East Japan Earthquake on March 11 and the major updates of the RMS U.S. Hurricane and Europe Windstorm models, we anticipate a good catastrophe bond issuance pipeline in the historically active second half of the year. Additionally, we believe the fundamentals are positive for market growth in 2012 and beyond.”

U.S. hurricane risk continued to dominate the catastrophe bond market in the 12 months to June 30, 2011, accounting for 46 percent of natural catastrophe issuance while U.S. earthquake risk and Europe windstorm risk accounted for 15 percent and 19 percent, respectively.

All four of Aon Benfield’s ILS Indices posted gains in the 12-month period to June 30, 2011. The Aon Benfield All Bond and BB-rated Bond indices recorded annual returns of 5.97 percent and 4.52 percent respectively, while the returns on the U.S. Hurricane and U.S. Earthquake Bond indices were 8.51 percent and 7.21 percent respectively. The current annual returns fell below comparable returns for the prior year period, with the exception of the U.S. Earthquake Bond index, which performed marginally better. The decrease was primarily due to the effects of global catastrophes and downgrades which had led to mark-to-market decreases in 2011.

The Architecture for Multi-Class Specialty Risk Management

2011-08-25T16:09:00.003+01:00

Continuing on in Russell’s theme of risk management for the specialty classes, Suki Basi describes the enabling architecture required to deliver a framework which meets the varied and complex needs of the specialty insurance and reinsurance markets.

Let’s begin by defining the key requirements for such a framework. The specialty classes vary in risk structure from one class to the next which means an integrated risk model, that can easily process insurance, reinsurance and retrocession placements, is essential and would be the first requirement for any framework. Given that data structure and volume vary considerably too, the next requirement calls for robust data capture and management. Once we have addressed data capture and risk structure for each class, the third requirement is for an internal engine to process events and scale to the needs of each class or multiple classes. Finally, any framework should be open to user interaction whether it is for user parameterisation of event sets or to integrate within existing processing streams.

Integrated risk model
The specialty classes are dominated by two main coverage types - physical damage and pure liability.

The physical damage specialty classes are easy to identify as there is an actual object around which the (re)insurance is placed, with various combinations of property damage, first party liability, and third party liability coverage. Examples include aviation, marine, cargo, energy, and specialty property – with the subject of each being the airline, vessel, shipment, rig, and building respectively. For each subject a number of risk characteristics can be captured, usually a combination of third party data and proprietary data, for either segmentation or reporting purposes or for use when creating event tables. For an enterprise solution the software does not need to know the nature of the subject, only that it exists and may have risk transfer agreements attached to the various parties that have an interest in it.

The pure liability classes are less easy to identify as there is an entity around which the (re)insurance is placed, with various types of legal liability that the entity may be responsible for. Examples include professional indemnity, crime, directors and officers, and general liability, all of which are, by market convention, often classified according to the entity they attach to, such as financial institutions, pharmaceuticals, and small and medium sized enterprises (SME). Although more difficult to define once the subjects have been established the (re)insurance relationships are generally easier to model as each entity has a 100% insurable interest in itself, unlike the physical damage classes where the situation is not always that simple.

Any risk model needs to support the similarities and differences encountered between these two main coverage types, and how each coverage type is applied in practice to a class of business. This suggests that the risk model must be rule-based so that appropriate logic can be applied to specific coverage type and class of business combinations. One further complication is that the risk model also needs to support method of placement that is risks which have been underwritten on a direct, reinsurance or retrocession basis. Finally, the risk model needs to support the differences in data content and relationships between classes. To ensure full support for the specialty classes the risk model must integrate the underlying complexity.

Robust data capture and management
At the heart of good risk management is good data quality, inevitably in the specialty classes, data quality will vary with the quality of data structure and volume in each class. Moreover, traditionally organisations have tended not to invest in electronic data validation, capture and management. In my view it essential to invest in tools which ensure robust data capture and management as this is the initial step to improved data quality and therefore good risk management. Such tools should be template driven, have rules to handle data quality and fuzzy matching capabilities to manage naming conventions. Having established that robust data capture is essential, what data needs to be captured? To answer this, I would like to introduce four categories of data - reference, market, underlying and portfolio data, the content of each will vary across the specialty classes. Reference data is all to do with coverage criteria, event definitions, geographic regions and analytical assumptions such as target loss ratio. Market data captures currencies, rates of exchange, losses, the definition of the risk being insured or monitored, also known as subjects and the companies which have a trading relationship with you. Underlying data is industry exposure data which is normally supplied by third parties and defines the risk within a class in its raw form, for example details of an aircraft, satellite, ship, oil rig or financial institution and the relationship of that risk to the policy placement. Portfolio data is defined as the collection of risks which have been underwritten over time regardless of whether they are insurance, reinsurance or retrocession placements and the reinsurance programmes purchased to protect the portfolio.

Internal and scaleable engine
To ensure consistent and timely analysis, it is essential that the framework has an internal engine which can consistently process events regardless of the size and complexity of a portfolio. By analysis, I mean a pre-defined algorithm which serves a user request according to a particular collection of mathematical processes, which can be deterministic or stochastic. Such an engine would see any analysis as a collection of events which need to be processed according to the pre-defined algorithm, and would need to be database-driven to differentiate event processing which can be done in computer memory from database processing which is done on computer disks.

A feature of the specialty classes is data volumes, which vary tremendously, requiring the framework’s engine to scale with the demand placed on it. This is achievable as long as the engine is multi-threaded, that is to say that it utilises as many CPUs that are available on the computer (scale-up) or as many computers (scale-out) as possible. Indeed, a multi-threaded engine would be ideally suited to the generation of a stochastic event set for deal and/or portfolio pricing, as processing occurs in parallel rather than sequentially. The net effect of this is that more complexity can be processed for a given time period than would be the case without, ensuring the time and therefore the cost of performing an analysis is optimised.

Open to User Interaction
Given the variety and complexity inherent within the specialty classes, an open architecture would be more beneficial for flexible analytics than a closed architecture. Users would have the flexibility of being able to construct their own event sets and use the framework to process such events, furthermore openness would promote more flexible pricing data, enable easy integration with existing application and processing streams, whilst also facilitating improved audit capabilities as the data can easily be accessed and interpreted.

In a competitive marketplace this approach guards commoditised pricing, as underwriter assumptions and corresponding event sets will differ.

Suki Basi is the managing director at Russell Group, a leading risk management software and service company that provides a truly integrated approach to aggregate management, pricing and portfolio modeling, by supporting insurance, reinsurance and retrocession needs across the specialty classes

“Fiddling while Rome burns,” says Goltens chief

2011-08-25T14:20:00.001+01:00

As pirates raise the stakes on a number of key ocean trades, simple, cost-effective preventive measures can be put in place to protect ships and their crew in a matter of hours, according to Paul Friedberg, President of Goltens Worldwide Services.

“I realise there are complex issues relating to the deployment of armed guards on merchant vessels, and the commitment of naval vessels,” he said. “But in the meantime there are immediate steps owners can take to protect their vessels and crews. International shipping is fiddling while Rome burns.”

Arndt Strandene, head of Goltens in Fujairah, explained that the 318,000 dwt Vela-owned VLCC Sirius Star was hijacked in November 2008, the Saudi tanker company asked what preventive measures could be put in place quickly, and without ship delay.

“We came up with various precautions – typically a combination of spikes and razor wire – which involve three or four days of workshop preparation and around 15-20 hours installation time on board. The protection – our Anti Piracy System – involves no hotwork and can be easily dismantled by ship's crew when vessels clear dangerous waters.”

“We know our system works,” Mr Stradene continued, “because a number of vessels, equipped with our protection, have been approached by pirates. But on seeing the system, pirate skiffs have fallen away to look for easier targets. Not a single vessel with Goltens' Anti Piracy System installed on board has been attacked,” he says.

More comprehensive protection measures are also available and have been requested by some owners. These include a Citadel “safe room” where ship's crew can retreat. Such spaces are fitted with satellite communications and emergency rations. Other protective measures include the blanking off of all port-holes and other openings in the accommodation block.

“Compare our protection with the cost of deploying armed guards,” added Mr Friedman. “The work can be carried out in hours with a minimum of disruption to a ship's trading pattern. We realise that there is a longer-term challenge in piracy prevention but, in the interim, and for a few thousand dollars, we can help owners to safeguard their assets and their seafarers, and we can probably help insurers to sleep a little better too.”

Endorsement roll out gathers pace

2011-08-19T15:33:00.001+01:00

The London Market Group (LMG) has said the roll-out of electronic support for endorsements to three additional classes of business, announced in April has been gathering increased traction four months into the project.

The LMG’s plan involves use of the new process for endorsements in property, professional indemnity and specie, each adopted by an insurer-broker partnership. The new classes extend electronic processing beyond the marine classes where it is already embedded as business as usual following last year’s pilot.

Brokers representing over 80% of market business are signed up to submit endorsements electronically and all Lloyd’s managing agents and a number of IUA company members were ready to accept ACORD data messages via the Exchange for these new classes by 1 July. More firms are on track to get involved over the coming months ahead of roll-out across all classes of business by the end of Q1 2012.

Matthew Shaw, Divisional President of ACE Global Markets which is part of one of the pilots, said: "We are partnering with Willis to drive adoption in Specie and we are already seeing 70% of Specie endorsements between Willis and ACE submitted and agreed electronically. This is the next important step forward for the eEndorsements initiative and ACE is pleased to be at the forefront of the drive towards all classes going live in 2012".

John Muir, Head of London Market Contracts for Willis added: “We are focussing on Specie business and have already received back more than 100 agreed Specie endorsements via the Exchange this month. From the insurer side, this actually represents more than 200 separate agreements. We believe that real momentum is building and will be pressing ahead with PI and Property as well as Bloodstock and Livestock over the next few months. The time has arrived for everyone to get on with this initiative because there are no reasons not to do so.”

David Ibeson, Chairman of the market’s Placing Support Steering Group and CEO, Catlin UK and Catlin Syndicate, added: “The announcement of these roll-out plans provides valuable clarity for firms and enables them to undertake the changes necessary to extend the use of electronic processes beyond the marine classes. All classes will go live in 2012 and firms can now develop their technology and complete their change management confident that this will be an investment for the future.”

Soft market is at an end say risk managers

2011-08-12T08:44:00.002+01:00

Risk managers say the soft market is now at an end as the losses of the year start to bite in the primary renewals according to the US risk management society RIMS.

A lack of substantive change in average renewal premiums for three of four lines tracked by the RIMS Benchmark Survey™ in the second quarter suggests that the soft commercial lines insurance market may be close to its bottom, it said.

General liability, property and workers’ compensation all fell by less than 1 percent on average, while directors & officers liability policies renewed 4.5 percent lower. The survey, which is administered by Advisen Ltd., tracks changes in policy renewals as reported by risk managers.

“Insurance buyers continue to benefit from a competitive insurance market, but the situation could change quickly,” says Frederick Savage, FCII, ARM, RIMS Board of Directors. “Hurricane season is underway in the US and forecasters continue to call for above-average activity. One or two very large storms on top of the catastrophe losses in the first half of the year could be enough to spark higher premiums, at least for property risks”

Record-shattering tornado losses in the US, combined with losses from the Japanese earthquake and tsunami, floods in Australia and earthquakes in New Zealand, battered insurance carrier results through the first half of 2011, but the impact has not been sufficient to trigger widespread premium increases outside some of the affected areas. Additional catastrophes, however, could spark higher rates for property and possibly other lines of insurance.

“Pricing has been fairly stable in three of the last four quarters, but it is too early to declare the soft market over,” says Dave Bradford, Advisen executive vice president and editor-in-chief of the survey. “Rates may have stabilized for now, but barring major catastrophe losses, there are few signs of materially higher premiums on the horizon. The commercial property & casualty insurance market remains well capitalized, and the current sluggish economy could make it difficult for underwriters to push through rate increases.”

Piracy dominates Marine gathering

2011-08-05T16:27:00.001+01:00

The curse of piracy and its implications in human terms, as well as its impact on world trade through disrupting cargoes and the financial losses inflicted on shipowners and insurers, is to be fully debated in Paris next month.

More than 500 marine underwriters, and senior representatives from many international maritime organisations, will attend the International Union of Marine Insurance event in September where piracy is set to dominate proceedings.

Although there has been a lull in Somali pirate operations because of the monsoon, the past few weeks have seen a worrying upsurge in attacks off West Africa, with a number of vessels successfully hijacked. It has been reported there are now 21 countries, in part or in whole, which are affected by piracy.

But Somalia remains the critical threat. According to the anti-piracy naval forces in the area, more than 400 seafarers are currently being held hostage on some 20 vessels. There have been murders and ill-treatment, with many stories of torture and seafarers deprived of adequate food, sleep and health care.

Earlier this year, Ole Wikborg, the Norwegian president of IUMI, called the hostages “the world’s forgotten mariners.” He said yesterday that the piracy problems in the Gulf of Aden and the Indian Ocean were “an absolutely unacceptable disruption of global trade to which marine insurers must respond.”

He added: “The cargo as well as the hull & machinery insurance markets have made their contributions to mitigate the financial losses resulting from the hijacking or detainment of vessels. Insurers have also helped in negotiations with the pirates and to provide the funds demanded to release crews and return them safely to their homes and families.”

The president noted that IUMI has made contributions to Best Management Practice No. 3 and subsequent initiatives which formulate the precautions shipowners and operators should take to minimise the probability of attacks. And in line with the maritime transportation industry at large, property underwriters have taken a more ambivalent stand on the use of armed guards to reduce the risk of a vessel becoming the next victim.

The 2011 conference title is ‘The Evolution of Risk, Safety and Security’, and many of the topics will be harnessed to this theme.

On the opening Monday morning the industry keynote speaker will be Bernard Anne, executive vice president and managing director of Bureau Veritas Marine Division, the fast expanding French classification society. Denis Kessler, chief executive of SCOR, the French reinsurer, will also give a keynote presentation.

The IUMI annual forum will cover the gamut of marine insurance including:

· The relentless development of shipboard technology, with computers controlling bridge, engine room and deck operations, and its impact on insurers

· The trend towards building mega-size containerships and cruiseships and consideration of the design, safety and salvage aspects

· Will nuclear-powered merchant ships be a viable option? The debate will be led by John Carlton, president of IMarEST (Institute of Marine Engineering, Science and Technology).

· Vessel vetting and crisis management, by Luc Gillet, group head of shipping at French oil major Total, the world’s fourth largest natural gas producer

· Update by the Panamanian Ambassador to France on the Panama Canal’s expansion programme, now moving towards an on-time, on-budget 2014 completion

· Safety regulations in the fishing vessel industry

· Mega yachts – increasing sophistication, increasing values

· Cargo theft during inland transit

· The evolution of upstream energy risks and new risks involved in deepwater drilling

Willis facilitates launch of global capital modelling facility

2011-07-25T12:29:00.001+01:00

The world’s leading risk and actuarial research departments have come together under the academic and analysis arm of broker Willis Group Holdings, Willis Research Network (WRN), to support the industry’s development and use of economic capital models required under Solvency II and similar regulatory and rating regimes worldwide.

