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BADEN-BADEN REPORTER
WEDNESDAY | 22 October 2014
WE HAVE SPECIALISTS IN EVERYTHING
FROM AVIATION TO AGRICULTURE.
Aviation and Agriculture. Energy and Engineering.
Marine and Motor. Not to mention Credit and Surety
and Property – we can support you with high-flying
experts in all of these fields. Our underwriters
understand your business and your market – and
due to their long-standing experience they can
support you with solutions that fit and matter.
Contact us at qatarreinsurance.com or better still
meet us in person at one of the industry conferences.
Interview with Peter Frei, Chief Risk Officer, Qatar Re
Qatar Re is committed to the highest
standards of risk management. State-ofthe-art tools and processes are therefore
a key element in the company’s strategic
positioning. With the implementation of its
newly developed exposure management
tool, Qatar Re is taking big strides to
managing its exposures in a centralised
and efficient way.
What would you say were the key
achievements in Risk Management
at Qatar Re over the past one and a
half years?
Basically we started from scratch. Over the past
one and a half years we built an exposure
management tool that is in place and rolled out
globally. It covers all Property exposures and is
linked to our underwriting data mart which stores
all relevant underwriting and claims data centrally
in order to avoid any redundant information. In
addition it provides the basis for our real time
exposure tracking process including about 40 of
the world’s most important scenario zones and
several hundreds of peril zones. At the end of
September 2014, we started to record the
geographical footprint of all facultative risks as
well. This means that we are geo-coding and
storing all locations of our facultative risks (single
or multiple location accounts) individually. In
addition, in Q4 2014 we will begin to extend our
exposure management tool to certain specialty
lines of business, such as Aviation, Marine and
Energy offshore. Good data quality and
completeness, however, are key to producing
valuable output and meaningful analysis.
Would you say that in terms of
processes and systems, Qatar Re is
still in its start-up phase or already
fully established?
We have come a long way in a very short amount of
time and are now in a position to estimate our
property post-event losses within a few hours.
This has only become possible thanks to the
exposure management platform which was
developed internally and now allows us to maintain
and continually expand its capabilities.
Why has it been important to get the
platform up and running so quickly?
From the beginning, Risk Management has been
seen as a strategic priority. The decision was taken
to pursue an integrated portfolio management
approach to underwriting, exposure and claims
management as well as efficient capital utilisation.
As a result, this has become a clear differentiating
factor and competitive advantage for Qatar Re. In
addition, the approach is backed by Qatar Re’s
parent company Qatar Insurance Company who
supports us in setting guidelines, requirements as
well as the risk appetite for our company.
Sounds all good, but what
challenges remain?
We are a small team, and even though we work
very closely with our colleagues in Underwriting,
Claims and Actuarial, there is still much to be done
to interlink and optimize our processes even
further. It’s an integrated process which requires
high quality and commitment from all involved –
from the underwriters to the risk and claims
managers through to the pricing and reserving
actuaries.
In summary one can say that we are the forefront
of the industry with state-of–the-art tools and
systems that allow us to look at each exposure
individually as well as measure its impact on our
overall portfolio. As such, our clients benefit from
an integrated approach, offering both speed and
in-depth expertise.
Peter Frei, Chief Risk Officer: Peter has 25 years of experience
in leadership positions in the insurance and reinsurance
industry. His areas of expertise are underwriting, enterprise
exposure management, major event loss reserving,
retrocession and model development. He co-established the
European catastrophe index provider PERILS AG in 2009
following a career of 15 years at Winterthur Re and PartnerRe.
Furthermore, he received a special award from the
Environmental Systems Research Institute (ESRI) for
developing a GIS (geographic information system)-based
enterprise exposure management system and was involved in
multidisciplinary loss assessment projects. Peter holds a
Master’s degree in civil engineering from the Swiss Federal
Institute of Technology Zurich with specialisation in earthquake
engineering and is member of a number of professional
associations (e.g. SIA, SGEB, SSA).
CONSIDERED DECISIONS?
OR SPEED OF RESPONSE?
WE’RE EXPERTS AT JUGGLING BOTH.
We empower our underwriters to make
decisions, without going round and round the
circles of a hierarchy. We can do this because
our underwriters are acknowledged experts in
their spheres. Experts who can make decisions
where – and more importantly when – they
matter, based on a thorough understanding of
your markets, their risks and your needs.
Contact us at qatarreinsurance.com or better
still meet us in person at one of the industry
conferences.
BADEN-BADEN REPORTER
WEDNESDAY | 22 October 2014
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in association with
Broker tie-up
gives Bolt pause
for thought
Tom Bolt’s Baden-Baden hasn’t been
spoiled by Standard & Poor’s
revising its outlook on the Lloyd’s
market to stable and he rebuts some
of their analysts’ implied criticisms
– for example that the market’s
smaller insurers will face problems
maintaining their market shares.
(see page 10 for Lloyd’s story)
“This presupposes that the
small insurers want to maintain
market share rather than let it
shrink a little. In fact, smaller
insurers can be more nimble,
compared with other sized
companies that are not so nimble
and maybe don’t have control over
the brokers they source business
from,” Lloyd’s director of
performance management told
Reactions Baden-Baden Reporter.
