1. business and industrial
2. company
3. earnings

every wednesday • Issue 27 • 14 january 2015
XL and Catlin agree deal
Ireland-domiciled XL Group and Bermuda-domiciled Catlin Group have agreed a cash and share
acquisition deal that values Catlin at about £2.79bn ($4.2bn), or 715.3p a share.
The acquisition will take the
form of a scheme of arrangement followed immediately by a
merger, both under the Bermuda
Companies Act.
The total value of the offer will
be388p a share in cash and 0.130
new XL shares, plus the expected
final 2014 final dividend payment
of 22p in cash to Catlin shareholders on the relevant record
date.
The total valuation is based on
a £/$ exchange rate of $1.5084
and an XL share price of $35.42.
XL and Catlin have agreed that,
subject to the disposal of Catlin's
investment in Box Innovation
Group, Catlin can declare a
special dividend from the distributable surplus, expected to be
about 12p a share. The disposal is
expected to close in Q1 2015.
The price for Catlin, including
the 2014 dividend but excluding
the benefit from the sale of Box
Innovation Group, represents a
premium of just under 23% to
the Catlin share price of 582p on
December 16, the last day before
the deal was first announced, and
a 26.3% premium to the volume
weighted average price for the
previous month, 566p.
Catlin shareholders can if they
wish, and subject to certain distri-
bution and geographical restrictions, vary the proportion of XL
shares and cash that they receive.
Catlin chief executive Stephen
Catlin will become Executive
Deputy Chairman and said that,
following the completion of the
acquisition, he intended to continue holding the new XL shares
as a long-term investment.
Subsequent to the deal's completion XL Group will remain the
legal entity, but the trading name
will become XL Catlin.
Mike McGavick will remain
as chief executive, with Peter
Porrino as chief financial officer,
Greg Hendrick as chief executive of reinsurance, Paul Brand
as chief underwriting officer for
insurance.
McGavick observed that the
deal would add immediate scale
in Specialty insurance, while
also creating a top-10 reinsurer
with expanded alternative capital
capabilities. n
Continued on pages 4 & 5>
AGCS begins paying AirAsia families
Allianz Global Corporate & Specialty (AGCS) has begun making liability payments to
relatives of those who died on AirAsia Indonesia flight QZ8501, but noted that in no
way did the payments represent final settlements, according to a statement from the
insurer. “We will agree further compensation in due course in consultation with all
involved parties”, AGCS said.
Last week there had been
concerns that some cover
could be voided by the insurers
concerned because it transpired
that AirAsia Indonesia did not
have a licence to fly on Sundays. However, Firdaus Djaelan,
a supervisor at the Indonesian
financial services authority, said
the plane "didn't fail because it
was a Sunday".
Both black boxes – the data
recorder and the voice recorder –
have now been located and recov-
ered. A director with the national
search and rescue agency has
said that, from early analysis of
the wreckage so far recovered, it
was likely that the plane exploded
when it hit the water.
Continued on page 4 >
ALSO in this issue: Prospects of M&A surge increase – page 12
2 EDITORIAL comment
4 TOP STORIES
14 FEATURE
13 FEATURE
16NEWS ROUND up
21people moves
• The year of
consolidation?
•Senate passes Tria
reauthorsation bill
•Acappella looks
to next steps in
holdings company
move
•Reinsurance tiering
to expand – Guy
Carp
•AlphaCat secures
$564m new
subscriptions
•Speare-Cole heads
to Qatar Re
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Editorial comment
The year of
consolidation?
And so it came to pass that Catlin and XL
announced agreed terms for XL’s takeover.
If 2015 is going to turn out to be the year of
consolidation, it has got off to a good start.
It is de rigeur when deals such as this are
announced to say that the enlarged company
will be more diversified, but, in reality, Catlin
and XL are not that different. This has positive
aspects. It makes synergies easier to achieve –
although the corollary to that is that it makes
staff reductions easier to achieve. XL’s deal
is different from the QBE acquisition spree
in the 2000s, which brought together a range
of disparate companies. This is a deal about
size, about market share, in a world where big
is increasingly becoming good. The enlarged
company will have a pro forma capitalisation
of about $17bn.
XL has agreed to acquire Catlin for £6.93 per
Catlin common share, or approximately $4.1bn,
with Catlin shareholders receiving an additional
22p a share final dividend paid this quarter.