Economic Capital Modelling (ECM) forms the basis of risk and capital decisions in reinsurance companies. Despite this growing significance, economic capital modelling is still in its infancy, with market institutions struggling with many fundamental challenges, tactical uncertainties, and day-to-day choices. There is a demand for a shared bed rock of understanding, peer reviewed methodologies, tools, and best practice to enable organisations to move forward more confidently.

In response, Willis has founded the Willis Research Network Economic Capital Forum at Georgia State University (WRN-ECF) with partners at Risklab, ETH Zurich and the Risk Management Institute, National University of Singapore to provide a facility for open science, industry and public policy collaboration in this key area.

The research and outputs from the Forum will be integrated with Willis’ own operations and driven through Research Programme Areas, which focus on methodological research, thought leadership and problem solving. Collaborative Research Projects will provide implementable modelling tools and applications by Willis and the wider industry.

Rowan Douglas, CEO Global Analytics at Willis Group and Chairman, Willis Research Network said: "Our partnership with Georgia State is a significant development for our industry. Economic capital models are the spine of insurance company operations and risk management, but we need greater understanding and a new culture to employ them wisely. The Forum provides that environment.”

Professor Richard Phillips, Chair of the Risk Management and Insurance Department at Georgia State University, added: “At GSU and across academia we have been waiting some years to do this and it was about finding the right industry partner. The Willis Research Network provides a unique platform between science and finance producing a powerful new supply chain of expertise and capabilities into the industry and wider society. Willis is a re/insurance broker but they are now an intellectual broker too.”

The Forum, which is co-funded by GSU and Willis for at least five years of operation across the Americas, Europe and Asia Pacific, will be overseen by a Management Board co-chaired by Professor Phillips of GSU and Mr Douglas of Willis and an external Advisory Board from industry, regulators and academia chaired by Professor Paul Embrechts of Risklab ETH.

The Forum’s founder Director is expected to be appointed from November 2011 and a global search is currently underway.

The Value of Models

2011-07-18T12:17:00.000+01:00

With many companies now spending hundred’s of thousands, if not millions, of dollars on “underwriting models”, it is not always clear the return the company is getting on its investment. Here Mat Maddocks discusses a simple approach to valuing models and how and where (re)insurers can get value for money.

“Models”

The term model, or modelling, is often used to mean a number of different things in the (re)insurance market. In general the term refers to a piece of software (either proprietary or built using a standard package such as Excel or Access) in which the real world is represented in a statistical framework to facilitate better understanding and to provide a reference structure for decision making. Specifically underwriting models, in their most basic form, attempt to estimate the claims that are likely to be paid under a (re)insurance arrangement and, more recently, the amount of capital required to accept the risk. For a model to add value to a company it must generally do one or more of the following three things: firstly allow the company to generate more income, secondly allow the company to reduce its costs, or thirdly enable legal or regulatory compliance with the relevant authority for the jurisdiction it operates in. We will look at each of these in turn and discuss how models can be used to gain maximum benefit from their use.

Income Generation

There are two main areas where models can, in theory, be used to generate additional income for a company. Firstly, and probably the most common, is when a (re)insurer is operating within a fixed capital environment and uses a model to understand its PML (probable maximum loss) rather than holding capital on a policy limits basis. To be done effectively the (re)insurer needs a portfolio view as well as an individual risk view to enable them to maximise the amount of business written against their capital base. For the model to be truly valuable it should be capable of estimating the PML for individual risks and estimating the correlation between risks across the portfolio. In doing this the (re)insurer can understand the tail distribution for their entire portfolio, which is often where the company’s capital position is derived.

Secondly where a model initially performs analysis at a market level (rather than or in addition to a (rein)insurers own portfolio) there is great value in identifying new opportunities where the (re)insurer has no exposure or where their representative share is below the level that they expect and/or are targeting. This level of market information can only be gathered and processed if the company have sufficient software in place to capture data at this level, and although time consuming can yield valuable results that can be used for targeted marketing and new business generation.

Cost Reduction

For all (re)insurance companies the area that can be mostly improved by models is the cost of claims incurred by the company. There are two stages in the level of sophistication to the approach that should be taken. Firstly the company should have software to enable it to estimate the amount of claims for each contract it underwrites. At a basic level this means the (re)insurer will not accept business at a loss ratio above it’s target, and it should therefore not (in theory) exceed the costs in it’s business plan.

Secondly, at a more advanced level, if the company has a sophisticated portfolio model it can optimise the premium-claim relationship and maximise it’s return for a given level of capital. Although complex and requiring a powerful computation engine the benefits to a (re)insurer from having their portfolio optimised are potentially huge compared to the cost of performing this analysis.

Regulatory Compliance

Solvency II now compels all (re)insurance companies to adopt a framework within which to model the level of capital required for the company to operate. The model should include elements for all the types of risks faced by the company: underwriting risk, market risk, credit risk, and operational risk. Although there is intrinsic value in having a model that satisfies the regulator it’s important that (re)insurers focus on gaining maximum value from the approach by ensuring that any development allows additional value, as discussed above, to be derived from the model.

Conclusion

In conclusion it is important to always focus on the value that can be gained from modelling, and not just participate in modelling for modelling sake. When undertaking a project or software purchase a (re)insurer should look beyond the features and functionality of the model and ask the question “does this model assist me in generating additional income, and can it be used to reduce my costs”.

European insurers show resilience in latest stress test.

2011-07-14T10:59:00.001+01:00

As fears that Ireland and Italy will become the latest countries to see their sovereign debt ratings collapse rating firms Moody’s says the results of the recent insurance stress tests show the underwriters are still showing surprising resilience.

The European Insurance and Occupational Pensions Authority (EIOPA) has announced that 90% of all participants in its second European insurance stress test continue to comply with minimum capital requirements under the forthcoming Solvency II requirement in all stress scenarios.

Commenting on the announcement Dominic Simpson, Vice President - Senior Credit Officer, at Moody's described the results are “credit positive, showing the sector remains resilient to stress”.

He added: “To evaluate the overall stability of the European insurance market, EIOPA tested the ability of insurers and reinsurers to meet future Solvency II Minimum Capital Requirements (MCR), a breach of which would lead to withdrawal of authorisation, under four stress scenarios. As measured by gross premium income, 60% of the overall European insurance market participated. We suspect the other 40% are smaller and less diversified businesses more disposed to stress-test failure.

“Using year-end 2010 data, participants were subject to distinct baseline, adverse, and inflation scenarios, and a supplementary test to evaluate sovereign bond exposures not captured in the other scenarios.”

Mr Simpson: “On an aggregate basis, the MCR solvency ratio starts at 380% and falls to 320% in the baseline scenario, 281% in the adverse scenario, and 342% in the inflation scenario. Only 9% of the insurers failed to meet the MCR in the baseline scenario, 10% failed the adverse scenario, 8% failed the inflation scenario and 5% failed the sovereign scenario. The fail rates are similar to the results shown in the March 2011 QIS5 (industry evaluation of proposed Solvency II regulation), which showed around 5% of insurers falling below MCR, and broadly comparable to those from the European banking industry in July 2010.”

Moody’s said participating insurers’ main vulnerabilities were yield curve and sovereign bond risk, and a higher-than-expected rate of severe natural catastrophes combined with limited recourse to reinsurance facilities.

Geo Thermal project gets innovative failure cover

2011-07-04T10:46:00.001+01:00

Marsh and Munich Re have announced the creation of major new policy to convert the risks for a state of the art energy project.

The broker and underwriter have joined with project developer Exorka, insurance to develop the insurance concept covering the exploration risk of a geothermal energy project in Taufkirchen, near Munich. Drilling operations have now begun.

Munich Re is assuming what it described as “the significant risk” of failure that thermal heat drilling entails.

Deep geothermal heat is considered a very promising form of renewable energy. It involves pumping hot water from strata at a depth of up to five kilometres to the earth's surface, where it is used to generate heat and/or electricity. However, the substantial drilling and development costs associated with this technology often constitute a huge investment barrier because there is a high risk of not making a find, in which case the investment is lost.

Munich Re is providing cover for the risk for the failure of a find and is utilising one of its primary insurers to realise the insurance solution.

The deep geothermal energy drilling will be carried out by drilling-technology specialist Daldrup & Söhne AG, which recently successfully completed drilling operations for the neighbouring Grünwald/Oberhaching project.

The output of the existing biomass power plant is to be increased by 20 MW to 80 MW with the aid of geothermal heat. GeoEnergie also plans to produce electricity.

Up to four wells are planned at a cost of around €35m. Whether this outlay is worthwhile for investors depends on whether water is found underground that is hot enough and available for exploitation in substantial quantities.

Marsh, which has been advising project developer Exorka for four years, ascertained the insurable risks of the Taufkirchen project and prepared them for the insurance market.

"A further milestone has been achieved in that we have been able to involve Munich Re in this project, based on our special concept – recognised in the field of deep geothermal energy – for the critical exploration risk", said Siegmund Fahrig, head of Marsh GmbH. “This underscores Marsh's market leadership as a consultant dealing with exceptional renewable energy risks."

Munich Re has set up a dedicated geothermal energy team since developing the world's first exploration policy in 2003, and regards itself as a know-how leader in this field.

Munich Re Board member Thomas Blunck said: "With our expertise, we can also assume renewable energy risks that are not everyday occurrences and thus help provide greater investment security."

He added: "We see climate change not only as a risk but also as a great opportunity, because if climate protection is pursued resolutely, new technologies will have significant growth potential."

New facility for terror cover as risks rise

2011-06-27T13:38:00.001+01:00

As the Arab uprising and the pro-democracy movement continues to spread across the Middle East a new join facility has been formed to meet the demand for political risk and terrorism cover.

Liberty International Underwriters (LIU) and Liberty Syndicates have launched the joint initiative to provide war and terrorism insurance capacity for Middle Eastern risks at a time when the threat from Jihadist terrorism is growing.

Experts say the Arab uprising is set to continue as the Syrian government accuses Islamic extremists of being behind the violence which said to have left over 1,300 demonstrators dead in the country.

The deaths of three leading members of the Jihadist terror organisation al-Qaeda has created a power vacuum and experts believe that the group will seek to increase its activities against the west and western interests in the MENA in retaliation.

LIU will distribute its product through Middle Eastern brokers and provide customer service from its regional office in the Dubai International Financial Centre backed by reinsurance capacity and expertise provided by Liberty Syndicates in London.

LIU will offer this cover to onshore energy-related risks, industrial units and urban risks such as hotels, restaurants, office blocks and banks.

Demand for war and terrorism cover has increased in the Middle East because, in several jurisdictions, banks require back-to-back cover as precondition for financial support.

There has also been a surge in demand for war and terrorism cover following recent events which resulted in political change in Tunisia and Egypt and widespread civil unrest elsewhere in the MENA region.

Michael Burle, class underwriter at Liberty Syndicates, said: “We began to discuss opportunities to develop the initiative in August 2010. Since then, political and regulatory events have meant that demand has surged.

Eli Bouchaaya, MENA regional manager for LIU, said: “We are very pleased to be able to access our group’s Lloyd’s syndicate in order to bring supplementary underwriting expertise and capacity to this complex set of risks. We have worked hard to ensure the product is provided as a rapid and seamless service across the GCC and wider MENA region, with a 24-hour promise for policy quotes.”

The joint venture product is to be marketed via Liberty Mutual Group for the GCC (Saudi Arabia, UAE, Kuwait, Bahrain, Qatar and Oman) and MENA region (excluding Syria, Afghanistan, Libya and Sudan).

Chaucer aim to be energy power

2011-06-24T10:50:00.001+01:00

Lloyd’s underwriter Chaucer Syndicates is to launch a new Global Energy Practice which will include a dedicated City of London office.

Chris White, Head of Energy Practice for Chaucer Syndicate 1084, who will lead the new operation, announced the launch at an event attended by over 100 London market brokers.

Chaucer said the launch had come in response to “the growing demands and increasing technical sophistication of global clients and the development of integrated energy brokers worldwide”.

In a statement the firm said: “The Practice combines Syndicate 1084’s energy and engineering expertise with the specialist capabilities of Nuclear Syndicate 1176, underpinned with extensive business analysis, modelling, wordings and policy administration skills, to deliver an integrated underwriting platform for broker and client requirements.”

As part of the launch Mr White, revealed that the firm would be opening a new underwriting suite at Chaucer’s Head Office in Plantation Place, next month to provide energy brokers and clients with a dedicated office.

Mr White: “I would like to thank my market colleagues for their support and best wishes in setting up our new Global Energy Practice at Chaucer. We have established an excellent team, and with a dedicated underwriting suite, we look forward to developing further successful partnerships throughout the market.”

The launch comes at a time when the primary energy markets are deeply concerned with a series of major losses including the Maersk Gryphon loss in the North Sea in February with the market now saying the loss has exceeded the $1 billion mark.

There is talk of the physical property risk classes seeing rate hikes of 30% to 50% but energy liability classes are now in a situation where there are growing fears of a serious exodus of capacity.

Head of Franchise Performance at Lloyd’s Tom Bolt has warned that syndicates which place a portfolio of energy liability business in their 2012 business plans may well see then rejected given the way in which the classes have delivered loss after loss.

One leading energy reinsurer said: “It doesn’t matter how you cut it or which period you take if you look at the results for energy liability in Lloyd’s they have made very nasty reading. You can see why Tom Bolt is taking such a stance.”

Cyber threat warning over social media

2011-06-13T10:47:00.001+01:00

Firms have been warned there is now a growing threat over the use of social media by employees at the work place and the scale of cyber crime increases.

The rising popularity of social media, the nature of the interactions it can lead to and the risks posed to organisations by inappropriate employee activities should not be ignored by companies, according to consultant Towers Watson.

It warned that while there are benefits for firms in the use of social media as a marketing tool, the blurring of boundaries between workplace and marketplace; professional and private life; and on and off-line activity, means the simple banning of access to social media at work or tolerating but not guiding social media usage – does not work and can be counterproductive for employers.

Andy Blacknell, senior consultant at Towers Watson, said: "When thinking about the potential of social media, employers are often put off by the perceptions of lost productivity, leakage and potential liability risks. Given social media usage is likely to increase and most individuals using it are also employees, employers need to ask themselves if it is really less harmful to leave employees to their own devices or rather to provide them with appropriate social media capability and guidance.

“We believe the solution is to have social media policies embedded in each organisation."

The firm’s research shows that more than half of companies block social media sites due to concerns about employees disclosing private or sensitive financial or competitive information or about employees spending too much time on social sites.

It also found that a vast majority of companies (73%) have not purchased insurance against any form of cyber risk, including social media liability. Of the 27% that have acquired some form of policy, 61% bought £6 million to £30 million limits.

Tim Jaggs, senior consultant at Towers Watson, said: "Blocking access to social sites may have reduced risk in the past, but in future is likely to increase it while also limiting the benefits active social media engagement can produce. With more and more people using social media, employers need to exploit social media opportunities, so it is essential they educate employees about both the risk and the potential.

“Each organisation has to decide its social media policy according to its circumstances but, if for no other reason than to establish some defensibility in the event of a liability claim, every employer should have a formal social media policy, supported by insurance for social media activities."