“Let’s not throw all the little guys
out with the bath water. They can
do quite well if they are nimble and
know their book.”
S&P’s recent note also cited a
lack of geographic diversification in
the Lloyd’s market’s premium base,
but Bolt says it is representative of
the world economy.
“We have 43% of our business
from the US and Canada and 18%
from the UK. That’s simply a
reflection of insurance as a
proportion of the world’s GDP. It is
a reflection of the economies we
Tom Bolt
serve. Put simply, China is big but
the insurance penetration isn’t. As
insurance economies grow we will
be there to take advantage of it. We
shouldn’t count the crop before the
shoots come out of the ground.”
Commenting on anxieties in
the market over the growing
dominance of the three big brokers,
Bolt said broker concentration isn’t
desirable – but it’s understandable
in the current environment. Willis
announced on Monday that it has
entered into talks with Miller to
take a majority interest in the
“independent” broker and create a
wholesale specialist broking firm.
“We like to see diverse group of ➢
IN TODAY’S ISSUE
3
Call for action over systemic
cyber risk potential
7
Europe stimulates insurance M&A
activity uptick
10 Canopius goes for growth
under Sompo’s wing
4
New models make waves in US
and Europe
8
2014 set to break ILS
issuance records
11 Solvency II boosts run-off activity
to new high
4
E+S Rück expects stable
treaty renewals
8
Flood Re could increase risks
to U.K. insurers
11 News in Brief
4
Cedants push for extra cover rather
than on prices
9
Risk managers can’t get
no satisfaction
7
Wider deal choice soothes nerves
at Baden-Baden
10 Negative pressures lead to Lloyd’s
outlook revision
12 SII charges ignore asset rating
differences: Fitch
12 News in Brief
Aon Benfield
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Risk. Reinsurance. Human Resources.
#BB2014
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Tel: +44 (0)20 7779 8184
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London 2014
Although Euromoney Institutional Investor PLC
has made every effort to ensure the accuracy
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can accept any legal responsibility whatsoever
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Call for action over systemic
cyber risk potential
Cyber risks were on the menu of
the breakfast briefing hosted by
Lloyd’s on Tuesday morning in
Baden-Baden’s Kurhaus.
Aon Benfield’s cyber expert
Tom Wakefield possibly ruined
some appetites with his
description of the potentially
catastrophic systemic threats
posed by cyber risk.
“The risk represented by
cyber attack or cyber terrorism
now goes beyond the theft of
records and into the breakdown
of critical infrastructure. It is now
possible for hackers or criminals
to launch a serious physical
damage attack. We have entered a
different world in terms of cyber
exposure,” Wakefield said.
He said that the cyber risk
insurance market has grown
rapidly and now stands a $3.5bn
annualised premium, but it is
more related to data loss/breach
and 70% of it is US based.
Contingent business interruption
and bodily injury for example are
among the possible effects of a
cyber attack, however.
The major threat to reinsurers
is systemic risk, Wakefield said.
“Lloyd’s is taking steps to make
insurers identify their exposure
to cyber attacks. That helps from
a reinsurance point of view
because if you can track your
underlying exposure you can
manage your aggregates.
“However there are still some
issues, for example around
write-backs or ‘incidental
exposure’. Also there are some
grey areas around all risk
property coverages. Reinsurers
need to stay more focussed on
Tom Wakefield
exclusions than they have been in
the past,” Wakefield warned.
“If you don’t think that it is
important then try to imagine an
airliner being hacked and
remotely directed into an office
building – the aviation policy
may be silent, the property policy
may be silent. We need to work
out how to cover this exposure.”
Broker tie-up gives Bolt pause for thought
Continued from page 1
➢ intermediaries. We always have a good relationship
with the London wholesale market. With one of the
big four taking on one of our key producers you have
to stop and think about it,” he said. “The brokers are
under incredible pressures around expenses so
co-operations are probably a good thing. The
industry has to get its costs down, so if that part of
the chain can be more efficient then that’s great.”
The consolidation of broker panels has also been
a conversation topic at Baden-Baden this week.
“Our big concern is for underwriters to make
underwriting decisions. If you are in a broker panel
that becomes a blind pool we don’t see that as a
positive move,” he said. “But Lloyd’s has done
business for years with brokers where they lead a
‘facility’ and the results have been good. We’re
against not having underwriting control.”
Lloyd’s chief risk officer Sean McGovern was
recently reported to be cracking down on Solvency 2
stragglers. Bolt says the market is keen to get Lloyd’s
own internal model approved so it is important to
help everyone in the market get across the line. “We
have 91 syndicates, so in the run up to 2015, when we
are trying to pass the ‘use test’, we’re trying to make
sure people have the resources to make it happen.”
Reactions Baden-Baden Reporter | www.reactionsnet.com
The number of Lloyd’s syndicates continues to
grow, with the Standard Club and also China Re
having businesses in the pipeline. There’s likely more to
come but Bolt remains cautious over how many will
pass the test. “We have a few. But we require a plan that
gives the expectation of profit and brings something
new to the party. We have a pretty active and robust
market with what’s already here,” he advises.
Commenting on specific risk issues on the radar,
Bolt identifies cyber risk and aggregation as a
potential problem.