The purchase price represents about a 23.5%
premium to Catlin’s closing share price on
December 16 2014, the day before the deal
was announced.
The consideration will consist of
1) about $1.8bn of XL ordinary shares
2) $1.25bn of cash from XL’s available funds;
3) proceeds from a $1.03bn future Solvency II
compliant debt issuance.
The transaction is expected to close in mid2015, subject to approval of Catlin shareholders
and sanction by the Supreme Court of Bermuda, regulatory approvals and anti-trust clearances, and other customary closing conditions.
The newly branded XL Catlin will be the
largest underwriter at Lloyd’s. It will be a top10 reinsurer in the world (the eighth-largest, in
fact) and it will also dilute XL’s US exposure
while increasing its interest in Europe and
emerging markets.
That last piece of information illustrates that
this is not an opportunist deal, but a strategic
one. The US is fast coming out of recession
and is powering ahead on the strength of lower
oil prices. In the meantime, much of Europe
remains mired in sclerotic growth, zero inflation and run by governments that appear to
think that the best solution is to put off making
a decision and to hope that things turn out ok.
For XL to dilute its interest in one of the few
parts of the world where growth is accelerating shows that XL sees strategic benefits from
the acquisition, rather than opportunistic ones.
XL will increase its proportion of specialty
business – to 20% from 13% – a move that
might be seen as a mixed blessing. Specialty,
being what it is, is far less homogeneous in
price movements and value than, say, US
property, or even professional lines, where XL
will almost halve its proportion of business.
XL will also double its absolute level of
catastrophe business. That could either be a
brilliant move or not, depending on how the
elements perform in 2015 and beyond.
It has been hypothesised that, because
insurers like to spread their risk, the combined entity would lose some business where
insurers had previously been buying from both
XL and Catlin. Possibly. But, as the top tier
reinsurers have been proclaiming, size matters.
Presumably XL and Catlin will be hoping that
more insurers will come to XL Catlin because
it is big than will move away from XL Catlin
because they want to diversify their risk. And
evidence of this rush to diversity is thin on the
ground. It’s the Munich Re’s, the Swiss Re’s,
the Scor’s and the Hannover Re’s that have
been benefiting from the current reinsurance
environment, not the small players that can
only offer diversification as a selling point.
Moody’s took the view that the deal was “incrementally negative” on XL’s overall credit profile. The agency said that uncertainty was raised
because of “numerous challenges and risks” associated with such a large deal. But it also noted,
with reference to size, that it believed “these
attributes improve XL’s ability to maintain, or
possibly increase, its relevance with clients and
brokers in this challenging market cycle.”
Exciting times ahead. n
Peter Birks, Managing Editor, Reactions
EDITORIAL
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14 january 2015
|3
top stories
AGCS begins paying
AirAsia families
Senate passes Tria
reauthorsation bill
The Terrorism Risk Insurance Act (Tria) is on its way to the Oval
Office following a 93 to 4 vote supporting it in the US Senate.
< Continued from page 1
Indonesia Air Asia is 49% owned
by Malaysia-based AirAsia, headed by
Tony Fernandes. Questions about strict
liability were raised, not just because
the plane was technically not licensed
to fly out of the Indonesia airport on a
Sunday, but also because Indonesia has
never signed up to the Montreal Agreement on compensation levels. However,
Fernandes has insisted that his airline
will not hide behind technicalities when
it comes to compensation.
Last week the insurers had been urged
to begin processing compensation claims
to the families of the 155 passengers who
perished in the AirAsia crash at the end
of last year. The airline has reportedly
initially offered the families compensation of just under $24,000, but Indonesia’s financial services authority pointed
to laws that stipulate AirAsia’s insurers
are liable for INR1.25bn ($98,500) per
passenger.
A further INR315m to INR750m could
be due to the relatives of 25 passengers
who are understood to have bought specialist flight cover.
Some confusion remains over whether
AirAsia will pay out compensation under
the Montreal or Warsaw conventions
regarding compensation for airline passengers. The more modern Montreal convention dictates that the families of those
killed in airline disasters are due almost
$162,000. However, Indonesia is not a
signatory to this convention. Instead, it
follows the older Warsaw convention,
which limits a carrier’s liability to just
under $24,000.