Mr Jaggs added: "Companies have to continue to find better ways to manage and mitigate all kinds of cyber risks. In the social media space, the lack of a formal policy increases the risk of uncontrollable activity, therefore to support risk management, employers should have a contingency plan, which includes insurance, in their social media policies in case things go wrong. Blocking access is the cyber equivalent of sticking your head in the sand."

Renewables can solve global energy crisis but there remain risks

2011-06-06T13:53:00.001+01:00

Underwriter RSA has released a joint report with the World Wildlife Fund (WWF) which sets out what it would take to provide the world’s entire energy needs via renewable sources by 2050.

The underwriter has teamed up with the environmental organisation for a series of detailed research reports with latest on the renewable energy markets and the prospects for the future.

With the recent announcement of the UK's Fourth Carbon Budget, the rising importance of renewable energy as an employer and an uncertain future for the nuclear industry following the tragic events in Japan, renewable energy has never been more in the spotlight and the report highlights the potential and the issues which are putting the brakes on its development.

The report sets out the case for a renewable energy future and a challenging vision for meeting 100% of the world’s energy needs by 2050.

“While the environmental, economic and social benefits of renewable energy are clear the path to broader adoption is challenging and requires considerable collaboration with, and commitment from, governments around the world,” said Mark Potter Head of Renewable energy for RSA. “Renewable energy is crucial if we are to meet our future energy needs while mitigating the impact of climate change.

“Over the last 30 years we have been key supporters of renewable energy from the first wind turbines in the 1970s to the pioneers of the future. As the industry continues to evolve both in terms of technological innovation and geographic diversity, insurers will need to play a key role in insuring a carbon free future.”

Nick Molho, Head of Energy Policy at WWF-UK, said: “Renewable energy can undoubtedly provide an overwhelming proportion of our global energy needs but it also makes sense for a number of economic and environmental reasons.

“By making energy efficiency and renewable energy key priorities of our future energy system, the world economy could save up to $4 trillion a year through reduced energy consumption and reduced fuel costs.

“This doesn’t even take into account the added value of job creation, reduced health costs, avoided impacts of climate change and the absence of having to manage high level radioactive waste that moving towards an energy efficient economy powered by renewables would provide.”

Mr Potter added: “These energy sources do to come without an element of risk. There is the question of the continued development of new technologies within the renewable energy sector and efficiencies and greater power is sought. These need to be fully understood by the underwriters if we are to accurately rate the risks. There is also the question of the often inhospitable areas of the world where some of these initiatives are sited and underwriters need to develop the expertise and knowledge base to make these risks attractive.

Acts of Man replace Acts of God as major business risk warns insurer

2011-05-31T15:16:00.002+01:00

From CEOs to famous footballers the actions and words of a business celebrity is having a profound effect on its success.

As the reputation of a firms hangs on the actions of the management and those celebrities they hire to endorse their goods or services a study has found that over a third of people in the UK have decided not to purchase products or services from a company following negative comments from a CEO or celebrity ambassador.

The poll, carried out by ComRes on behalf of international specialist insurance and reinsurance underwriting group Kiln showed that 37 per cent of people report having previously been put off buying from companies following negative comments from senior executives or celebrity endorsers.

The poll also revealed that more than half of people (52%) changed their mind about buying from companies they had previously purchased from following negative media coverage.

Paul Culham, active underwriter, who leads the enterprise risks division at Kiln, said:

“Businesses today have never had their reputations so exposed to comment or attack from such a wide variety of sources. A local incident can very quickly be amplified to a global crisis, and empowered consumers now have a range of tools to voice their opinions, negative or otherwise, much more widely to online communities. These polling results demonstrate the wider impact of negative media coverage or an ill-thought senior executive comment can make to a company’s bottom line.”

The underwriter said the results of the poll are testament to the power of the media to affect purchasing decisions, particularly online sites. The rapid rise in social and digital networking sites such as Twitter and Facebook have meant that CEO gaffes or celebrity misdemeanours can now be shared across a massively wider national and global audience instantly, seriously affecting a company’s reputation with the potential to undermine sales and adversely impact share price.

The famous Gerald Ratner gaffe about the worthlessness of his company’s jewellery has been followed more recently by other CEO comments which have had a negative impact on consumer and stakeholder trust. These include well-documented quotes from Tony Hayward, CEO of BP, following the Deepwater Horizon explosion and Nokia CEO Stephen Elop, whose leaked internal memo criticised his own company’s performance.

Additionally, the exposure of number of celebrities’ private lives through the media has resulted in them losing lucrative endorsement deals, as companies were concerned about the negative knock-on impact on their brands.

Kiln today launched an innovative reputational harm insurance product which is designed to protect businesses’ revenue streams and brand credibility following a crisis. The product will cover the cost of hiring crisis PR and legal experts following negative media coverage as well as covering the revenue loss that arises as a direct result of an insurable event which triggers the reputational harm policy.

Mr Culham added: “From an insurance perspective traditional business continuity cover has broadly focused around areas defined as “Acts of God‟ such as fire, floods or extreme weather which are outside of human control.

“However, the new media landscape is transforming corporate risk, and businesses need to take account of a more common and sophisticated wave of threats in today’s operating environment. Acts of Man is beginning to replace Acts of God in terms of likely threats to business’ licence to operate, and shareholders are increasingly voicing concern over the need to better protect intangible assets such as a company’s reputation or brand. CEO and celebrity ambassador behaviour clearly falls into this category. Our focus on developing innovative, specialist insurance products that respond to these challenges is a critical step in helping to address these emerging threats to businesses.

“Picking up the pieces of a shattered corporate reputation following negative media or online coverage requires decisive and expert consultancy and insurance is increasingly playing a vital role in this area. “

Could reinsurers be deemed as a systemic risk asks Irish regulatory chief?

2011-05-27T09:38:00.002+01:00

One of Europe’s leading financial services regulators has said the market needs to accept that the Solvency Ii system will not be fully in place by the 1 January 2013 due date.

Matthew Elderfield, Deputy Governor of the Central Bank of Ireland, told delegates at the European Insurance Forum in Dublin that the publication of Omnibus II which put some of the elements of Solvency II in a transition period of up to a decade meant that the 1/1/13 date would see the rump of the regulations imposed but not all.

When asked what he believed the regulatory market would look like in 18 months he described it would be a “strong and risk based system.”

He said the market had challenges still to face in terms of the solvency regime and that there was still a clear effort by many insurance regulators to ensure that the regulatory regime which was being imposed on the banking sector would not simply be Xeroxed onto the insurance market.

He also warned that underwriters may well need to be careful as to the amount of risk they place with a single reinsurer and debated as to whether there was a case to view some reinsurers as posing a systemic risk to the financial markets given their size and market share.

Speaking on the impact of Solvency II on the Irish insurance market, he said: “Should large reinsurers be deemed systemically important due to the fact that they are connected to cedant insurers? I would suggest that this is another area for thinking carefully about which way round to look at the problem.

There is certainly a valid question regarding the extent to which one or more large reinsurers could pose a systemic risk by, through their failure, transmitting financial problems to cedant insurers who might suddenly face the loss of reinsurance cover and have a weakened balance sheet.”

He said that ensuring all cedant insurers have prudent limits on concentration to reinsurers would, on the face of it, be a more straightforward policy response.

Mr Elderfield also said that interconnectedness could be tackled by looking at alternative policy responses such as reviewing the adequacy and international consistency of investment and reinsurance concentration standards.

The regulator said not only would the number of staff at the regulator be doubled by next year, but said that banking regulation should not be.

Aon founder back in Lloyd’s after Jubilee acquisition

2011-05-18T20:19:00.001+01:00

Pat Ryan the man who built the Aon broking empire has moved into the London market with the acquisition of Jubilee Holdings Limited, via his specialty underwriting operation.

His Ryan Specialty Group has sealed the deal for the Jubilee Group for an undisclosed sum although the deal is still subject to Lloyd’s and FSA approval.

Mr Ryan launched Ryan Specialty in 2009, and the group now includes a wholesale brokerage and a specialty underwriting operation.

Mr Ryan, chairman and CEO of Ryan Specialty, said. The deal was a significant one for the group as it provided it with access to the world’s oldest insurance market and the myriad of underwriting licenses that membership provides.

“It provides us with direct access to the Lloyd’s market and represents a key cornerstone of our strategy to provide specialty expertise and commitment to insurance underwriters, brokers and agents across a single, unique platform,” he said as the deal was announced.

Rupert Lowe, Chairman of Jubilee Group, said: “The agreement marks an important milestone in the growth of Jubilee and will provide us with the necessary economies of scale to achieve a greater operating and capital base. We have strong and profitable businesses in our Lloyd’s underwriting and distribution operations.

“The support of Ryan Specialty Group means we are now in an even better position to achieve our plans. Working with JLT Advisory throughout this process has provided us with the experience and strategic input we have needed to achieve this successful outcome”

Jubilee Group Holdings Limited owns Jubilee Managing Agency Limited and the distribution and administration businesses Lutine Assurance Services Limited, Jubilee Service Solutions Limited and Jubilee Europe BV.

Andreas Loucaides, Chief Executive of Jubilee Managing Agency Limited, part of Jubilee Group, commented: "Our sale to Ryan Specialty Group is very much in line with the strategy of growth and diversification Jubilee has been pursuing. Our market position and experienced team and the considerable investment made in key areas such as Solvency II has enabled the business to grow and respond to market opportunities. As a result, we provide a robust Lloyd’s platform for Ryan Specialty Group to expand its reach.”

Cat bonds see record quarter

2011-05-10T17:33:00.001+01:00

While the first three months of the year have seen record Nat cat losses it has also seen the catastrophe bond market post its most active first quarter on record for new issuance.

Guy carpenter has issued its latest report on the cat bond market which has found four transactions came to market in the first quarter of 2011, securing $1.02 billion of new and renewal risk transfer capacity.

“This represents a significant increase over the $300 million issued during the same time period in 2010,” it said

Bill Kennedy, CEO of Global Analytics and Advisory, Guy Carpenter said: ”Aside from strong issuance, the story of the first quarter for the cat bond market was the Tohoku earthquake, with cat bond valuations declining for the second half of March. However, it is important to note that in the aftermath of one of the largest earthquakes in recorded history, the cat bond market continued to trade in an orderly and disciplined fashion. Additionally, investors report that their own capital providers are responding well to the potential for principal loss associated with the event. Capital providers are prospectively focused on the implications for future issuance and investment opportunities, rather than looking to reduce their exposure to the asset class.”

The report, GC Securities Catastrophe Bond Market Update: examines the catastrophe bond market’s strong first quarter performance, outlook and investor behaviour as global catastrophe activity highlighted the market’s value.

The report found that Q1 2011 issuance topped the previous first quarter record of $615 million posted in Q1 2008. What was interesting was thre diversity of risk profile and structure, although U.S. hurricane risk was the common peril in all four of the transactions. All the transactions marketed during the first quarter priced within or inside of their initial spread guidance.

In total $1.24 billion of catastrophe bond risk capital matured in the quarter with total risk capital outstanding declining by $223 million during this time period, despite $1.02 billion of new issuance.

Chi Hum, Global Head of Distribution, GC Securities, added: ”Overall, we see an improvement of the market’s ability to evaluate, understand and – where modelling and disclosure are sufficient – competitively price a more diverse range of perils, risk profiles, structures and triggers. This increased sophistication and measured expansion of investor appetite for risk should be a catalyst for healthy long-term growth. It is worth nothing that the long-term cumulative return profile for outstanding catastrophe bonds also compares favourably to alternative asset classes.”

New product aims to remove risk from carbon credits

2011-04-26T09:26:00.003+01:00

The issue of carbon risk is set to be tackled by first ever insurance product to cover carbon credit eligibility risk.

Parhelion Underwriting has devised the product which will be underwritten by three Lloyd’s syndicates with the first client a major international bank.

Julian Richardson, CEO of Parhelion, said: “We are delighted to have been able to bring this important new product to market. It was developed following requests from a number of clients concerned about this risk. Since the carbon market is entirely dependent on regulation, the ability to manage and transfer regulatory risk is key to participants’ success. Working in partnership with our supporting insurers we have developed an innovative product to meet a market need”.

Developed under the Kyoto Protocol, Carbon credits or Certified Emission Reductions (CERs) are financial assets that can be generated by companies when they remove harmful carbon dioxide emissions or greenhouse gases from the environment through adopting ‘greener’ practices.

They can also be created from ‘green’ projects (such as renewable energy or emission reduction activities) that have been approved by the Clean Development Mechanism Executive Board.

European Union Emissions Trading Scheme (EU ETS) countries and companies within the EU can buy credits to offset their own emissions and contribute to meeting their reduction targets.

Institutional investors such as banks and trading house can also purchase carbon credits. These institutional investors would then look to on sell the credits at a later date at a higher price, generating a profit.

However, as demonstrated by the recent change in regulation by the EU deeming CERs from HFC23 and Adipic Acid projects ineligible for use within the EU ETS, there is a significant risk that credits from other project types may become ineligible, which can have a substantial negative impact on their value. This risk has reduced investor’s willingness to participate in this market and impacts liquidity. The new insurance product works to protect the value of the credits against this risk, thus improving market liquidity.

Alice Chapple, Director of Sustainable Financial Markets at Forum for the Future said “Policy uncertainty is one of the main barriers to investment in carbon emissions reductions. By reducing the policy risk, an innovative insurance product of this kind will give confidence to the buyers of CERs and support projects that are critical to the fight against climate change. It is a great example of how imaginative approaches in the private sector can help to make carbon emissions reductions happen further and faster”.

Reinsurers entered catastrophic first quarter on a record capital level

2011-04-20T20:32:00.002+01:00

Figures released this week showed that despite the heavy catastrophe toll of the first three months of the year the global reinsurance market ended last year with record capital levels.

The study by broker Aon Benfield, in the latest edition of its Aon Benfield Aggregate (ABA) report, analysed the year end 2010 financial position of the world’s leading reinsurers and examined how 2011 catastrophe losses may affect their capital positions.

It estimated that total global reinsurer capital reached an all-time high of $470 billion at 31 December, a 17% increase over the same period in 2009.

Mike Van Slooten, head of Aon Benfield’s International Market Analysis team, said: “The ABA companies performed well in 2010 despite a number of catastrophe losses. Aggregate capital was at record levels at year-end, leaving the sector well-positioned to manage the events that have taken place in the first quarter of 2011.”

The study compiled by the firm’s Market Analysis unit found that the ABA group of 28 leading reinsurers reported capital totalling $248 billion at year end 2010, an increase of 18% or $38 billion from the end of 2009.

The main drivers for growth were $22.5 billion of new capital raised by National Indemnity (to part-fund Berkshire Hathaway’s railroad acquisition), $23.8 billion of net income, and $10 billion of unrealized investment gains. Increased dividends of $7.4 billion and share buy-backs of $10.2 billion provided a partial offset.

Across the ABA as a whole, return on equity declined from 11.7% in 2009 to 10.4% in 2010. Catastrophe losses and reduced investment income were countered by sharply increased capital gains and higher prior year reserve releases.