“What worries us about cyber is if policies are
silent on it or if they have thrown it in accidentally.
Our concern is, how do we keep track of the
aggregation and the limits of risk that the market is
exposing itself to. An attack could span an industry
or a system – say a computer operating system,”
he says. “What would that mean for our
aggregate exposure?
“So we have asked people to think about that
and the LMA has had meetings with underwriters in
the classes of business that are exposed to get their
feedback. We want to take small calculated steps into
the business – instead of underwriting it ‘hand over
fist’ without keeping track of our aggregates.”
Wednesday 22 October 2014 | 3
@reactionsnet
New models make waves
in US and Europe
Yorn Tatge, managing director at model vendor
AIR Worldwide’s Munich office, says that flood
is a big area of focus for insurers and reinsurers.
In Europe, the model firm is extending its inland
flood models to include Poland, Czech Republic,
Austria and Switzerland with launches due
next year.
The US-based company has launched an
inland flood model for the US. It defines flood
events based on a physical understanding of
what causes flooding and how floods propagate
through the country’s extensive river networks,
Tatge says. The model captures inland flood risk
for all 18 hydrological regions across the
contiguous United States, an area of around
three million square miles with a river
network 1.4 million miles long, including
335,000 distinct drainage catchments.
AIR Worldwide is also developing a fully
probabilistic hail model for launch in 2016.
After expensive hail storms across Europe last
year and earlier this year, the peril is a growing
focus of attention for the industry. The number
of thunderstorms in Europe has tripled since
1980; last year a hailstorm in Germany cost
insurers €2.8bn.
Storms are intense and can come close
together, Tatge says. “In Germany it’s highlighted
the importance of aggregate coverage because
stop loss treaties can add up with hail, flood and
wind events,” he says. “Importantly, our new
physical model will take account of the
vulnerability of new housing stock equipped
with insulation and also solar installations.”
Cedants push for extra
cover rather than on prices
Philip Vandoninck arrives in
Baden-Baden from Bermuda
as the newly appointed of
chairman of Hiscox Re
International with
responsibility for property
business. His meetings with
clients and brokers have not
been dominated by requests
for premium rate reductions
as much as for extended
coverage, he says. “That’s
because it’s understood
Philip Vandoninck
there’s so little left to give on
rates compared to previous
years, so cedants are looking to add lines and
extend hours clauses,” he told Reactions
Baden-Baden Reporter. “But we reinsurers have
to be careful because giving more coverage for
the same amount of money is effectively the
same as cutting rates.”
Vandoninck says that it is understandable for
clients to look for extended coverage because they
are trying to cope with a difficult business
environment. “They know that by widening
reinsurance coverage they stand a better chance of
recovery, while their spend stays the same,” he says.
Extending hours clauses is useful for cedants
4 | Wednesday 22 October 2014
because of the possibility of
slow moving events, especially
flood, leading to losses that fall
out of the time limit. “We want
to provide the cover that our
clients want – but under a
suitable contract and at the
right price,” Vandoninck says.
He says that Hiscox is
adapting to the changing
needs of clients by developing
traditional reinsurance
products “with a twist”. In
response to the trend for
increased retentions among
cedants, for example, Hiscox has developed a
risk aggregate product to address potential
problems around loss frequency in the
retention. “We are bringing business back
into the market – take-up is promising,”
Vandoninck says.
In the US market, Hiscox is trying to
develop a market in unprotected risk, inland
flood for example. “There is a lot of risk out
there, as has been revealed by the recently
launched AIR Worldwide inland flood model,”
he says. “The industry needs to develop more
demand in this way.”
E+S Rück
expects
stable treaty
renewals
E+S Rück said it expects to see broadly
stable conditions and prices in the treaty
renewals as at 1 January 2015.
“Heavy loss expenditures, especially in
connection with June storm Ela as well as
belatedly reported claims from hailstorm
Andreas in the previous year, should be a
factor in the upcoming renewals and
serve to at least keep rates stable for
loss-impacted covers,” Michael Pickel,
a member of the company’s Executive
Board, explained at a press conference
in Baden-Baden.
E+S Rück, which is responsible for
German business within the Hannover Re
Group, pointed out that in light of the trend
towards an accumulation of extreme
weather events in Germany and the
associated higher losses, many primary
insurers are reviewing their risk protection
with an eye to avoiding potential volatility
in their results.
As a result of this, E+S Rück explained
that it supported its clients with catastrophe
analysis tailored to their needs, and offered
bespoke reinsurance solutions. “Bearing in
mind the losses that have occurred in the
past and the likelihood of increased
localised weather events in the future, we
expect to see growing demand for coverage
concepts,” Pickel added.
The reinsurer said that when it
comes to renewing long-tail lines such as
general liability and motor liability,
“allowance will have to be made not
only for the further decline in interest
rates but also for the claims experience from
prior years. This will likely prompt a
corresponding need for adjustments,
which should at least result in rates
remaining stable.”