AirAsia Indonesia’s director of safety
and security, Raden Achmad Sadikin, has
been quoted as saying that his company
will follow whatever the country’s government has to say. n
4
| 14 january 2015
The Senate acted quickly to
pass the bill after it passed the
US House of Representatives
by an overwhelming majority on Wednesday.
The bill, which has now
passed the House and the
Senate, extends Tria for 6 years
while also gradually raising the
loss trigger of the programme, from $100m
to $200m over the course of the programme.
Also created in the bill is a provision to
create a national association of registered
agents and brokers (NARABII), as well as
a controversial modification to the DoddFrank act that would ease financial product
regulation for smaller companies, called an
end-user provision.
This final clause in the bill was unpopular
among Democrats and prompted Senator Elizabeth Warren (D-MA) to table an
amendment in the Senate to strike down the
Dodd-Frank modification.
However Warren’s amendment was struck
down after it failed to garner the 60
votes necessary to make an amendment and the House’s version of the
bill was subsequently passed.
The industry was quick to applaud
the speed with which Congress acted
on passing a Tria authorisation bill.
Dan Riordan, chief executive (CEO) of
Zurich Global Corporate in North America
spoke to Reactions following the vote and
said that the passage of the bill through
Congress was good news for the industry.
He said that Congress had moved quickly
to remove the uncertainty that had existed
in the market following the expiration of the
programme and that the pace of Congress to
secure the programme’s future was something that Congress should be “proud of”.
The bill will now go to the White House
for the President’s signature. The Obama
Administration, like Warren, had previously
expressed its disapproval over the additional
Dodd-Frank provisions however it did not
say it would veto the bill. n
Peter Hancock applauds TRIA renewal
Peter Hancock, AIG President and chief executive officer (CEO),
has praised the US Senate’s reauthorising of the Terrorism Risk
Insurance Act (TRIA) on January 8.
“AIG is pleased that Congress has approved legislation to reauthorise TRIA, an
important line of defence against the crippling effects terror is meant to have on our
society. “The enactment of this legislation
will remove an economic uncertainty for our
customers, their employees, and US businesses in general.
”The Senate acted quickly to pass the
bill after it passed the US House of Representatives by an overwhelming majority on
Wednesday.
The bill, which has now passed the House
and the Senate, extends Tria for 6 years
while also gradually raising the loss trigger
of the programme, from $100m to $200m
over the course of the programme.
Also created in the bill is a provision to
create a national association of registered
agents and brokers (NARABII), as well as
a controversial modification to the DoddFrank act that would ease financial product
regulation for smaller companies, called an
end-user provision. n
AIG chief executive Peter Hancock
top stories
Insurers applaud
House action on Tria
Insurance industry executives in the US have expressed their
support for Wednesday’s House vote to reinstate the Terrorism
Risk Insurance Act (Tria) which expired in December 2014.
Net liability
could increase
under new Tria
programme
AM Best has warned that the increase in the
loss trigger under the new incarnation of the
Terrorism Risk Insurance Act (Tria) could
alter insurer’s net liability.
The bill to extend Tria for six years gradually increases the $100m loss trigger to
$200m, by $20m annual increments over the
next five years.
The extension also increases the industry’s
co-participation by 5% to 20% over the
next five years, with a 1% increase annually
starting next year.
The aggregate insurer retention under the
new programme will also increase by $10bn
to $37.5 billion over the next five years
beginning in 2015.
“The increase in the industry deductible,
trigger and co-participation could
potentially alter the net liability of risks
previously insured by a company”
The House voted on Wednesday to extend extends the programme for six years with
the bill also raising the programme’s loss
trigger to $200m from $100m over the
course of its duration.
It also contains provisions to modify the
Dodd-Frank Act by incorporating a rule
which will relieve non-financial institutions
of following restrictive financial regulations as large financial institutions, such
as investment banks. Finally it also creates
a semi-federalised network of agents and
brokers (NARABII).
“We applaud the House's overwhelming
support today of the Tria reauthorisation
legislation,” said Zurich’s Global Corporate
North America chief executive (CEO) Dan
Riordan. “This is an important public-private partnership that would help our communities recover and rebuild should the US
fall victim to a catastrophic terrorist attack
again. It plays a critical role in providing
stability and continuity in the marketplace.”