The report found:

· Gross property and casualty premiums written were flat at $124 billion, with the impact of weakening pricing offset by positive effects related to reinstatements and acquisitions;

· The combined ratio rose by 5.7 percentage points to 95.3%, driven by disclosed catastrophe losses equivalent to 9.1% of net premium earned.

· 3. Non-life underwriting profit fell by $6.0 billion to $4.8 billion, including a contribution of $5.1 billion from prior year reserves.

In terms of the first quarter of 2011, reported loss estimates issued by ABA companies currently total $12.1 billion.

Aon Benfield added it believes the losses to date fall within expected annual income and represent an earnings event rather than a capital event for the reinsurance industry.

Energy market most exposed to risk warns broker chief

2011-04-14T20:35:00.002+01:00

Chairman and CEO of Willis Group Joe Plumeri, has told senior executives from the oil and gas industry that despite natural and man-made catastrophes in recent years, the insurance market supporting the energy industry has risen to the challenge, providing abundant capacity, helping to improve loss records and finding solutions to enable new technologies.

Speaking at the broker’s inaugural Willis North American Energy Conference in San Antonio, Texas, Mr Plumeri said that the oil and gas industry is the most exposed of any industry to risk, facing everything from legal risks to operational, political, reputational and terrorism risks. In his speech, he highlighted the most pressing challenges facing the industry and examined ways in which the insurance industry is responding.

In his keynote address to over 100 CEOs, CFOs and risk managers from the energy world, Plumeri cited the recently released Willis Energy Market Review which shows that even after the unprecedented $2.56 billion Macondo loss, insurers are still providing record capacity levels for upstream business, with capacity at a ten-year high for downstream business.

The report, he said, also suggests a link between the much improved overall loss record (excluding windstorm damage) in the downstream sector since 2001, and the deployment of engineering expertise from insurers and brokers into companies’ risk mitigation strategies.

Commenting on the role of insurance as an enabler of new technology in the energy industry, Mr Plumeri said, “The race is on to develop hydrocarbons from shale deposits and ultra-deep water fields. This race is going to involve the deployment of increasingly sophisticated technology – and the attendant risks will provide a major challenge for the insurance industry.”

Mr Plumeri spoke about the integral role that insurance plays in ensuring the commercial sustainability of the energy industry, particularly in the environmental sphere. He gave an example of Willis’ involvement in finding insurance solutions for the world’s most ambitious offshore wind project off the coast of East Anglia in the UK. Once operational, the project will deliver enough clean energy to light some five million British homes, he said, equal to about 10 percent of household energy needs.

“It is projects like these that show why insurance is critical to sustainability. We’re helping to unlock the capital necessary to not only test new technologies, but to scale them up so that our global economy can continue to grow without inflicting serious damage on our planet,” Mr Plumeri concluded.

Energy prices still flat despite heavy losses warns broker

2011-04-08T10:34:00.006+01:00

The devastation wrought by the Tohoku earthquake, along with two other major upstream and downstream losses in the first quarter of this year, has stopped the downward pricing trend in the energy insurance market as insurers take stock of their portfolios, according to a new report from broker Willis.

However the losses are being counterbalanced by dramatic over-capacity, resulting in a market in limbo, where prices have stopped going down, but aren’t going up, except in specific lines that were the hardest hit by last year’s Macondo disaster.

The annual Willis energy Report was issued this week at the broker’s inaugural Willis North American Energy Conference in San Antonio, Texas, found that in addition to the Japan catastrophe, two other losses have contributed to this break in market softening: In January this year, the Willis Energy Loss Database recorded an estimated total loss of over $1 billion from a fire at the upgrading plant of a Canadian oil sands operation. In February, there was also an estimated total loss of $800 million from Gryphon A, a floating production storage and offloading vessel in the North Sea.

The losses may not be enough however to deter insurers from continuing to compete for business in a relatively profitable sector, noted the Willis report. According to the broker, capacity is currently at an all-time record level of $4.3 billion in the upstream market, while the downstream market is also recording a ten-year high at $3.7 billion.

In the report, Willis focuses on the future of well pollution risks post Macondo, saying that the upswing in upstream rates as a result of the disaster has to date been confined to the “stand alone” Operators Extra Expense (OEE) market and the Marine Third Party Liability (TPL) market. Willis says that insurers writing these lines of business may now consider the regulatory environment under which deep water drilling operations are conducted as a factor when assessing drilling risks.

Commenting on the findings of the report, Alistair Rivers, CEO of Willis Energy said, “While rates in the energy insurance industry have stopped decreasing for the time being, the continued profitability of both the upstream and downstream markets for insurers and the abundant capacity this brings, means that it is still possible for the softening dynamic to re-assert itself as the year progresses.

“While this is great news for buyers, what the sheer scale of the Macondo disaster has taught us is that more capacity isn’t always the answer. As an industry, we need to devise new solutions involving the conventional insurance market, capital markets, mutuals and governments.”

2010 nat cat costs exceed $200 billion says Sigma

2011-03-29T09:48:00.001+01:00

The worldwide economic losses from natural catastrophes and man-made disasters for 2010 were $218 billion in 2010; more than triple the 2009 figure of $68 billion according to Swiss Re’s latest sigma study.

Of that total the cost to the global insurance industry was more than $43 billion, an increase of more than 60% over the previous year.

The study reported in 2010, severe catastrophes claimed significantly more lives than the previous year: around 304 000 were killed, compared to 15 000 in 2009. The deadliest event in 2010 was the Haiti earthquake in January, which claimed more than 222 000 lives, while 56 000 people died during the summer heatwave in Russia. Sigma said natural catastrophes cost the global insurance industry roughly $40 billion in 2010, while man-made disasters triggered additional claims of more than $3 billion. By way of comparison, overall insured losses totalled $27 billion in 2009.

Lucia Bevere, one of the authors, of the study said: “Insured losses were highest in North America in 2010, where they exceeded $15 billion. Despite very low hurricane losses due to the absence of hurricanes making direct landfall in the US, a series of lesser storms throughout the year resulted in this high figure.” Earthquake losses accounted for almost one third of all catastrophe losses in 2010. The February 2010 earthquake in Chile and the September earthquake in New Zealand were the two costliest events in 2010, and led to insured losses estimated at $8 billion and $4.4 billion respectively. Overall natural catastrophe claims in 2010 were in line with the 10-year average due to unusually modest US hurricane losses and in spite of notably high earthquake losses. Incidentally, earthquake losses for 2011 will also be above average as the total insured claims for the February 22 earthquake in Christchurch, New Zealand, are estimated to be between £6 billion and $12 billion. Balz Grollimund, another of the study’s authors, added: “Although no long-term trend of increasing global earthquake activity has emerged, the number of fatalities and insured losses from earthquakes are on the rise. The main reasons are population growth, the higher number of people living in urban areas as well as rising wealth and rapidly increasing exposures. Many of these rapidly growing urban areas are located in seismically active areas.”

800 percent hike in natural catastrophe costs says study

2011-03-25T12:21:00.001Z

The cost of natural catastrophes to the global insurance market has increased eight fold in the space of the past 40 years according to new research from German insurance giant Allianz.

The underwriter’s natural catastrophe risk experts have highlighted the growth trend in insured losses arising from natural catastrophes worldwide in a risk briefing published this week

The report found the average annual cost of insured claims from natural catastrophes has increased 800 percent since 1970 up from some $5 billion in the 1970s and 1980s to over $40 billion in 2010. The main reason is economic growth: property values are rising and areas of population density are expanding, often in highly at-risk areas – a trend that is compounded by the fast growth of some Asian economies in catastrophe-prone regions.

However, the Allianz analysts also found that, during the past decade, the earthquakes which caused the highest fatalities were not necessarily the strongest ones. For example, the 2010 quake in Haiti released 500 times less energy than the quake that hit Chile two months later – yet the Haitian quake wreaked much more havoc.

“The factors which determine the impact are complex and include building design and materials, severity of secondary earthquake effects like tsunamis or fires and lack of preparedness,” it added.

Proper risk management prior to an event and preparation for a possible natural disaster are identified as key factors in reducing the impact.

The underwriter said: “Using their experience of risk management and claims investigations, insurers such as Allianz can advise their clients on how to analyse risks including natural catastrophes, how to prepare in advance and – for businesses - how to restore operations quickly after an event – a vital element in minimising business interruption losses.

“The insurance industry plays an important role when it comes to helping those affected by natural catastrophes, advising on preparedness and prevention and analyzing risk. Teams of claims regulators, risk managers, natural catastrophe experts and economic research specialists work hard to support clients and to understand natural catastrophes and their effects. “

“Terrible events like major natural catastrophes illustrate the value and importance of insurance to society,” says Clement Booth, board member of Allianz SE. “The most important thing is to help those affected unbureaucratically and quickly – and to have a lot of empathy.”

Liability move for re/insurer

2011-03-18T02:44:00.003Z

As its parent group grapples with the aftermath of the Japanese earthquake international re/insurer Kiln has announced it has formed a new operation to enter the liability market.

The new liability function will pump new capacity into the general liability risks with the operation led by Chris Jones, will initially focus on writing primary and excess business in the open market, as well as supporting and developing Kiln's market-leading position in the binding authority field. It will operate with a $25m line size and will write across all business sectors, for risks domiciled in all territories worldwide excluding the USA.

Classes underwritten will include onshore energy; utilities and telecommunications; contractors and construction industry; single project construction; mining and natural resources; manufacturing; chemicals; railways and transportation; sports and leisure; property owners, and hotels and real estate. Mr Jones joins Kiln from D.A. Constable Syndicate 386, which is now part of QBE.

He said: “Kiln has an excellent reputation in the market and I’m thrilled with the opportunity to lead this new strategy at such an exciting time. We are currently recruiting high-calibre individuals to expand and enhance our capability as part of our long-term aim to become a high-quality participant in the liability sector. This is an exciting development for the market and I’m looking forward to the challenge.”

The liability team will be within the Property and Special Lines (PSL) division of Kiln Syndicate 510 at Lloyd’s, which is led by Robin Hargreaves.

He said: “Placing the liability function within the PSL team maximises our opportunities to tailor a full product offering to meet our clients' business needs.” “This is a real step-change for Kiln as we take our significant expertise in the short-tail market into this exciting new field. Chris' vast experience in this area will be a significant asset for us as we grow.”

It comes as reports in Asia say that the Japanese non life insurers are said to be considering a sell off of part of their overseas assets as they look to meet the cost of the earthquake and Tsunami.

Analysts in Japan have been reported in the Asian media as saying the underwriters will need to enhance their cash levels to pay for the claims as an estimated 300,000 people remain homeless and the death toll has risen to in excess of 15,000.

Initial Pacific tsunami cost close to Katrina

2011-03-11T17:19:00.001Z

The Japanese earthquake and Tsunami is set to be the most costly event since Hurricane Katrina.

Despite the Tsunami still having to make its way across the pacific the insured costs are already estimated at well in excess of $60 billion

However Dr Adrian Chandler from the Aon Benfield UCL Hazard Centre said the costs could have been multiples of the figure had it not been for the building codes and resilience in Japan.

“The 1995 Kobe Japan earthquake (M 6.7) directly impacted a major urban area and caused the loss of over 6,500 lives and widespread severe damage or collapse of buildings. Economic losses exceeded $130bn. As a result, a new generation of seismic design codes was developed to implement a performance-based structural engineering framework in Japan. This explicitly addresses life-safety, reparability and functionality issues and requires sophisticated building design approaches to meet multiple performance objectives. The earthquake ground motion used for seismic design at the life-safety limit state is the site-specific shaking (i.e. stronger on soft soils) of a rare earthquake that is expected to occur once in approximately 500 years. For damage-limitation design, earthquake shaking at the level of once every 50 years (roughly the life-span of a structure) is employed.”

He added: “The 10 March 2011 earthquake (M8.9) has its origins offshore in a major earthquake subduction zone. Only 6 earthquakes have occurred worldwide in the last 50 years of this magnitude, and it is the largest ever to strike Japan. Its affects are very widespread and reach as far as Tokyo 250km away. The fault rupture is expected to be in the order of 500km in length and a tsunami-wave of 7-10m in height has struck the port of Sendai and stretches across the NE coastal region of Honshu Island with inundation extending several kilometers inland. Due to the proximity of the quake to the shoreline (less than 50km) the warning systems could provide only minutes notice of the tsunami wave striking the coast.

“Research on tsunami-resistant design in Japan and the US has led to a number of proposed solutions including the deployment of “vertical evacuation refuges” in combination with the early-warning systems in place for tsunamis. This is a building having sufficient height to elevate evacuees above the level of tsunami inundation and is designed and constructed with the strength and resiliency needed to resist the effects of tsunami waves. To date, few such structures have been built but there is no doubt such solutions can provide simple but effective measures to ensure life safety in such events, and prevent difficulties in achieving wide-scale evacuation in the minutes that such warnings may provide.”

Syndicates warned time for Solvency II action is now

2011-02-28T10:51:00.001Z

Underwriters at Lloyd’s have been told they need to increase their pace if they are to meet the demands of the market when it comes to preparing for Solvency. II

Broker and adviser Towers Watson has warned he clock is ticking for Lloyd’s insurers and the market needs to move into a higher gear following the publication of Lloyd’s 2011 Solvency II implementation timetable.

Mike Wilkinson, management consultant at Towers Watson said, “With seven parallel Lloyd’s workstreams, each with overlapping and challenging deadlines, agents will need to ensure resources are highly focused on delivery but at the same time ensure that the complexities of Solvency II are fully understood and integrated into a coherent framework.”

He added with two months of the year already gone, Lloyd’s syndicates face an intensive period of activity if they are to meet the “demanding Solvency II implementation schedule” for 2011.

Following consultation with the FSA and the market, Lloyd’s has issued its Solvency II guidance for 2011. The objective is to enable Lloyd’s to submit an overall Lloyd’s Internal Model (LIM) application by 31 January 2012. The guidance notes include an intensive schedule of activity in 2011 for managing agents and syndicates from March through to December, to drive the delivery of the end product.

Before the end of the year, each managing agent must confirm that they are sufficiently ready to enable Lloyd’s to submit its Solvency II internal model application in January 2012. But to do so, they must also demonstrate to Lloyd’s – and in many cases the FSA – that the many deadlines from March through to December are consistently being met.

Towers Watson warned that with the added threat of sanctions for not meeting key objectives, many agents’ existing resources will be stretched, in particular those that are already behind Lloyd’s current target positions. As many of the detailed regulatory requirements are still to be finalised, agents will also need to be sufficiently well prepared to be able to respond rapidly to Lloyd’s submission templates as they are published.

Mike Wilkinson added: “In only eight months time, each syndicate will need to submit a full and robust Solvency Capital Requirement (SCR) on a Solvency II basis. But agents will also need to be careful not to shift their focus away entirely from the qualitative aspects as a robust SCR is as much about process, validation and integration into the business as it is the technical calculations. This will be crucial for internal model approval.”

Underwriters warn regulator threatens to impact London’s global future

2011-02-28T10:50:00.001Z

The International Underwriting Association it to canvass its membership over the plans by the UK regulators to scrap its obligation to take a global view of London’s position as a risk centre.