It added that the situation in
industrial fire insurance continues
to be under strain owing to the
considerable number of basic losses,
and against this backdrop, E+S Rück
said it expects to see improvements
in conditions.
www.reactionsnet.com | Reactions Baden-Baden Reporter
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#BB2014
Wider deal choice soothes
nerves at Baden-Baden
Adrian Stewart, head of property
reinsurance at London-based
Miller Insurance Services says
there’s a less fraught atmosphere at
Baden-Baden this year, compared
to last. “Market sentiment appears
calmer this year primarily because
there is a broader consensus that
new capital investment is here to
stay for the medium to longer
term,” Stewart reckons.
“For clients, this offers greater
choice of capacity, broader
alternative product solutions and
the prospect of a stable and
sustainable pricing environment.”
For reinsurers, the new
environment presents challenges,
however. “Many now recognise
the need to diversify product line
and expand geographic reach
so as to maintain a sufficiently
balanced and profitable portfolio
to satisfy stakeholder aspirations,”
Stewart says.
“For Miller, there is the
opportunity to become more
innovative and to extend our
intellectual capabilities across a
broader cross-section of specialty
business lines,” he says.
Stewart says there’s a
widespread feeling that the
traditional market cycle of peaks
and troughs in availability of
capacity, price and profitability is
unlikely to repeat itself in the
future.
“In today’s market, new capital
will quickly look to realise the
investment opportunity if existing
capital either reduces or exits,” he
says. “Therefore the industry
needs to look for new areas of
engagement to satisfy stakeholders
and the future looks increasingly
Adrian Stewart
positive for clients who require
solutions that are tailored more
appropriately to their needs.”
Previously, the newer unproven
alternative capacity was used by
buyers to leverage a better deal
from the existing reinsurers,
Stewart says: “However, with
increasing recognition that new
capital is here to stay we are now
seeing an increasingly diverse
range of adopted buying strategies.”
For non-property classes the
change is not yet as dramatic
although the benefits are being felt
by clients who are increasingly
able to secure broader coverage,
composite solutions and multiyear programmes, Stewart
reckons.
Stewart says the biggest
challenges facing cedants include
blending alternative and
traditional capacity. Meanwhile
they need to maintain long-term
reinsurer relationships while
accommodating new markets that
offer alternative benefits.
“Reinsurers can help by
providing a more flexible mixed
class capability to clients and
brokers - many remain too
departmentalised and are
therefore not easy to work with
when cedants are looking for
increasingly customised
solutions,” Stewart concludes.
Europe stimulates insurance M&A
activity uptick
After a three year slide, M&A activity in the
insurance sector is recovering, with a small
uptick in the number of deals completed in the
first half of 2014. According to a new report
from Clyde & Co, most of the growth is being
driven by Europe, with all the other regions still
broadly flat.
Despite an upturn in economic recovery
across Europe, which has translated into
improved levels of confidence, much of the
M&A activity in the region has been disposals in
difficult circumstances. Some are still hangovers
from the financial crisis, but others are driven by
problems that have occurred during normal
operations, the report says.
Two profit warnings in short succession
meant that RSA was forced into a sales
programme to bolster its balance sheet.
The Co-op Group was also forced to dispose of
its insurance business when it discovered a
significant hole in the balance sheet of its
bank. The business was acquired by
Royal London Mutual Insurance.
In Italy Generali sold off the firm’s non-core
and sub-scale assets as part of its turnaround
programme. The programme continued this
year with the sale of its subsidiary, FATA
Assicurazioni Danni SpA, to Societa Cattolica di
Assicurazione Sc. Also in Italy, regulators
ordered Unipol to sell assets generating €1.7bn
in gross premiums to comply with competition
law after the insurer acquired its peer Fondiaria
in 2012, making the combined Unipol /
Fondiaria business the second-biggest insurer in
Italy after Generali. These assets were acquired
by Allianz from Unipol in June 2014.
Activity continued after Clyde’s report went
to press with Direct Line’s sale of its German and
Italian operations to Spanish insurer Mapfre for
€550m. The businesses in Italy and Germany
add premiums of €714m and 1.6 million clients,
and generate profits before taxes of €19.5m, as
per the latest results from 2013. Direct Line Italy
leads the Italian direct motor insurance segment,
Reactions Baden-Baden Reporter | www.reactionsnet.com
with a market share of 28%. Direct Line
Germany ranks third in the German
direct motor insurance market, with 13%
market share.
Europe has also seen significant inbound
investment from the Middle East and Asia.
Three of the top 20 largest deals in the last 12
months were from China, Japan and Qatar into
European markets. In May 2014, China’s Fosun
International Ltd. bought 80% of Portugal’s
Caixa Geral de Depositos S.A.’s insurance unit
for €1bn ($1.36bn). The other two were
investments into the Lloyd’s market.
The trend to expand into new markets
continued through the last 12 months, as
insurers sought growth opportunities and
greater returns than those offered in either their
domestic or regional markets. Two of the largest
deals between July 2013 and June 2014 were the
acquisition by Allianz of Yapi Kredi Sigorta A.S.
in Turkey and AXA’s purchase of Tianping Auto
Insurance in China.
Wednesday 22 October 2014 | 7
@reactionsnet
2014 set to break ILS
issuance records
Twenty-fourteen is set to be a
record-breaking year for non-life
insurance linked securities
issuance despite a relatively quiet
third quarter, according to Willis
Capital Markets & Advisory.