The industry wants to see a rapid resolution to the Tria debate given the uncertainty
surrounding the market following the bill’s
expiration.
“We are appreciative of the House’s
quick action this afternoon to reauthorise
Tria for six years,” said the Ken Crerar,
president and CEO of The Council of
Insurance Agents & Brokers (CIAB) following the vote on Wednesday. “We are
extremely grateful to House leadership,
Chairman Hensarling (R-TX), subcommittee on housing and insurance chairman
Neugebauer (R-TX) and Rep. Waters (DCA), for seeing this through.
“We continue to urge their counterparts
in the Senate to act quickly to pass this
critical legislation. Allowing Tria to expire
was a dangerous gamble that puts current
terrorism policies in peril and poses significant risk to economic growth and American
jobs.”
In the UK, International Underwriting
Association CEO Dave Matcham said
that a renewal of Tria would "provide the
insurance industry with the economic
security it needs to continue supporting the
wider economy across a range of business
classes". n
The limit, or cap, on the federal backstop
remains at $100bn and the individual insurer
deductible remained unchanged at 20% of the
preceding year’s net earned premium.
Finally, the mandatory recoupment, or
the amount that must repaid to the federal
government if payment is required following
an event, was increased from 133% to 140%
in the new extension.
“The increase in the industry deductible,
trigger and co-participation could potentially
alter the net liability of risks previously
insured by a company, causing the insuring
of these risks to exceed a company’s risk
tolerance,” said AM Best. “Increases to the
net liability will also affect a company’s riskadjusted capitalisation, with the magnitude
dependent upon how large the risks are in
relation to a company’s surplus.
AM Best added that the temporary nature
of the extension, also meant that it would
continue to conduct stress tests on insurer’s
ability to cover terrorism risk.
It added that companies that are deemed
to be over-reliant upon the programme,
will need to have mitigation strategies in
place prior to the planned expiration of the
program, or they will likely face negative
rating pressure. n
14 january 2015
|5
top stories
Regulatory reform an
issue for insurers in 2015
The implementation of domestic and global capital
standards regulation is likely to be an important issue
for the US insurance industry in 2015, according to the
American Insurance Association (AIA).
Leigh Ann Pusey
In the year ahead insurers will have to
manage new domestic and international
regulation in the US and across international
borders, the AIA said in a media briefing
looking ahead to the rest of 2015.
Leigh Ann Pusey, president and CEO of
the AIA, said that the organisation had been
discussing capital standards regulation since
the passage of the Dodd-Frank act in 2010.
However Congress has gone some way
towards easing the regulatory burden for
insurers.
As part of Congress's Dodd-Frank modifications last year it passed a fix that meant
that insurers were not subjected to the same
capital requirements as investment banks.
Pusey said that the modification to the
Dodd-Frank act (called the Collins fix) was
an important step for the industry but that
any changes to regulation that Congress
makes must take account of the key differences between insurers and banks.
The AIA also identified global regulation
as an important factor for insurers to keep
an eye on in 2015.
Last October the International Association
of Insurance Supervisors (IAIS) released its
draft of a global insurance capital standards
regulatory framework was released.
The regulation will affect companies
Tria passage could leave
smaller insurers exposed
Congress’s passage of the Terrorism Risk Insurance Act (Tria) could
pose problems for small insurers according to rating agency Standard &
Poor’s (S&P) despite its market-stabilising affect.
“Standard & Poor's Ratings Services believes the underwriting stability provided
by Congress's reauthorisation of Tria today
should address concerns about market
disruption,” said the ratings agency in a
statement. “However, whereas the changes
in the new program will not significantly affect our rated insurers, it could present some
challenges for smaller commercial insurers
(most of which we do not rate).
“In particular, the increase in co-insurance
could raise the exposure of those that are
already overexposed by terrorism risk. At
the same time, the industry may still find it
difficult to manage non-conventional attacks
reliably.”
6
| 14 january 2015
The new bill seeks to raise the programme’s loss trigger over a six-year extension and increases insurer’s co-pay, which
S&P says could increase smaller insurer’s
exposure.
The ratings agency however noted that the
changes were not likely to affect the overall
market.