It warned London’s competitiveness as a financial centre is in danger of being ignored under plans for a new regulatory structure in the UK, given the fact that in the past part of the Financial Services Authority’s (FSA) remit has been to consider the City’s role as an international hub for financial services.

But this obligation has been scrapped in government proposals to share industry regulation between the Bank of England and two new bodies: the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA).

Nick Lowe, the IUA’s Director of Government Affairs, said: “Overall the emphasis of proposals outlined by HM Treasury are on preventing financial crises and managing systemic risk. This is, of course, a vitally important objective, but it is disappointing that there appears to be no consideration given to maintaining London’s pre-eminent position in the international financial services sector.

“Competition in our industry is as fierce as ever and unless London remains an innovative and efficient place to do business there is always a danger of it losing out to other financial centres around the world.”

Elsewhere the Treasury consultation paper ‘A new approach to financial regulation’ outlines how the PRA will be the main regulator for insurers including wholesale insurance business, but the FCA will also have a part to play.

“Our member companies are still concerned about the possibility of duplication of regulation with two separate supervisory bodies,” added Mr Lowe. “We will have to consider how these two authorities operate in practice, but clearly there must be close cooperation between the regulators.

“I am also pleased to see that government recognises insurance is different from banking and poses less of a systemic risk, though it would be fairer to say that any risks to the economy from insurance are not systemic.”

The call to arms over piracy gathers pace

2011-02-18T11:02:00.001Z

The spectre of shipowners arming crews and enlisting specialist military to guard vessels as they navigate through the piracy infested waters off the Somali coast has increased dramatically this week.

Despite the rise in the level of attacks many underwriters have been loathed to give a green light to carryng armed personnel on vessels due to the liability issue and the dangers to hull if vessels get involved in a fire fight with the pirates.

However as the number of vessels and crews rise the industry has changed its mind and while not backing the armed escort have said they are happy to leave it to the owners themselves.

This has been evidenced this week as the International Union of Marine Insurance welcomed the announcement by the International Chamber of Shipping that it is now taking a more neutral position on the use of private armed security personnel on board ships to protect them from pirates.

IUMI, which announced in January that it was up to individual insurers whether to provide cover for ships and operators if private armed guards were employed on board.

ICS chairman Spyros Polemis said: “ICS has had to acknowledge that the decision to engage armed guards, whether military or private, should be made by the ship operator after due consideration of all risks, and subject to approval of the vessel’s flag state and insurers.”

Ole Wikborg, the Oslo-based president of IUMI, said: “We anticipate that more industry organisations will go down this route as the problem escalates. Frustrated by the weak resolve on the part of governments and international agencies to take effective action to stop the piracy juggernaut in the Gulf of Aden and the Indian Ocean, the shipping industry is now reaching a point where it must take decisive – and, if necessary, deadly – action at sea to end this huge and dangerous business.

“At a time when the industry is struggling against weak freight markets and other adverse factors such as sanctions, it cannot afford to bleed more money from pirate activity, nor to see an increasing number of vessels and their cargoes captured. That goes for insurers too.

“Above all else, the fact that more than 700 seafarers are being held hostage, many for very long periods, and that attacks on ships are becoming more violent, must surely tip the scales in many cases where shipowners have to make painful decisions.”

Capacity influx dampens mining market rates

2011-02-07T13:23:00.001Z

Despite a torrid 2010 which was marked by significant loss events the global mining sector has seen a rush of insurance capacity for 2011 which has stymied attempts to increase rates.

Broker Willis launched its annual revenue of the global mining insurance and risk markets at the annual Mining Indaba conference in Cape Town which reported despite a 30 percent rise in natural catastrophes last year, insurance rates for good quality risks in the operational mining market continued to decline in 2010, for the second year in a row.

Willis said the decline was in a very large part due to a surge in demand for mining commodities attracting $1.8 billion of insurance capacity to the sector.

Speaking at the event, Steve Higginson, Willis Mining Practice Leader in Australia said, “There has been a very noticeable ‘flight to quality’ with underwriters looking to focus their capacity on quality risks operated by groups that can show definitive proof of an embedded enterprise-wide risk management protocol, together with a strong and defined sustainability commitment. For these quality risks, rates in the mining sector have been generally softening over the past two years. However, for risks that cannot illustrate the required degree of quality, the insurance market remains tough with high deductibles and relatively high pricing.”

Mr Higginson said that it is too soon to tell how much of an impact the recent floods in Australia will have on insurance pricing in 2011, but added that along with last year’s mining disasters in Chile and New Zealand, the floods highlight the importance of risk management and insurance to the mining industry. The broker’s report includes a chapter on disaster management that asks whether internal crisis committees are effective.

Looking ahead at the main challenges facing the mining industry in 2011, Andrew Wheeler, Willis Mining Practice Leader in the UK, said that sustainability is rising to the top of the risk agenda: “With an ever increasing focus on the environment and increasing resource nationalism, mining activities are not only expected to be financially and technically sound, but must also demonstrate that they have a social license to operate by implementing sustainable development initiatives and supporting the local community.”

Hannover says 1/1 exceeds expectations

2011-02-02T10:51:00.002Z

Hannover Re became the first reinsurer to comment on its January 1 renewals with Chief Executive Ulrich Wallin saying he was “satisfied” with the treaty renewals completed.

Indeed the underwriter said it had maintained a disciplined stance with its pricing and said it had refused to renew underpriced business while also obtaining price rises in some areas.

“The renewals passed off better than expected for our company, despite softening tendencies in the market,” Mr Wallin added. “We achieved broadly stable rates and conditions and are therefore thoroughly satisfied with the outcome. In certain segments, such as offshore energy business and European motor liability, we were even able to push through price increases.”

Around two thirds of Hannover Re’s treaty business was up for renewal as of 1/1 worth altogether EUR 3.28 billion (67%). Of that total a premium volume of EUR 2.9 billion was renewed, while treaties worth EUR 284 million were either cancelled or restructured.

“Against the backdrop of more intense competition, we set particularly great store by selective underwriting of treaties. We were thus again able to generate profitable growth in this year's renewal phase,” Mr. Wallin explained.

Hannover Re added that financial strength was continuing to play a major part in the buying decisions of cedents.

“The treaty renewals again demonstrated the considerable importance that ceding companies continue to attach to a reinsurer's financial strength. A very good rating is a prerequisite for a reinsurer if it is to be offered and awarded the entire spectrum of business,” it said.

Looking towards the year ahead the underwriter said it was confident of further progress barring any major events.

'For 2011 we see sufficient opportunities for selective profitable growth. In this context we shall concentrate on segments where prices are rising or where they adequately reflect the risks,” Mr. Wallin added. “The company expects net premium earned from its total non-life reinsurance portfolio to remain stable or show modest growth of up to 3% in 2011 combined with healthy profitability.”

Hannover Re said it expects net premium in life and health reinsurance to record an increase in the range of 10% to 12% in the current financial year.

“For total business Hannover Re anticipates net premium growth of approximately 5% at constant exchange rates,” it added. “Assuming that the burden of major losses remains within the expected bounds and as long as there are no sharp downturns on capital markets, Hannover Re is looking to generate Group net income in the order of EUR 650 million. As to the dividend, the company still anticipates a payout in the range of 35% to 40% of its IFRS consolidated net income after tax.”

European re/insurers told the focus now on Solvency II

2011-01-23T21:27:00.003Z

Ratings agency Fitch hosted its annual European Credit Roadshow in London this week and its head of insurance said the industry had nothing to prove in terms of financial resilience.

Chris Waterman, Managing Director in Fitch's Insurance Group, said: “Whilst the majority of European insurers have proved resilient to the crisis, with most rating outlooks now stable, the preparation for Solvency II, which is due to be implemented in January 2013, will be a key issue for the sector this year.

"Whilst Fitch does not expect widespread rating actions as result of this, implementation will place a significant time and resource constraint on insurers. Broadly speaking, companies that raise capital or de-risk to enhance their regulatory capital position could experience positive rating pressure whereas those which fail to meet minimum S2 requirements, or are close to solvency margin, may be downgraded," added Waterman.

However Fitch warned the European financial picture was a lot less secure.

"2011 will be a crucial year as governments pursue fiscal austerity and, at the European level, the new policy framework and rules of the game are defined for governments and investors," said David Riley, Fitch's Head of Global Sovereign Ratings. "The crisis is systemic in that it reflects concerns about the Euro and Euro area governance, as well as peripheral country vulnerabilities, and it will require a European wide as well as national level policy response.

“Despite these challenges, Fitch believes that underlying credit fundamentals are stronger than current levels of risk pricing imply, and that the risk of a break up of the Euro zone remains small. However, until governments are seen to have placed public finances on a sustainable path and economic recovery is secure, sovereign credit ratings will remain under pressure and further bouts of market turmoil are likely.”

Dan Robertson, Fitch's EMEA Head of Global Infrastructure and Project Finance Ratings told delegates "In general, EMEA infrastructure transactions have demonstrated significant rating stability through the downturn and the outlook for most sectors has stabilised. This is supported by the often essential nature of the assets, structural protections in the transactions and the inclusion of downside risk in Fitch's ratings.

"Those transactions that have suffered have mostly seen only modest downgrades and the few examples of more severe rating actions have been due to transaction specific factors, such as major resource over estimation. Whole Business Securitisation is the exception to this rule and Fitch sees a risk of further deterioration in both the pub and healthcare sectors.”

New war risk clauses will deliver clarity says Marsh

2011-01-19T15:32:00.001Z

Broker Marsh is attempting to drive clarity into the issues surrounding piracy and war risk coverages with the launch of a new set of clauses.

The broker said the rise in the threat of piracy over recent years, particularly in the and around the Horn of Africa has seen a move by London underwriters shift the risk into the war policy away form the hull policies where it has traditionally been included.

Nick Riddle, Senior Vice President in Marsh’s Marine Practice explained the rise in the scourge of piracy has seen an increasing shift in where that exposure is now insured.

“The hull clauses as we know them have been in place since 1983 and the last major changes to the war policy clauses were in 1995,” he explained. “Recent years has seen the situation, particularly with concern to piracy, change dramatically.

“What has been seen in recent years is a move by hull underwriters to exclude cover for piracy and for the risks to be assumed by the war risk polices.”

There is a financial reason for such a move as war risk policies contain an option for the underwriter to charge a higher premium if vessels are to travel through designated high risk areas.

Last month the Joint War Committee made up of Lloyd’s and London market marine underwriters said it had increased the area which it deemed as high risk of piracy attack to one stretching from the Gulf of Aden almost to the coast of India.

“What has been clear is that the changes to the clauses which have been implemented piecemeal have left many confused as to what is and is not covered and without doubt there have been some owners who wrongly thought they were covered,” added Mr Riddle. “In the Norwegian market the war risk policy has always assumed the piracy risks but London has been different. We believe there needed to be clarity so that owners can understand the coverage they need and the policy which is needed to assume that risk.”

He said: “The new clauses have been designed after detailed discussions with underwriters, maritime lawyers and clients.”

World warned global economy cannot take another major shock

2011-01-14T15:53:00.002Z

As world leaders head for the Swiss ski resort of Davos the World Economic Forum has issued a stark warning that the global economy had been badly damaged by the financial crisis.

Robert Greenhill, Managing Director and Chief Business Officer at the World Economic Forum launched the WEF Global risk report by saying the financial crisis has “drained the world’s capacity for dealing with shocks”.

“Twentieth century systems are failing to manage 21st century risks; we need new networked systems to identify and address global risks before they become global crises,” he said.

In particular, economic disparity and global governance failures are shaping the evolution of many other global risks, and inhibit our capacity to respond to them. The interconnectedness and complexity of issues mean that unintended consequences abound, and traditional risk response mechanisms often simply shift risk to other stakeholders or parts of society.

Published in cooperation with Marsh & McLennan Companies, Swiss Reinsurance Company, the Wharton Center for Risk Management and Zurich, Global Risks 2011 draws on the insights of 580 expert respondents to the Forum’s Global Risks Survey 2010 across stakeholder groups and regions, measuring perceptions of risk likelihood, impact and interconnections for 37 global risks over a 10-year time horizon. The results of this survey are included in the report. Global Risks 2011 also provides insights on a number of emerging risks and outliers to this year’s global risk landscape that could surprise us in the future.

Through a combination of quantitative and qualitative survey methodologies, Global Risks 2011 concluded that three key clusters of risk are creating significant liabilities for the coming decade:

The first is macroeconomic risks, with the report stating the global financial crisis was built on longer term structural weaknesses in the global economy. Macroeconomic imbalances, fiscal crises in the developed economies, massive unfunded social liabilities and weak financial markets form a complex nexus of economic risk. Crisis-induced indebtedness has reduced the capacity to handle further shocks to critically low levels.

Daniel M. Hofmann, Chief Economist, Zurich Financial Services Group, said: “Current fiscal policies are unsustainable in most industrialized economies. In the absence of far-reaching structural corrections, there will be a high risk of sovereign defaults.”

Christian Mumenthaler, Chief Marketing Officer, Reinsurance and Member of the Executive Committee, Swiss Re, added: “Long-term unfunded liabilities created by ageing populations mean that fiscal pressures will continue to grow. It is only through true public-private partnerships that we can ensure that the related financial challenges are addressed and that increased longevity remains an entirely positive trend for society.”

The report said the second was the growing illegal economy as greater numbers of failed and fragile states, increasing levels of illicit trade, organized crime and corruption form a nexus of criminal risk.

“A networked world, governance failures and economic disparity create opportunities for illegality to flourish. In 2009, the value of illicit trade around the globe was estimated at US$ 1.3 trillion and growing,” said the report. “These risks, while creating huge costs for legitimate economic activities, weaken states, threaten development opportunities, undermine the rule of law and keep countries trapped in cycles of poverty and instability. Effective international cooperation is urgently needed.

Finally was the limits to the growth in resources.

“The world faces hard limits at the most basic level in terms of water, food and energy,” it added. “Rising populations and consumption and climate change drive this challenge, while interconnections between these issues make response difficult. Most interventions only create new and worse problems, or shift risk across the nexus. Shortages of core resources will only create more conflict between the social groups, nations and industries that need them.”

Reinsurer invests in power plant scheme

2011-01-06T09:26:00.002Z

Munich Re, via its asset manager MEAG, has concluded what is described as “a significant investment deal” involving wind power plants in Germany.

The deal has seen the underwriting group acquire 40 wind turbines in a total of 11 wind parks with an overall power output of 73 megawatts.

The investment for the reinsurance segment was said by the company to be in “the low three-digit million [Euro] range” and forms part of the RENT programme (Renewable Energy and New Technologies), through which Munich Re plans to invest up to €2.5bn in renewable energies and new environmental technologies over the next few years.

"This acquisition shows how Munich Re can profit from its expertise in the Group. Our scientists determine the meteorological suitability of locations for wind power plants, while our engineers assess the technical aspects of the plants, their risks and performance. We will also use this know-how in the future to build up investments in renewable energies and to achieve attractive returns," said Board member Thomas Blunck, responsible among other things for the reinsurance group's investments.