Compared to a recordbreaking Q3 2013, when $1.4bn
of non-life catastrophe bond
Tony Ursano
capacity was issued, only one
transaction came to market in Q3
2014: State Fund’s Golden State Re II, covering
workers’ compensation risk against
earthquakes. Despite the lack of transactions in
the period, the market is on track to break the
full-year record set in 2007, of more than $7bn.
Tony Ursano, chief executive of WCMA,
said Q3 followed a robust issuance season with
new capital having already been deployed.
“It will only take about $1.2bn more in
2014 to break 2007’s non-life ILS issuance
record, so we believe this is incredibly likely,”
he commented.
Bill Dubinsky, head of ILS at WCMA, said
alternative capacity is becoming
an integral component of
sponsors’ risk transfer strategies,
and ILS is being fully integrated
into reinsurance purchase
decisions.
“A quiet Q3 was not
surprising. 2014 is still on track
to be a record breaking year and
we maintain our prediction of a
final tally between $8bn and
$9bn of non-life ILS issuance,” Dubinsky said.
“But the actual number is not the key point
here. More interesting is the broader
participation of investors in sidecars, cat bonds,
and collateralized reinsurance, which continues
to grow.”
Willis also said that deals have become
more diversified, with more individualized
approaches to positioning ILS capacity in
existing reinsurance structures. This indicates
that ILS has broader potential application than
many previously thought and hints at
continued market growth, it added. Flood Re could increase risks
to U.K. insurers
The U.K. insurance industry’s
flood risk reinsurance scheme,
Flood Re, has published a tender
for the services of a retrocession
broker. The tender invites bidders
to apply for an initial four-year
contract, extendable by Flood Re
for further periods so that the
term may be up to seven years in
total, with the award scheduled for
early December 2014. The notice
says the broker will provide Flood
Re’s advice on retrocession and/or
other protection together with
catastrophe modelling services. In
addition the broker will procure
and place outwards reinsurance
and/or other protection on behalf
of Flood Re.
Flood Re said it has already
received a healthy response to the
managing agent tender from a
8 | Wednesday 22 October 2014
number of organisations. Final
selection of the managing agent
will take place before the end
of October.
Standard & Poor’s recently
warned that Flood Re could add to
the flood risk exposure of U.K.
retail insurers because the scheme
commits the industry to insure
high-flood-risk properties. Flood
Re is due to come into effect in
2015. It was mainly designed to
help the public obtain affordable
household flood insurance.
The U.K. government
promised to strengthen flood
defences but if it does not deliver
on its promise and climate change
increases the risk of flooding,
insurers will have to pick up the
tab, S&P says.
Flood risk presents the U.K.
retail insurance industry with a
bigger challenge than other types of
natural catastrophe risk because of
its complex nature and material
impact. Climate change and human
intervention, such as building flood
defences, can constantly change the
profile of flood risk. Difficulties in
flood modelling compound those
challenges by introducing
considerable uncertainty into
insurers’ estimates of flood
risk exposure.
Insurers’ ability to adequately
quantify flood risk exposure, in
particular to extreme events, is
crucial. “The industry’s assessment
of its exposure to extreme floods
is, in our view, less robust than it
is for the major natural
catastrophe risks, such as storm
and earthquake risk,” S&P says in
Baden Baden Reinsurance
Meeting 2015 October 18–22
the report. “We consider that due
to its complexity, flood risk
presents significant modeling
challenges and has a higher level
of inherent modeling uncertainty
than other major natural
catastrophe risks.”
“Furthermore, the worldwide
insurance and reinsurance
industry does not consider U.K.
flooding (and even floods in
general) to be one of the top
perils, and so those models have
received less focus and fewer
challenges,” S&P added.
As a consequence of all these
factors, insurers risk inaccurately
estimating their flood exposures,
which could lead to larger-thanexpected losses. The situation will
be exacerbated if successive
governments renege on their
promises to improve flood
defences, or if the impact of
climate change over the next 25
years makes the U.K. government’s
task more difficult and costly.
www.reactionsnet.com | Reactions Baden-Baden Reporter
#BB2014
Risk managers can’t get no satisfaction
Insurers and reinsurers would do
well to examine the findings of
the 2014 Risk Management
Benchmarking Survey released
this week by the Federation of
European Risk Management
Associations (FERMA) Seminar
in Brussels. In its 7th edition,
the FERMA Benchmarking
Survey this year received
850 responses from 21
European countries.
Risk managers were asked to
name the top 10 risks that keep
their CEO awake at night and how
well they were mitigated. For six of
the 10 top risks, they report a low
level of satisfaction with the
mitigation: political – government
intervention, legal and regulatory
changes; compliance with
regulation and legislation;
competition; economic conditions;
market strategy and human
resources. For reputation and
brand, planning and execution of
strategy and debt/cash flow,
there is a medium level of
satisfaction with the risk
mitigation. Risk managers felt
that mitigation was only high for
quality issues, such as design,
safety and liability of products
and services.
On the question of insurance
buying behaviours in Europe, risk
managers tend to depend on
budget restraints and rules of
thumb, the survey found. “While
tried and tested by many risk
managers, this way of thinking
could pose significant problems
for the management of emerging
risks, such as cyber and
environmental liabilities,” the
report suggests.