“We view the major phased-in changes
(co-insurance to 20% from 15%, industry event trigger doubling to $200m from
$100m, and recoupment levels to $37.5bn
from $27.5bn) as not significant enough to
affect the insurance markets' overall function or how much terrorism risk most insurers assume,” said S&P. n
deemed by the IAIS to be global systemically important insurers (GSIIs), and applies
to nine insurers that have been deemed to
be GSIIs including: Allianz, AIG, Generali,
Aviva, Axa, MetLife, Ping An, Prudential
Financial and Prudential UK; all of which
so have far been designated as globally
systematically important.
This year will also see companies finalise
preparations to deal with the European
Insurance and Occupational Pensions
Authority (Eiopa)’s Solvency II regulatory
framework. n
News in brief
Catalina agrees Quinn runoff deal
The runoff firm is using its Catalina Ireland
subsidiary to transfer the business, which
is still subject to regulatory and High Court
approval in Ireland.
Quinn’s runoff portfolio had gross and net
insurance liabilities of €463m and €461m,
respectively, as at September 30, 2014, according to Catalina. “This transaction with Quinn Insurance
which follows our agreement in 2014 with
Delta Lloyd to reinsure over $200m of legacy
liabilities, demonstrates the growing value
of Catalina’s platform in providing solutions
for legacy liabilities across Europe,” said
Chris Fagan, Catalina’s chairman and chief
executive.
As part of the transfer deal, Catalina has
also agreed to inject additional required
capital into Catalina Ireland.
“Together with our acquisition of Glacier
Re in 2010, Catalina has now acquired over
$1.1bn of European run-off liabilities. We
remain confident about our ability to help insurance and reinsurance companies dispose
of non-core legacy liabilities across Europe
in the future,” said Fagan.
The portfolio transfer process is expected
to complete during the second half of 2015,
said Catalina.
top stories
Lack of product and innovation
causing surplus: Eric Andersen
The primary market is unaware that many reinsurers are seeking to take a share of the
primary market, according to Aon Benfield chief executive Eric Andersen.
Insurers have a wider insurance base,
Andersen explained at an Insurance Institute of London lecture at the Lloyd’s Old
Library.
“Effectively what [reinsurers] are chasing is the business that goes to the insurer,”
said Andersen. “What they want is to get
closer to the primary client.”
He added: “I can tell you, having worked
in insurance – they [insurers] have no idea
it's coming.”
Andersen said the problem is not that
there is too much capital in the market but
that there is not enough product.
Reinsurers have stopped offering many
flood, product recall and professional
liability cover products in recent years, according to Andersen.
This has not removed the risk, but
instead pushed it back onto the balance
sheets of governments and pharmaceutical
companies, Andersen argued.
However, in some areas the increased
competition caused by an oversupply of
capacity has led to reinsurance providers
to better meet clients’ meets which is good
Eric Andersen
for the industry, said Andersen.
“What’s been happening for the past
year or two is the contracts and structures
of these programmes are actually being
matched to the buyers’ needs,” he said.
“If a client actually has an insurance contract that matches exactly what they want,
it is very positive long term.”
Andersen argued that a lack of innovation over the last decade is driving the
surplus capital. “Everyone is trying to generate a profit
before they start. But if you are going to
innovate you are going to fail,” said Eric
Andersen.
However, on innovation, he said: “What
we are starting to see around cyber is fantastic and I think a lot of it is coming from
Lloyd’s. “I don’t think a natural catastrophe will
change the market with the amount of capital out there or the amount that would come
into the market if there was an event,” said
Andersen.
“There is so much capital in the market
so the cycle isn't dead, it just responds to
specific markets that have losses.
“It does put more pressure on the "sharing of risk" concept,” he added. n
News in brief
BHSI US expands to write
pollution exposures
Berkshire Hathaway Specialty Insurance (BHSI)
is expanding its US casualty underwriting capabilities to include pollution exposures and has
hired Chuck Hasselback to head its environmental group.
“This latest expansion reflects BHSI’s strategy of pairing our sound capacity with proven
expertise to address market needs. “Chuck’s extensive experience enables BHSI
to set an optimal course for our operations as
we move into the US environmental insurance
market,” said Meredith Bullock, vice-president,
casualty.