Nearly all of these wind parks in Thuringia, Brandenburg, Mecklenburg-West Pomerania, Saxony-Anhalt and Lower Saxony are already on the grid. The seller is wpd AG, Bremen, one of the leading project developers and operators in the European wind energy market.

Munich Re launched the RENT investment programme at the start of the year. The investment volume to date, in the low three-digit million range for insurance and reinsurance, has been limited to photovoltaic panels in Germany and other European countries. Munich Re's asset manager MEAG is responsible for selecting and managing the investments

Oil spill scheme revealed

2010-12-21T14:12:00.001Z

The ambitious schemed announced in September to create a reinsurance consortium to provide high levels of capacity for the coverage of US oil spills has moved a step closer to reality.

It has been announced intermediaries Guy Carpenter and Willis Re are working alongside Aon Benfield as placement advisors to a new sudden oil spill consortium, which aims to deliver larger liability limit coverage for deepwater drilling in U.S. waters.

All energy retail brokers will be able to access the facility, SOSCover, on behalf of their clients.

Grahame Chilton, Chairman of Aon Benfield, said: "It is terrific to see the re/insurance industry working together to deliver a solution at a time of customer demand and need. Munich Re helped enormously with the initial concept for the liability product, and now other leading industry players and the oil industry will assist in the development of the terms and conditions of the sudden oil spill facility, SOSCover.”

Aon Benfield has agreed to manage the consortium, which expands on the concept announced by Munich Re at the 2010 Monte Carlo Rendez-Vous and involves the re/insurance markets working together to deliver a new product that brings significantly larger limits than have previously been available for U.S. deepwater drilling.

Munich Re along with other re/insurers is in the process of committing significant capacity to this new insurance class. The sudden oil spill consortium will work alongside the oil industry to deliver a solution that will help ensure that the product will deliver coverage that is of value, and limits on a per well basis that have not been available before in the marketplace.

Torsten Jeworrek, Member of Munich Re’s Board of Management, added: “It was clear from the very beginning that substantial capacity can only be provided by a joint effort of the international re/insurance industry. We are very happy that the broker community will promote the project and help to gather the necessary capacity. With Aon Benfield, Guy Carpenter and Willis Re, we found the perfect partners with the expertise, the resources as well as the contacts to realize such a huge project. The broker community can be assured that we will give support wherever necessary.”

Record Chinese flood year will not hit insurers hard

2010-12-20T10:37:00.001Z

Despite China experiencing one of its worst seasons of flooding in 2010 since the Yangtze River floods of 1998, low insurance penetration has limited the impact on the insurance market.

A new report by reinsurance intermediary Guy Carpenter into the floods found that while the economic losses from its flood-related disasters are significant, the impact on the insurance industry is likely to be limited due to low insurance penetration levels in China.

“While China is exposed to virtually every type of natural disaster, earthquake, typhoon and flood have had the most devastating impact, with flood being the most frequently occurring peril,” said David Lightfoot, Guy Carpenter’s Managing Director, Head of GC Analytics - Asia Pacific. “Our report seeks to provide a clearer understanding of the 2010 flood season, possible contributing factors and the growing role of re/insurance to mitigate the financial impact of catastrophes.”

Triggered by an unusually severe monsoon season, China experienced record-high water levels at 25 rivers in the summer of 2010, resulting in massive flooding that caused an aggregate estimated economic loss amount of approximately 350 billion Yuan, or $52 billion.

The report found that while the estimate for total insured losses is still being developed, the insured loss will likely only amount to 1 percent to 2 percent of the total economic losses stemming from the floods, due to low insurance penetration levels. Indeed, although varying from treaty to treaty, the impact on the majority of non-marine proportional reinsurance treaties is expected to be limited.

Lawrence Liao, Guy Carpenter’s CEO of Mainland China and Hong Kong, added: “At Guy Carpenter, one of our chief priorities is to address the risk and reinsurance needs of China’s fast-growing insurance marketplace. With our newly granted license to operate as a full-service provider in China, we can continue our focus on helping clients analyze increasingly complex risk exposures and develop creative solutions for managing them.”

New cat scheme has reinsurer covered

2010-12-14T10:05:00.001Z

Swiss Re has announced the creation of a new catastrophe bond the first of which that includes a reserve account to create further protection for the noteholder.

The reinsurer has obtained $106.5 million in coverage against North Atlantic hurricane, European windstorm, Californian earthquake, Japanese earthquake and Japanese typhoon through a natural catastrophe protection programme named Vega Capital Ltd (Vega).

In its announcement Swiss Re said the deal means it is “securing three years' of natural catastrophe protection on both a multi-event and multi-peril basis through a second takedown under the Vega cat bond programme. Vega has a flexible structure that allows multiple issuances of securities at any time.”

Martin Bisping, Swiss Re Head of Non-Life Risk Transformation, says: "Vega allows Swiss Re to manage earnings volatility arising from peak natural catastrophe perils, over multiple events. It is an innovative cat bond that combines transparent indices for five different natural catastrophe scenarios with an efficient structure. Vega underscores our track record in product innovation, transforming high frequency cat events into capital markets."

Swiss Re added Vega is the first cat bond programme with a reserve account to enhance protection to noteholder principal.

“Investors chose between two risk layers, benefiting from enhanced index triggers and achieving diversification across five natural catastrophe risks in different regions of the world,” said the reinsurer.

Disaster costs triple in 2010 says reinsurer

2010-12-02T15:12:00.001Z

The Chief Economist of Swiss Re has said the cost of natural catastrophe in the past year highlights the needs for a greater level of insurance penetration in developing nations across the world.

Thomas Hess, Chief Economist of Swiss Re, commented:”The humanitarian catastrophes again showed how important prevention and post disaster management are for protecting the lives and health of people affected by natural hazards.

“They also revealed large differences in how developed insurance systems are in the affected countries and how important insurance is in coping with the financial consequences of disasters. While most of the costliest events caused by the earthquakes in Chile and New Zealand and the winter storm in Western Europe were covered by insurance, events like the earthquake in Haiti and floods in Asia were barely insured.”

According to initial estimates from Swiss Re’s sigma team, worldwide economic losses from natural catastrophes and man-made disasters were $222 billion in 2010, more than triple the 2009 figure of $63 billion.

The cost to the global insurance industry was $36 billion, an increase of 34% over the previous year. Approximately 260 000 people died in these events, the highest number since 1976.

Sigma said in 2010, severe catastrophes claimed significantly more lives than the previous year: nearly 260 000 were killed, compared to 15 000 in 2009.

The deadliest event in 2010 was the Haiti earthquake in January, claiming more than 222 000 lives. Approximately 15 000 people died during the summer heat wave in Russia, while the summer floods in China and Pakistan also resulted in 6 225 deaths.

In financial terms natural catastrophes cost the global insurance industry roughly $31 billion in 2010, and man-made disasters triggered additional claims of approximately $5 billion.

By way of comparison, overall insured losses totalled $27 billion in 2009. Despite notably higher than average earthquake losses, overall claims in 2010 were in line with the 20-year average due to unusually modest US hurricane losses. However, the estimate of $36 billion is still subject to uncertainty due to, amongst other things, the ongoing European winter storm season.

In the first eleven months of 2010, eight events each triggered insurance losses in excess of $1 billion. The costliest event in 2010 was the earthquake in Chile in February, which cost the insurance industry $8 billion, according to preliminary estimates.

The earthquake that struck New Zealand in September cost insurers roughly $2.7 billion. Winter storm Xynthia in Western Europe led to insured losses of $2.8 billion.

Property claims from the BP Deepwater Horizon explosion in the Gulf of Mexico are estimated at $1 billion. Given the complexity of the claims, the figure is still subject to substantial uncertainty. The overall insurance loss is higher, as liability losses are not included in the sigma numbers. Floods in France during the month of June caused insured losses just below $1 billion.

These events caused economic losses to soar to an estimated $222 billion, compared to $63 billion in 2009.

Big three will drive Middle East market says Best

2010-11-23T10:14:00.002Z

The growth of the Middle East as a global insurance and risk centre will be driven by its three top performers according to ratings for A M Best (Best).

The firm has issued its Middle East regional review and said while the insurance markets of the Middle East are widely considered to offer growth opportunities Best expects three countries, in particular, to stand out in the coming years.

Best tracks 83 life and non-life companies operating in the Middle East and believes the United Arab Emirates (UAE), Saudi Arabia and Qatar are the three largest insurance markets in the Gulf Cooperation Council (GCC), and are also the Middle East’s most dynamic markets, with total gross premiums written (GPW) in 2010 for all three countries combined likely to rise by 15%-20%.

It said there are a range of drivers supporting market expansion. These include higher oil prices and increased government infrastructure spending, which will fuel the need for cover in the non-life insurance sector.

The introduction of Takaful has created an opportunity for protection to be provided to the Muslim population, the report added. Takaful has already enjoyed strong take-up, albeit from a low base, and increased demand, particularly for family Takaful, will continue.

“Notwithstanding the potential for insurers and reinsurers operating in the UAE, Saudi Arabia and Qatar, significant challenges are ahead for market participants. These include greater pressure to focus on achieving technical profits as investment income is expected to continue to remain below pre-crisis earnings levels,” it added.

The report said Best recognises the regional business model of low retentions and significant reinsurance purchases “although it is cautious of companies that are overly reliant on reinsurance, which may foster a lack of underwriting expertise”.

There are a number of key criteria issues Best believes insurers, reinsurers and Takaful operators face in the UAE, Saudi Arabia and Qatar. These include a lack of diversification in investment portfolios and that enterprise risk management (ERM) is not being fully embedded into company structures.

“However, ERM adoption is increasing, particularly in response to the global financial crisis, and companies rated by A.M. Best will be aware of the importance of ERM in the rating process”, added the report.

ERM now vital as Solvency II looms

2010-11-23T10:03:00.002Z

The impending implementation of Solvency II and the increasing expectations among rating agencies are driving insurers to continue to bolster their enterprise risk management (ERM) programmes, according to a recent survey commissioned by professional services company Towers Watson.

The results of Towers Watson’s sixth biennial Insurance Industry ERM survey found that Solvency II remains the primary focal point for European insurers, and implementation challenges are becoming more evident.

The firm said Solvency II brings with it an increasing focus on all aspects of risk management within companies.

“It makes a direct link between risk and capital requirements and this will have far reaching implications of the organisation including product design, pricing, hedging and reinsurance and capital optimisation,” said the report.

Naren Persad, senior consultant at Towers Watson, said: “This would help explain why a significant majority of respondents to our ERM survey indicated that they intend to develop internal models for at least some risks. The survey also notes that internal model preparedness is a concern, with only 10 percent of respondents believing that their internal models would currently pass the approval requirements.

“This is likely to be one the greatest challenges facing companies and some markets have already put in place formalised processes for supervisors to assess and are likely to approve the internal models for companies before the start of Solvency II.”

Another key finding in the survey is around the lack of available resources. According to the research over half of European insurers (53%) view people challenges as their greatest challenge in terms of implementing ERM.

Mr Persad added: “We have seen a significant demand for skilled resources in Europe as companies continue their preparation for Solvency II, however only 23 percent of respondents are focusing on skills/resource development as a priority. Solvency II requires skilled finance, actuarial and risk management resources and these are in short supply. This is a particular problem as companies, supervisors and company advisors will all be competing for scare resources at the same time.

“Companies should now be looking to utilise their own internal resources via training programmes and Solvency II project work to embed the knowledge within the organisation.”

Credit market sees positive trends says report

2010-11-22T12:09:00.001Z

The drastic steps taken by the global markets for credit insurance and surety bonds in the light of the financial crisis are starting to pay off report by reinsurance broker Guy Carpenter.

The broker has published its fourth annual Insight from Guy Carpenter’s Credit, Bond and Political Risk Team: 2010 Market Update which has found positive signs as the market is starting to rebound.

John Orchard, Guy Carpenter’s Global Head of Credit, Bond & Political Risk Specialty said: “The global reinsurance sector is still highly important to the behaviour of the credit, bond and political risk sector. While there may be localised deterioration, the broader market likely will continue to perform well because of the remedial steps taken during the period of poor economic performance.

“We believe we are at the mid-point of a typical cycle and are entering a profitable period, and our outlook remains quietly optimistic.”

In terms of the credit market the report found that mid-year 2010 results for the leading credit insurers show strong improvements, as all key insurers in the class enacted core underwriting plans to turn around previous results.

It added the general success in avoiding severity losses underscored the sector’s primary challenge in a downturn – reducing and avoiding attritional losses, however there remains concern that subsequent easing of underwriting parameters could continue without adequate regard for the prevailing downside risk. The report added that Profit fell during the peak of the downturn for the key mono-line credit insurers, but bottom line results were not catastrophic.

In terms of the surety classes overall, the sector continues to show significant growth potential, although reinsurers are concerned that the market has yet to experience the true extent of losses resulting from the economic downturn, added the report.

It said growth potential exists in specific areas, as infrastructure projects remain a priority in many countries. Power facilities continue to be a major source of activity, and mining projects are slowly returning to market. Governments may also provide further short-term, limited impetus by creating work for the private sector.

However, the sector’s growth potential is balanced by challenges in the non-construction bond segment. Customs and other legal bonds continue to face the threat of reduced trade activity, potentially harming the financial status of importers and logistics companies.

In terms of reinsurance the report said the reinsurance community is generally concerned that bond insurers have not yet experienced a downturn due to the longer tenors of the underlying exposures.

“If reinsurers are correct, meaningful losses will continue in the sector, with pricing/structures likely to reflect this development into 2011,” the report added.

Reinsurer launches study into G8 flood cover gap

2010-11-22T12:08:00.002Z

Swiss Re has said it is to launch a discussion paper to look at the ways in which flood insurance can be provided for homes in Canada.

The study entitled “Making Flood Insurable for Canadian Homeowners,” has been released by the Institute for Catastrophic Loss Reduction (ICLR) and supported by Swiss Re, and outlines the steps and solutions to resolve the problem of Canadian homeowners being unable to purchase insurance for overland flood damages.

At present, homeowners in Canada cannot purchase overland flood insurance and instead are left to rely on government-provided financial assistance programs after flood events.

The report concludes flood insurance has many advantages over government relief programs. Insurance companies already have well-established methods for assessing and paying claims, which can result in a faster recovery. Risk based premiums and deductibles can also provide incentives to encourage actions to reduce flood risk.

“Canada is the only G8 country where flood insurance is not available to homeowners. With other forms of water-damage being covered, such as sewer backup and burst pipes, and with commercial entities being able to purchase flood insurance, the coverage void tends to confuse – even anger – homeowners when they discover that they are not covered after a flood event,” said Paul Kovacs, executive director of the Institute for Catastrophic Loss Reduction.

He added: “The provision of flood insurance for Canadian homeowners will put Canada in line with most other industrialized countries, and end any confusion that exists with regard to water-damage claims.”

The paper advocates a partnership between the insurance industry, government and private homeowners. Additionally, it explores historical flood damages in Canada, current flood management practices at the national level in Canada and flood management practices for four case study provinces: Ontario, Quebec, British Columbia and Alberta.