The lack of understanding
surrounding cyber is having a
Reactions Baden-Baden Reporter | www.reactionsnet.com
large impact on insurance
purchasing: 72% of those
surveyed say their companies
do not benefit from standalone
cyber coverage.
With environmental liability,
the insurance market is making
efforts to develop adequate
insurance solutions to meet
specific demands. Overall, limits
purchased are low, irrespective of
company size and/or revenue.
Europe’s largest enterprises are an
exception to this rule; 38% of
companies with more than €5bn
in revenue benefit from limits
exceeding €50m versus a
22% average.
In line with the findings of the
recent 2014 RIMS report by US
risk managers, the benchmarking
survey 2014 confirms the fact that
risk management, technology, and
data are underleveraged. Both
US-based and European risk
managers state they would like to
improve the use of analytics in
determining their organisations’
respective risk-bearing capacities,
in establishing their insurance
buying strategies, and in
quantifying specific risks.
Underwriters and brokers
working in the commercial field
also might like to know that the
typical risk and insurance
manager in Europe is male, aged
between 45 and 55 and earns
between €100,000 and €120,000 a
year. He works at the head office
of a very large company based
in a European country. He has
been in his role for between three
and 10 years but he has been
in the sector for more than
10 years. He probably has a
specific qualification in insurance
or risk management.
Wednesday 22 October 2014 | 9
@reactionsnet
Negative pressures
lead to Lloyd’s
outlook revision
Standard & Poor’s Ratings Services
has revised its outlook on Lloyd’s
to stable from positive. At the
same time, the rater affirmed its
‘A+’ insurer financial strength
rating on Lloyd’s. S&P described
the competitive environment
across the reinsurance sector as a
whole and in Lloyd’s key lines of
business in particular, as
increasingly unfavourable.
S&P says it anticipates
continued negative pressures on
profitability and revenues in
Lloyd’s core business sectors of
reinsurance and specialty lines
because of surplus market
capacity, the inflow of new capital,
and changing buyer demand.
A number of smaller Lloyd’s
syndicates will face particular
challenges in maintaining their
market share, S&P warns. As a
result, an upgrade is unlikely in
the near future, leading to the
revised outlook to stable.
Lloyd’s competitive position is
still considered by the rater to be
very strong, based on its franchise,
strong diversification by line, and
the loyalty of its policyholders.
“However, we feel that the
increased level of competition in
the global market will force Lloyd’s
to focus efforts on defending its
competitive position, particularly
the market shares of its smaller,
more narrowly focused managing
agents,” S&P said in a note.
S&P said that it has seen
limited additional diversification
into global markets by Lloyd’s to
date. In 2013, North American
and U.K. risks accounted for 61%
of Lloyd’s premiums.
S&P also warned on the
potential for broker facilities to
challenge Lloyd’s premium inflow.
Lloyd’s of London
“Lloyd’s does remain relatively
dependent on brokers for its
distribution and many broker
panels are consolidating and
seeking single-capacity providers,”
it said.
Lloyd’s capital and earnings
are considered by S&P to be very
strong and its capitalisation
comfortably exceeds the ‘AAA’
level. In 2013-2014, Lloyd’s has
produced strong results, partly
because there have been few major
losses but also because of its work
overseeing and managing the
syndicates’ business plans,
S&P said.
In revising the outlook to
Canopius goes for growth
under Sompo’s wing
Canopius Group and Sompo Japan Nipponkoa
Holdings, Inc. have combined their respective
Zurich-based reinsurance operations to form a
single business unit, under the leadership of
Eric Gutiérrez, CEO, Canopius Europe.
The combined team will underwrite
regional European treaty reinsurance across a
number of lines including property, casualty
and marine. From January 1 2015, all business
will be underwritten by Canopius Europe,
offering Lloyd’s security.
Masashi Yamashita, who founded the SJNK
Zurich operation in 2013, has been appointed
head of Global Strategy & Structure,
Reinsurance to assist SJNK and Canopius with
a review of the future strategy and structure of
their reinsurance business. In addition, he will
serve as chief operating officer, Canopius
Europe to facilitate the transition.
10 | Wednesday 22 October 2014
Commenting on the move, Gutiérrez said
“I look forward to working with our enlarged
team to develop our regional European
portfolio. We will continue to focus on
understanding our clients’ requirements,
delivering quality service and products backed
by strong technical and financial resources.”
Masashi Yamashita said “Given the
strategic overlap, it is logical for us to combine
the operations of SJNK Zurich and Canopius
Europe. This move will strengthen the Group’s
offering and, by harnessing our collective
expertise, support the realisation of its growth
ambitions.”
Talking to Reactions at the Monte Carlo
Rendez-Rous last month, Canopius chief
executive Michael Watson said that under the
ownership of Sompo, Canopius would seek to
grow its top line by 20% in 2015. “We have the
stable from positive, S&P is
indicating that it considers an
upgrade unlikely in the next 12-24
months. An upgrade would
require a marked improvement in
the reinsurance sector’s pricing
environment, it said.
“We do not regard a
downgrade as likely in the next
two years because of Lloyd’s
competitive and capital strengths.
However, a return to the more
volatile performance of pre-2002
could prompt a negative rating
action, as could a catastrophe loss
that was significantly outside
Lloyd’s expectation or tolerance
levels,” S&P said.
ability to increase capacity and leadership
capability by combining the capacity and
expertise that Sompo and Canopius offer in
certain sectors, including engineering and
construction,” he said. “We are also in the
process of developing other products and
specialities where we can act jointly as a team
with Sompo.”
Watson said that there was also potential
for growth through further acquisitions. “M&A
is in our DNA. We intend to continue to pursue
growth that way,” he said. Sompo acquired
Canopius for £594m a year ago.
Canopius recently announced the
expansion of its US presence with the launch of
Canopius Underwriting Agency, Inc. Based in
New York, CUAI will underwrite domestic
facultative property reinsurance business on
behalf of Canopius Syndicates 4444 and 958.
Canopius hired Jim McAloon, Timothy Houck,
and Daisy Ng, formerly of Citation Re LLC. As
part of the hiring agreement, CUAI will also
provide run off underwriting services for
Citation Re.
www.reactionsnet.com | Reactions Baden-Baden Reporter
#BB2014
Solvency II boosts run-off
activity to new high
The European run-off market is expected to
grow for the sixth year in a row, with
transactional activity set to reach a peak in
2015, as Solvency II has a material impact on
the number of deals coming into the market,
according to PwC’s annual survey.
PwC’s 8th Survey on discontinued insurance
business reveals that the European run-off
market is now worth €242bn, an increase of
€7bn from 2013. The majority of this increase
has come from German and Swiss run-off
books, as focus on run-off business continues.
PwC predicts that transactions will peak during
the coming year as Solvency II drives a renewed
focus on core business and leads to organisations
deciding to exit non-core lines.
The report, which is based on responses
from more than 200 organisations, reveals that
two thirds are increasing their focus on dealing
with underperforming lines of business in the
context of Solvency II capital demands. Of companies who have considered an exit
for their run-off, nearly 60% have considered a
sale. The UK and Germany are expected to be
the most active territories for disposal
transactions in the coming year. Over eight in
10 respondents are anticipating five or more
disposals to occur in the next two years. Most
people expect that likely portfolio sizes to be
disposed of will be less than €100m.
Dan Schwarzmann, head of PwC’s
solutions for discontinued insurance business,
said that it has been another busy year in the
insurance run-off sector and he expects the
activity to continue. “There is likely to be a
steady flow of companies attempting to dispose
of, or exit from, legacy business that will not be
capital effective in their post Solvency II
balance sheets. Our survey also highlights that
balancing reputation with the desire for exit
remains a key concern amongst Continental
European insurers,” he said. “Despite the
positive outlook for deals activity in the market
the survey highlights that there remains some
unease about how regulators across Europe will
treat exit activity. The stakeholders in the
run-off industry need to continue to work
together to provide policyholders with
optimum benefits.”
Strategic planning continues to feature
prominently, with all but 2% of respondents
having a strategic plan in place. Orderly
run-off, releasing capital and early finality were
cited by the survey as strategic priorities for
businesses.
Fifty-six per cent of respondents believe
that the current run-off environment is helpful
in dealing with legacy business, with 31%
stating that it is not. News in Brief
Axel Theis, CEO of Allianz Global Corporate &
Specialty, has joined the Allianz board of
management, replacing Clement Booth, who is
retiring. Chris Fischer Hirs, currently CFO of
AGCS will take on the role of CEO. Nina
Klingspor, head of CEO office for Allianz SE,
will become CFO of AGCS next January.
Reactions hosted a roundtable at Baden-Baden this year in partnership with Pro Global, the
outsourcing and consulting firm. Participants from seven reinsurance companies joined in lively
debate around the future of the market and the likely challenges in view. From l to r, Frank
Reichelt (Swiss Re), Jean Luc Bourgault (New Re), Robert Buchberger (Pro Global), Artur
Niemczewski (Pro Global), Jacopo D’Antonio (Aspen Re), Mark Meyerhoff (Mapfre Re), Eckart
Roth (Peak Re), Michael Hinz (Tokio Millennium Re). For full coverage of the panel’s views on
subjects ranging from the evolution of the reinsurance model to why insureds are reluctant to
pay to transfer emerging risks, see the December issue of Reactions magazine.
JLT Re has formed a reinsurance joint venture
in Spain with local broker March JLT called JLT
March Re. Ross Howard, chairman, JLT Re, said
the agreement will significantly strengthen the
group’s services and product offerings, which
will be supported from London. Richard
Shinner who previously headed up the JLT
Towers Re Spain operation will be relocating to
London to be part of the Marine and Energy
Wholesale practice.
Willis Re has entered into an agreement with
Gras Savoye Turkey. Kemal Kurklu joined Gras
Savoye as executive director-treaty reinsurance
in Istanbul to work in partnership with Willis
Re’s London-based team to further consolidate
its offering to the important Turkish market.
Kurklu was previously with Aon Benfield in
Istanbul and brings 28 years of experience to the
Gras Savoye/Willis Re partnership.
Reactions Baden-Baden Reporter | www.reactionsnet.com
Wednesday 22 October 2014 | 11
@reactionsnet
SII charges ignore asset
rating differences: Fitch
The European Commission’s decision to apply
only two Solvency II capital charges on
securitisations across the investment-grade
rating spectrum does not show the wide
variation in risk in these assets, according to
Fitch Ratings.