“One of the biggest barriers to implementing flood insurance in the Canadian market so far has been adverse-selection. What the report demonstrates is how to overcome this barrier by bundling flood insurance into homeowner insurance policies that cover other perils such as fire or theft,” explained Sharon Ludlow, President & CEO, Swiss Re in Canada. “The bundling approach has been in place in the U.K. for the past fifty years and, as the findings of this report show, is the best suited model for Canada."

Lloyd’s to get tough on claims

2010-11-19T09:49:00.003Z

The Lloyd’s market has put claims at the top of the agenda for 2011 but it will see the corporation seeking a far higher level of corporate governance.

Under its plans the market is to drive adherence to its published set of market standards for the handling of claims in the market believing that technology is key to the ability of syndicates and managing agents delivering higher levels of claims services to policyholders.

But with the market attracting a huge level of interest from external claims experts and systems providers Lloyd’s is set to draw up an approved third party partner list from which the market will be able to access outsourced services and expertise.

However the news has been greeted without any real enthusiasm by some in the market believing they require the freedom to choose their own third party partners which fit their claims strategies and more importantly their budgets.

The plans were revealed at the monthly market update meeting of the London Market Group's and Lloyd’s is to launch a new scheme aimed at attracting talent into the claims sector.

The five year scheme will see 50 people put through a 12 month training scheme which will involve specific training and placements with brokers, underwriters, law firms and loss adjusters and culminate in chartered insurance and other specialist claims exams.

However the scheme is not only for graduates but will also be open to staff who have been in the market for up to three years and are seeking to specialise in the claims sector.

While there are 50 paces open for the scheme Lloyd’s has revealed that it has already had 100 applications from under graduates from Warwick and Durham universities.

QBE to acquire US specialty business

2010-11-19T09:26:00.001Z

The announcement by Australian insurance group QBE that it has agreed to acquire the US insurance operations of Renaissance Re (Ren Re), have been met by a cautious approach from analysts.

Ren Re’s US operations include a US crop and small specialist program insurance business with QBE stating the purchase price is expected to be around $275 million, with net tangible assets acquired of approximately $215 million.

Frank O’Halloran, QBE’s Chief Executive Officer, said “The acquisition is in line with our strategy of acquiring specialist businesses to further enhance our product diversification and distribution. The acquisition is complementary to the NAU crop insurance business announced in June this year. The acquisition is expected to be earnings per share accretive in year one, subject to the usual caveats.”

The deal will see QBE acquire Ren Re subsidiary Stonington Insurance Co., Lantana Insurance Ltd., and Stonington Lloyd's Insurance and will be funded from existing resources and subject to the necessary regulatory approvals is expected to be completed in March next year.

QBE said the business acquired is expected to generate over $350 million of gross written premium in 2011 and net profit after tax of over $30 million.

However, on the news rating firm Standard & Poor’s said it placed its 'A+' counterparty credit and financial strength ratings on Glencoe Insurance Ltd., Stonington Insurance Co., Lantana Insurance Ltd., and Stonington Lloyds Insurance Co., which are subsidiaries of Renaissance Re Holdings Ltd. on CreditWatch with negative implications.

It said: “The rating action follows today's announcement that Renaissance Re has entered into a definitive agreement with QBE Holdings Inc. to sell its U.S. property/casualty business underwritten through managing general agents, its crop insurance business underwritten through Agro National Inc., and its commercial property insurance operation for year-end 2010 book value.”

"The CreditWatch placement reflects our view that we could either affirm or lower the ratings on Glencoe Insurance Ltd., Stonington Insurance Co., Lantana Insurance Ltd., and Stonington Lloyd's Insurance Co.," said Standard & Poor's credit analyst Taoufik Gharib. "The ratings on Renaissance Re Holdings Ltd. and its other subsidiaries are not affected by this transaction."

S&P said it was likely to resolve the CreditWatch status of the ratings on Stonington Insurance, Lantana Insurance, and Stonington Lloyd's Insurance upon the closing of the transaction.

“We will assess these three companies' importance to QBE Holdings,” it added. “If we consider them to be strategically important subsidiaries and believe their stand-alone credit characteristics plus QBE Holdings' implicit support are below that of the current 'A+' rating, we could lower the ratings by one notch. Conversely, if we consider these three entities core subsidiaries of QBE Holdings based on explicit support, we could affirm the ratings.”

European windstorms set for greater intensity

2010-11-17T11:29:00.001Z

The latest research on the potential threat posed by European windstorms points to fewer events in future but warns of a higher intensity in those which occur.

Reinsurance broker Aon Benfield, has issued a briefing on uncommon European winter storm tracks in conjunction with the University of Cologne. The research points to a lower total number of events in the future but indicates intense storms moving over the North and Baltic Seas towards Eastern Europe, following a similar path to windstorm Kyrill.

Dr Joaquim Pinto from the Institute of Geophysics and Meteorology at the University of Cologne – part of Aon Benfield Research’s academic and industry collaboration – explains: “Scientific research shows that the storm climate in Europe has changed considerably over the past 130 years, exhibiting decadal periods of high and low activity. The last decade was characterized by average or calm conditions, following a period of strong activity which peaked during the early nineties. The occurrence of recent storms like Klaus, Kyrill and Xynthia are therefore considered to be a part of the climate system’s natural variability.”

In recent years, Europe has witnessed major damage from winter storms Klaus, Kyrill and Xynthia which followed uncommon tracks. These travelled eastwards and on a lower latitude than usual along the edge of the dominant North Atlantic storm track.

Dr Adam Podlaha, international head of Impact Forecasting, commented: “Central and Eastern Europe’s insurance market penetration continues to grow, resulting in a gradual increase in exposure. While the meteorology may remain mostly unchanged, losses in the near future might increase, thus heightening the appetite for understanding the risks to the region.”

His views were backed by Dr Alexandros Georgiadis, catastrophe model developer at Impact Forecasting, who added: “Existing catastrophe models only partially capture the climatological variability of European windstorms. The next generation of catastrophe models must address these challenges as model developers expand coverage into new European territories, responding to higher insurance market penetration in Central and Eastern Europe.”

ALPS FI in London launch

2010-11-17T11:20:00.002Z

Russell Group launched the latest of its ALPS Portfolio management systems which will serve the financial institutions market.

Underwriters and brokers from the London and European insurance markets gathered at the London Underwriting centre for the launch of ALPS FI.

The Group’s ALPS system already operates in the aviation and space markets with initiatives also underway in both marine and energy markets. ALPS enables underwriters to accurately and efficiently price specialty risks.

However as Russell Group Managing Director Suki Basi explained the need for such a system in the Financial Institutions classes was pressing. “The financial and economic crisis of the past two years has given underwriters pause for thought in terms of the FI market. For a period capacity for FI risks including D&O and E&O was extremely scarce and the available capacity was very costly.

“The problem underwriters faced was to adequately quantify and understand their exposure levels and the ALPS system enables them to do just that.”

Mr Basi added: “We have recently launched ALPS into the space market and we are planning further system roll outs into the other specialty classes in the coming 12 months. Those existing underwriter and broker clients who are using the system are happy to talk about the benefits they have derived from the system.”

At the launch Mr Basi provided an introduction to Russell and the ALPS system, while Product Manager Matthew Maddocks gave a demonstration of the new system and its significant benefits for aggregation, pricing and porfolio modelling.

MGA’s bullish about future market

2010-11-12T09:21:00.001Z

There is a growing sense of optimism amongst the specialist market MGAs and Program Administrators in the United States for the prospects into 2011 and beyond a survey has found.

Reinsurance broking giant Guy Carpenter published the results of its yearly survey of the Program Administrators and Managing General Agents (PA/MGA) market, which is said provides a benchmark study of key industry issues.

The report, the Sixth Annual Specialty Insurance Program Issuing Carrier Survey found 90 percent of the survey participants estimate the total PA/MGA market to be at least $20 billion in gross written premium (GWP), approaching the 2008 peak of 92 percent. Approximately one-third believe the market to be greater than $40 billion in GWP, the highest level in the six years that Guy Carpenter has conducted this survey.

Bob Kimmel, Head of North American Programs, at Guy Carpenter said: “The Program Administrators and Managing General Agents market continues to demonstrate resilience, consistency and strength as it progressively shows signs of recovery and stabilization. Over the past five years, we have witnessed several significant shifts indicating that the market has matured, from the growth in the number of carriers entering the space and number of MGAs shifting to writing specialty-driven lines from more commodity-driven lines, to the increased sophistication of MGAs as they focus on more complex commercial risks using cutting-edge analytical and underwriting tools.”

The survey found market stability remains the prevailing observation among those surveyed, with 59 percent seeing virtually no change in PA/MGA market size, 23 percent forecasting growth and 18 percent expecting it to shrink.

However the view of underwriting performance is a little different with 30 percent estimating a market-wide combined ratio of over 100 percent – a drastic change from 8 percent in 2009. The majority (71 percent) estimate a program market combined ratio of 90 percent to 100 percent, compared to 92 percent last year.

In terms of challenges only 42 percent see premium growth as a challenge, falling from 58 percent last year and 66 percent in 2008. In all 51 percent of the respondents report that new business production is a challenge, compared to 67 percent in 2009 and 77 percent in 2008.

Rating levels continue to be of concern for the PA/MGA market, climbing to 71 percent this year, up from 61 percent in 2009 and 58 percent in 2008.

Reinsurance continues to play an important role for program issuing carriers. Only 5 percent report that they work exclusively with direct reinsurers, with 35 percent working with reinsurance intermediaries and 60 percent using a combination of intermediaries and direct reinsurers.

It is the dawn of the age of the actuary says reinsurance broker

2010-11-09T16:02:00.001Z

The Institute of Actuaries of Australia’s 17th General Insurance Seminar has been told that the role of the actuary has never been more important to the future success of the specialist insurance market.

Aon Benfield’s David Maneval addressed the event on the “critical role of actuaries in managing emerging risks for the re/insurance industry”.

He said the profession’s role will evolve to deliver more robust Enterprise Risk Management (ERM) frameworks and will start designing potential scenarios rather than solely performing retrospective statistical analysis, given the events of recent times.

He added: “The last decade has witnessed several large scale emerging risks such as the 9/11 terrorism attack, a global financial crisis and an eruption of the Eyjafjallajökull volcano in Iceland. Asbestos liability is a key example of the impact of claims on the insurance industry, which had not anticipated such costs at the point of underwriting and led to a number of insurer insolvencies.

“On the horizon, new risks are emerging in the shape of regulatory shifts, climate change, inflation, cyber risk, nanotechnologies and pandemics.”

Mr Maneval, Head of Actuarial & ERM in Asia Pacific for Aon Benfield Analytics, added: “Managing emerging risks is an opportunity for actuaries to add significant value to the risk management function. Actuaries are critical to embedding the ERM framework and the profession is becoming increasingly experienced in correlation with demand. With risk also comes opportunities, hence the importance of being proactive in building resilience to change and being prepared for emerging risks.”

He explained actuaries “are extremely well placed to develop response strategies using their ERM skills to apply an effective framework”.

He said the role of actuaries is likely to evolve as they were charged with designing prospective scenarios, rather than solely performing statistical analysis.

“In the absence of historical data, expert opinions need to be integrated in the design of specific scenarios; the actuarial role is becoming broader,” he added.

In addition, rating agencies and increasingly regulators are less likely to provide favourable opinions when re/insurers fail to demonstrate emerging risk management processes.

Iraq deal aims to deliver new products and pricing for energy and aviation firms

2010-11-09T11:27:00.002Z

Broker Marsh has announced an agreement with Anglo Arab Insurance Brokers (AAIB), the only international broker to be licensed and registered to operate in Iraq, in an effort to attract greater insurance commitment to the country’s power energy and aviation sectors.

As they launched the exclusive arrangement Simon Boxall Managing Director of Marsh’s Global Energy Practice said the aim was to deliver greater levels of information to international underwriters who are still reluctant to accept risks in the country which is still suffering security issues.

He said: “The difficulty is getting staff on the ground to assess the risks and as such underwriters will price the risks accordingly because they feel they do not have a good understanding of the risk.

“Our aim is to be in a position to provide the level of information that the underwriters need at a time when there is huge investment in the Iraqi power, energy and aviation sectors.”

He admitted there remained security and political risk concerns in the market but added that the benefit of the deal was to have brokers sitting alongside the policyholders in the country.

“Our fundamental aim is to ensure our clients in the country are paying the right level of premium for the coverage they are asking for,” added Mr Boxall.

William Wakeham, founder and CEO of AAIB, which has offices in Baghdad, Basra and Erbil, said: “The cementing of our agreement with Marsh is very exciting for AAIB as we continue to pioneer in the Iraqi insurance market. We have been established in Iraq for over five years and have spent that time developing our product base, deepening our understanding of the regulatory and operational environment and forging important relationships with local businesses, underwriters, loss adjusters and lawyers.

“After years of sanctions and war, Iraq is investing billions of dollars into the rebuilding of its economy. The opportunities are clear, but the risks are significant. Companies entering Iraq need to know they have access to the best available coverages and risk management advice, are compliant and, in the event of a claim, able to gain the maximum possible return on their policy investment. Our presence on the ground in Iraq means we can help companies invest there with greater risk confidence.”

2012 threatens a space storm odyssey warns Lloyd’s

2010-11-08T13:12:00.002Z

Insurers and their clients have been warned not to ignore the potential impact of a wave of space storms which are due to hit the planet.

Lloyd’s has compiled a new risk report in on the threat posed by solar storms as a new solar cycle moves into position in 14 months.

The report which has been produced in conjunction with RAL Space warns a new 11-year solar cycle will begin, bringing with it magnetic storms that could disrupt power supplies, transport and communications systems, causing widespread disorder around the world.

The publication is entitled ‘Space weather: its impact on Earth and implications for business’, and examines the threat for business as the weather in the space around earth nears its ‘solar maximum’ period - when its effects are likely to be most severe.

Trevor Maynard, Manager, Lloyd’s Emerging Risks, said: “Space weather, like ordinary weather, varies considerably in its severity and can occur incrementally or as a one off. This isn’t a new phenomenon, space weather has always existed, but it is our growing dependence on electricity based technology that has exacerbated the threat and made us more at risk than ever. Awareness of the risk is a first step towards managing it.”

It warns space weather damage in one sector could have a domino effect on others, with a magnetic storm potentially wiping out a power grid for months, disrupting electricity and gas. This could then directly affect transport, food refrigeration, clean water supply, communication systems, and could set society back at least 100 years.

For example in 1989, the Quebec power grid shutdown in 90 seconds after a magnetic storm triggered a cascade of operational failures. It took nine hours to resolve the problem, leaving five million people without electricity during the Canadian winter, and costing an estimated C$2billion.

Mike Hapgood, report author and Head of the Space Environment Group at RAL Space, said: “Space weather is a serious risk that has long been overlooked and it’s time for businesses to know the wider impact it can have on them. This report outlines the many ways that these space weather disturbances can disrupt business activities and, most importantly, what businesses can do to reduce these risks."