This is likely to push insurers that invest in
securitisations using the standard model to
favour assets in the ‘AAAsf ’ and ‘BBBsf ’
categories, the rater argues.
The European Commission (EC) said that
charges under the standard formula for ‘AAsf ’,
‘Asf ’ and ‘BBBsf ’ rated tranches of
securitisations classified as “type 1 high quality
positions” will be 3% multiplied by duration.
It previously said the charges would be
duration times 3%, 4% and 5% for ‘AAsf ’, ‘Asf ’
and ‘BBBsf ’, respectively.
The Commission gives the 3% charge for
unrated loans as the rationale for capping the
charges on these instruments. Charges for
‘AAAsf ’ rated notes remain 2.1% multiplied by
duration, said Fitch.
“Our study of total losses on European
securitisations during the credit crisis shows that
tranches rated ‘BBBsf ’ in July 2007 are expected
to incur 2.8x more loss than those rated ‘AAsf ’,”
said the rating agency.
“But even after the cuts, the charges are high
compared to other investment options and may
not be enough to encourage insurers using the
standard formula to invest significant sums,”
said Fitch.
The undiversified charge for a ‘AAsf ’ rated
10-year securitisation is still 30%, compared to
20% for a 10-year ‘BBBsf ’ rated loan and is 15%
higher than the charge for investing in an
unrated five-year uncollateralised direct loan.
“The comparison with covered bond
holdings is even starker: five-year ‘AAsf ’ rated
securitisation holdings will require 15% capital
compared to 4.5% for covered bonds with the
same rating and duration,” said Fitch.
These cuts have been made only on “type 1
high quality positions” rated ‘BBBsf ’ and above.
Charges for lower-rated tranches have not
been reduced, so finding buyers for these
tranches may be difficult, making it harder to
structure deals.
“There may be greater benefit for insurers
using their own internal models because they
are able to use assumptions tailored to the risks
of the specific transaction,” said Fitch.
“As the bigger, more sophisticated market
participants, they are also the more likely buyers
of securitisations.
The EC has adopted the
Solvency II Delegated Acts
“But supervisors have often not been willing
to approve models with large deviations from
standard industry assumptions, so we do not
expect insurers to be able to reduce capital
requirements as low as might be indicated by
empirical data,” said Fitch.
The EC has adopted the Solvency II
Delegated Acts, making them public on its
website for the first time.
Another change in the Delegated Acts is that
investments in infrastructure project bonds are
treated as corporate bonds instead of
securitisations, even when credit risk is tranche.
“This will make it more attractive for
insurers to invest in the sector,” said Fitch.
There have been considerable delays and
uncertainty in the Solvency II timetable.
“We view the EC’s adoption of the Delegated
Acts as an indication that the timeline is on track
for the planned 1 January 2016 implementation.
There will now be a six-month window during
which the European Parliament and European
Council can challenge the details of the text or
accept it,” said Fitch.
News in Brief
Canopius, part of Sompo
Japan Nipponkoa Holdings,
is to launch a consumer products
business for the UK affinity
market. It has recruited a team
from Netherlands-headquartered
specialty insurer ANV,
which in September last year
combined its Lloyd’s managing
agency operations with
Jubilee. The team will be led by
Chris Biles (previously active
underwriter, personal lines
at ANV), supported by
David Swan (previously deputy
head of consumer products with
ANV) and John McGonigle
(previously deputy head
of consumer products
at ANV).
12 | Wednesday 22 October 2014
ANV has appointed Sanjay Vara
as head of consumer products for
ANV Syndicate 5820. He joins
from Lloyd & Partners and will be
joined by Colin Parker as
underwriter, who was previously
with Assurant Solutions. Tom Wylie has been appointed
Head of Construction at Torus.
Wylie, who was most recently
head of construction at Zurich
Global Corporate UK, will join
Torus early next year and will be
based in the London office. Other
new additions to the Torus
construction team include Kevin
Lumiste and David Little (senior
underwriters) and Soledad
Vitale (construction underwriter).
They will join in December 2014.
Zurich Insurance Group has
named group controller Vibhu
Sharma as head of general
insurance operations for the UK.
Sharma will take up his post in
April 2015, replacing David
Smith, who will retire. Sharma has
been group controller for Zurich
since 2012, based in Zurich. He
joined the insurer in 2008 as chief
financial officer in North America.
Prior to that, he had been with
KPMG for 17 years. Neill Cotton has joined JLT Re in
London as head of the Facilities
Division. Mike Pummell, the
previous head of department will
now take on the role of chairman
of the executive committee.
Cotton was most recently
commercial director at CFC and
previous to that he established
Oxford Insurance Brokers in 2001
where he was MD and CEO.
ANV Holdings BV has appointed
Paul Bland as head of ANV
Syndicate 1861 Non-Marine
Liability lines. He will focus on
underwriting non-marine General
Liability business on an excess
basis and will report directly into
ANV Syndicate 1861 Active
Underwriter Chris Jarvis. Bland
joins ANV from his role as Vice
President, Excess Liability at
Markel Corporation. www.reactionsnet.com | Reactions Baden-Baden Reporter
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