Nat Cat calculation standards slammed by broker

2010-11-05T09:03:00.003Z

Reinsurance intermediary Aon Benfield has criticised the planned calculations for natural catastrophes under the solvency II regime as a step backwards.

The firm said the proposed natural catastrophe calculations are “ignoring 15 years of critical evolution” under the currently proposed Solvency II Standard Formula, warning it could lead to higher capital requirements for insurers when the regulation comes into force.

Paul Miller, head of international catastrophe management at Aon Benfield, said: “The proposed Standard Formula for catastrophe is a disappointing backward step in catastrophe modelling. For the majority, the standard approach will be inappropriate or give unreasonable results as data quality and portfolio differentiators are totally ignored. The next two years are crucial for brokers to provide catastrophe modelling support as re/insurers register internal models with the regulator and demonstrate how they are using advances in catastrophe modelling to obtain a more realistic picture of their risks.”

The intermediary added: “Catastrophe risk is a key driver for capital under Solvency II, with the benchmark to withstand a 1-in-200 year event for natural and man-made disasters. There is a basic calculation method that insurers can use to determine their Solvency Capital Requirement.”

However it said the methodology for the standardized scenarios for natural catastrophe modelling overlooks key data features including:

· Location granularity (CRESTA zone data is insufficient)

· No differentiation by occupancy (residential, commercial or industrial) or construction, age and height

· Single damage function so no differentiation between buildings, contents and business interruption cover

· No application of limits and deductibles

“The use of CRESTA zone data in exposure calculations was common 15 years ago, but now most re/insurers (and all commercial catastrophe models) utilize far more detailed data,” added Mr Miller. “This means re/insurers could be relying on inaccurate data to establish their risk, resulting in higher capital requirements. “

Axa derives windstorm cover via Calypso deal

2010-11-02T14:56:00.001Z

A Euro 275 million catastrophe bond has been placed on behalf of Axa Global to provide coverage for European windstorm events.

The protection has been provided via Euro 275 million of notes issued by Calypso Capital, limited a special purpose company which is domiciled in Dublin. The deal was structured by Swiss Re Capital and provides protection on an occurrence basis, and is the first to utilise a Perils index trigger weighted by Cresta zone (country-specific zones for uniform data reporting) and by line of business. Guy Carpenter acted as the broker for the issuance.

Calypso was structured to provide AXA Global P&C with cover for European windstorms in Belgium, Denmark, France (excluding overseas territories), Germany, Ireland, Luxembourg, The Netherlands, Switzerland, and the UK.

Its single tranche series 2010-1 notes are the first issuance under a EUR 1.5 billion principal-at-risk variable-rate note shelf programme. The three-year notes are rated “BB (sf)” by Standard & Poor’s and are scheduled for redemption in January 2014. Collateral for this issuance consists of a global master repurchase agreement with BNP Paribas.

“We are pleased to support AXA's risk management objectives with a transaction that is the largest single European wind exposed ILS issuance to date. It marks further strategic leverage of the data supplied by Perils,” said Jean-Louis Monnier, Swiss Re's Head of ILS Europe. “The ILS market continues to benefit from the enhanced transparency that Perils brings to the European insurance sector."

Eric Paire, Managing Director and European Insurance Solutions Group Leader, Guy Carpenter added: “We are proud to have been selected by AXA to deliver this innovative product to the market. Calypso is the first cat bond to utilize the Perils industry loss exposure database for the modelling analysis and the second cat bond to utilize Perils industry loss service for the trigger calculation."

LMG to roll out endorsement system following marine pilot

2010-11-01T13:18:00.001Z

The electronic endorsement trial has been hailed a success by the London Market Group (LMG) and will begin a three phase roll out across the market in 2011.

The LMG said its decision to open the electronic endorsement programme to the wider market had come in the wake of “the successful launch of the live pilot in the marine business classes”.

Barnabas Hurst-Bannister, Chairman of LMG, said that “Early signs are encouraging from the pilot. We have seen significant volume of endorsements being sent by brokers and are collating feedback – which has been both positive and negative as one would expect at this stage. It is vital we build on this good start through the remainder of this year and into 2011. Many firms need to know LMG’s plans for next year to enable them to plan and allocate budget. Although dependent on the current pilot, this decision provides that clarity.”

The LMG said it has agreed a roadmap covering three phases of roll-out. “These will result in all classes of business handled by the London market being supported by the electronic processes now being piloted for some marine classes,” it added. “Remaining marine classes and professional indemnity will be completed by mid-Summer. Terrorism, US property and treaty reinsurance are planned for implementation in the autumn, with all other classes going live around the turn of the year.”

Rob Gillies, Head of Market Processes at the Lloyd’s Market Association and project manager for London’s implementation of electronic processes to support placing, added: “We will evaluate the outcome of the current pilot, identify the lessons to be learnt, and address technical, process and practice issues. Of course we need to get it right but this decision sends a clear message that electronic processes, supporting business placement as well as other parts of the risk lifecycle, are an essential part of the market’s future.”

Randall & Quilter buys Guy Carpenter admin and consulting operation

2010-11-01T11:33:00.001Z

Specialist non-life insurance investor, service provider and underwriting manager Randall & Quilter, (R&Q) has agreed to acquire Reinsurance Solutions Limited (RSL UK), from Guy Carpenter and Marsh Limited.

The group has paid $10 million for the business which specialises in the provision of administration and consulting services to the active and run-off (re)insurance industry. RSL UK provides broker replacement services for UK insurers and service providers in run-off. RSL US provides insurance consulting and run-off administration services for US based re(insurers), state liquidation departments and regulators.

Commenting on the acquisition, Ken Randall, R&Q’s Chairman and Chief Executive, said: “We are delighted to have reached agreement with Guy Carpenter to purchase the RSL businesses and ETMC.

“In addition to generating additional sustainable profits for the Group’s insurance services division, the RSL businesses will increase the Group’s client base and depth of expertise and should generate other cross-selling opportunities.

“We also look forward to managing the ECRA pool and providing services to the CMC Pool, the participants of which are major players in the North American reinsurance market.“

R&Q added: “The fit with the group’s existing operations in the UK is excellent. As well as bringing the efficiency benefits of scale, RSL UK will further establish Randall & Quilter as a leading player in the broker replacement market. In the U.S., RSL will provide the Group with a substantial third party service business to balance the Group’s existing operations, currently focused on managing the three owned insurance company portfolios.”

In 2009, the RSL businesses generated fees of over $13m and $1.75m* in pre-tax profit from 85 clients (based on pro-forma unaudited management accounts). There are 75 employees in total; 40 in the US and 35 in the UK.

Following the acquisition, R&Q intends to restructure the RSL businesses, the costs of which will be taken in the current financial year.

In addition, the Group has agreed to acquire Excess & Treaty Management Corporation (ETMC) and certain related employees from Guy Carpenter.

ETMC is a management company for the run-off of the Excess Casualty Reinsurance Association (‘ECRA’) pool. It will be acquired for a consideration of $1 on a debt free basis and at completion is expected to have c. $9.5m in funding, related to the business’ expected future ECRA servicing costs.

Following the acquisition, the Group has also agreed to provide run-off management services using ETMC’s employees to the Carpenter Management Corporation in respect of its U.S. based managed run-off pool (the ‘CMC Pool’)

Regulation will pose real threat in 2013 warns intermediary

2010-10-27T15:17:00.001+01:00

Broker Willis has warned the insurance and reinsurance markets that the implementation of Solvency and accounting standards in 2013 will send shockwaves through the global market

With insurance companies bracing themselves for the double hurdles of Solvency II and the new International Financial Reporting Standard (IFRS) in 2013, Willis Re has published two reports on the current developments in insurance regulation and reporting, adding that those who feel that the impact will be restricted to Europe should think again..

David Simmons, Managing Director, Analytics and Head of International Enterprise Risk Management for Willis Re said, “The differences between Solvency II and IFRS versus existing standards are startling and the implications huge, particularly if insurers are moving from a local standard with very different rules on reserving.

“Solvency II and IFRS will have profound implications for all insurance professionals in Europe, but the repercussions will be felt worldwide with the new IFRS being adopted by most major economies in 2013 and the rise of Solvency II-like regulatory regimes worldwide.”

The two reports, “QIS5: Solvency II Nears the Finishing Line” and “Insurance Contract Accounting, Edging Towards a Global Standard”, are said Willis Re aimed at helping insurance organisations find a path through the forest of new regulations and develop appropriate strategies to win and thrive in this unchartered business territory.

The new IFRS is being rolled out at the same time as Solvency II, and Willis Re’s reports detail how the new regimes will require additional compliance efforts, new skill sets, updated standards of data capture and additional costs for insurance companies. “Many insurers do not have the right staff and systems to deal with these developments in combination, and there is little time to prepare,” said Simmons.

Key findings in the reports include:

The broker said; “Solvency II will mean that regulatory capital will be an issue for the first time for many insurers. In fact, 11 percent of insurers failed to meet the Solvency Capital Requirement under the fourth Quantitative Impact Study (QIS4). QIS5 is tougher and it is expected that the failure rate will be much higher, especially for smaller, regional insurers who are unable to benefit from diversification credit. Reinsurance, an efficient form of surrogate capital, will be vital to many companies’ ability to meet the new standards.”

It added the new IFRS rules will lead to increased volatility for insurance accounts. Some territories also will see the abolition of equalisation and catastrophe reserves.

James Vickers, Chairman of Willis Re International and Specialty explained: “The additional workload on companies from Solvency II and IFRS will be considerable but not without benefit. Willis Re has built its business based upon this new landscape, and we will deliver to our clients the expertise, tools and assistance that they will need to succeed and grow in this more complex new environment.”

New Securitisation deal revealed as reinsurers meet in Baden Baden

2010-10-27T15:16:00.001+01:00

While much of the talk at the annual Baden Baden Reinsurance meeting focused on price and discipline Swiss Re announced a placement of a new mortality risk securitisation.

The reinsurer revealed the transfer of $175 million of extreme mortality risk to the capital markets through the Vita securitization programme.

It is the third time in the past 12 months that Swiss Re has successfully securitized extreme mortality risk under its latest Vita Capital IV Ltd. programme (Vita IV), with a total of $125 million issued in Series I and II in November 2009 and May 2010.

Swiss Re's Head of Global Life & Health Risk Transformation, Alison Mckie, explained: "The Vita programme provides very efficient risk protection and capital relief, enabling us to provide more client solutions."

Under the transactions, Swiss Re may receive payments from Vita IV of up to $100 million in the event of extreme population mortality in the U.S. or Japan and up to $75 million in the event of extreme population mortality in Canada or Germany.

Vita IV, in turn, has issued two new series of notes, Series III and IV notes, to the capital markets, each of which is linked to extreme mortality risk in the respective covered areas. Both series of notes mature in 2015 and are rated BB+ by Standard & Poor's.

"While Series I and II provided coverage in the UK and U.S., the latest issuance of Vita IV notes broadens the coverage by including additional countries, reflecting Swiss Re's global mortality business," added Ms Mckie.

Swiss Re has a history of periodically securitizing its life risks, obtaining over $1.5 billion in extreme mortality risk protection from its Vita programmes.

Swiss Re Capital Markets acted as sole manager and bookrunner on the notes issuance. Collateral for the new Series of Vita IV notes consists of securities issued by the International Bank for Reconstruction and Development.

Brit Management recommend sale to venture capital firm.

2010-10-27T13:13:00.001+01:00

The broad of Brit insurance holdings has said it is to recommend to shareholders to accept a bid for the company from private equity operation Apollo.

Under the terms of the agreement Brit would be acquired by Achilles which is a newly-incorporated company formed on behalf of, and which will be majority-owned by, funds managed by Apollo Management VII. and funds advised by CVC Capital Partners Limited.

The deal would see all accepting Brit Shareholders entitled to receive £10.45 in cash plus a Contingent Value Payment (CVP) of up to £0.25 in cash per Brit share. In addition, Entitled Brit Shareholders, being Brit Shareholders who were on the register of Brit Insurance on 22 October 2010 will remain eligible to receive the £0.30 Capital Distribution payable in cash on 7 December this year.

Brit Chairman John Barton said: “I am pleased that we have reached agreement on the terms of the Offer which values Brit Insurance’s shares at a significant premium to the prevailing market price prior to the commencement of the Offer Period. Having given full consideration to the Offer from Achilles, the Independent Directors believe it represents good value for Brit Shareholders and recommend that they accept the Offer.”

The recommendation came as Brit issued its interim statement for the third quarter of the year in which Brit said the expectation was that competition would continue well into next year.

It added: “The outlook for Global Markets’ key business lines is finely poised and in this context a focus on portfolio management and risk selection are the key to outperformance. The highest risk adjusted returns exist within Reinsurance where the Group continues to operate close to its maximum catastrophe risk appetite.”

Chief Executive Dane Douetil said: “The third quarter saw broadly a continuation of the trends experienced in the first half of the year. Underwriting remained competitive in most classes whilst the Group again experienced better than expected investment returns. Our approach has also been consistent with previous quarters, with our underwriters strongly defending business that can be renewed at adequate prices whilst being prepared to walk away from inadequately rated business.

“Cost control has been an important priority as we shrink the top line in response to a weakening market. We will go into 2011 well equipped to deal with what we expect to remain a competitive marketplace.”

It is skill not site which delivers success reinsurers are told

2010-10-25T10:28:00.001+01:00

As the debate over domiciles continues leading members of the global reinsurance market have had their say at the annual Baden Baden meeting.

Intermediary Guy Carpenter hosted a debate on the issue of “Does Domicile Matter?,” examining on the relative merits of re/insurance hubs in Bermuda, London and Europe, and the drivers behind new centres such as Zurich.

Victor Peignet, CEO of SCOR Global P&C told the audience that successful companies had the flexibility to adapt to the changing regulatory and business environment.

Mr. Peignet said that for global groups there is not just one but a range of domiciles, and that while the parent company’s domicile may be the most visible; it may not be the most critical.

He added: “Every group must have its own vision of the optimum domicile structure based on its history and legacy. However, this structure is not fixed but is a moving target, and the successful groups will be those that make the right choices at the right times. They will have geared their company structure to their optimum domiciles, with sufficient flexibility to adapt their vision, and to change and manage their structure closest to the optimum at all times.”

However John Berger, Vice Chairman of the Board and CEO of Reinsurance at Alterra Capital said site did not matter.

He acknowledged that every domicile has its advantages and disadvantages, but added there were other factors that were of greater value to the success of the company.

“To a degree, the choice of domicile can be largely irrelevant as what will effectively determine the level of success for any organisation is the quality of its leadership, its underwriting talent, and the overall financial strength of the company,” added Mr Berger.

Unsurprisingly Tom Bolt Director of Performance Management at Lloyd’s said London remained the global centre for re/insurance and that was down to talent and concentration of capacity not tax regime.

He highlighted the advantages offered by operating within the London market, stating he believed the importance of access to market had to be considered.

“It's not domicile that matters, it's market access,” he added. “London remains the only place in the world where all 20 of the world's largest insurers and reinsurers have offices, and the concentration of talent and expertise on one underwriting floor at Lloyd's, let alone within a square mile of the building, should not be underestimated.”