BHSI is marking its entry into the environmental space by providing an affirmative grant
of pollution coverage on general casualty forms
- an important enhancement for energy and
construction customers in particular. Coverage will be provided on a primary and
excess basis, with available capacity of up to
$25m.
Hasselback has more than 20 years of
experience as an environmental consultant
at various environmental remediation firms,
underwriting and management experience at
AIG environmental. He was most recently product development
for Lexington Insurance Company. Hasselback
is based in BHSI’s Boston office.
14 january 2015
|7
top stories
News in brief
Markel licenced to operate in DIFC
Markel International has been granted regulatory approval to operate within the Dubai
International Financial Centre (DIFC) by the
Dubai Financial Services Authority (DFSA).
Markel is based within the DIFC and will
relocate to the Lloyd’s office when the latter
is launched in March 2015.
The Markel trade credit operation in Dubai
specialises in writing business from around
the region and offers a range of trade credit
policies.
Opportunities in other business lines will
be reviewed in due course.
Markel appointed Leroy Almeida in August
2014 to head its office in Dubai as senior
underwriter and head of trade credit, Middle
East.
Markel International (Dubai) Limited will
operate in the DIFC as a service company,
which will have authority to enter into
contracts of insurance and reinsurance on
behalf of Markel International Insurance
Company Limited and Markel Syndicate
3000 at Lloyd’s.
Ewa Rose, managing director of Markel’s
trade credit division, said: “We are delighted
now to have our DFSA approval and with our
fully resourced office are looking forward
to launching the business as we move into
2015.”
Double-digit growth expected in
Vietnam
The Vietnamese Insurance Supervision Unit
has estimated double-digit growth in the
country’s insurance sector in 2015. Total
insurance revenue from premiums was expected to be up 12.6% year on year, reaching VND59trn ($2.96bn). Non-life premiums
were expected to rise 10% year on year to
2015. In 2014 total premium revenue was
$2.63bn, up 14.2% on 2013, the insurance
supervisor said.
8
| 14 january 2015
Hoegh Osaka insurers
will examine for
possible ship defects
Hoegh Osaka, which ran aground in the Solent last week, has
been refloated and is heading for Portsmouth harbour, however
high winds are affecting the salvage.
High winds last week caused the vessel to
drag anchor for approximately 100 metres,
so the ship has been anchored in a bid to
control its movement.
Marine insurer Gard is facing claims from
the deliberate grounding of the 51,000 tonne
car carrier Hoegh Osaka in the Solent on
England’s south coast.
While the crew was safely evacuated,
the vessel itself is currently listing at a 52
degree angle.
Gard is both the vessel’s protection and
indemnity (P&I) insurer and the provider of
its hull coverage.
"The key focus for insurers will be on
what caused the ship to list so disastrously
and so quickly after setting sail,” Charles
Gordon, insurance arbitrator and mediator at
JAMS International, told Reactions.
“Insurers will want to know whether there
was defect which was known or should have
been known. Recent survey reports and any
communications about the state of the vessel
will need to be inspected.
"If there was any material non-disclosure
of material information to insurers, and
there is no suggestion of that at this stage,
insurers might have grounds for repudiating
cover. I would stress that there has been no
suggestion of this to date,” added Gordon.
The deliberate beaching of the vessel is
not likely to cause a problem from an insurance perspective as it has prevent a more
costly accident.
“If the [ship] master has taken reasonable
action to protect the ship, its crew, and its
cargo, no insurer will use that as a ground
for refusing cover,” said Gordon.
“Indeed, there is a duty on an insured to
take whatever reasonable action they can to
avoid or limit damage.
“If there was any material non-disclosure
of material information to insurers, and
there is no suggestion of that at this
stage, insurers might have grounds
for repudiating cover. I would stress
that there has been no suggestion
of this to date,” – Charles Gordon,
insurance arbitrator and mediator at JAMS
International
"There will likely be multiple insurers
of both hull and cargo but it will be the
programme leaders who will take charge of
the salvage operation and negotiations as to
settlement of claims.
Hoegh Osaka is a 51,000 tonne car carrier
which had a cargo of 1,400 cars and 80 pieces of construction equipment, when it sailed
from Southampton, England, on January 3.
The amount of damage to the cargo will
depend on how it is secured on the carrier.
"I very much doubt if insurers will entertain a claim for loss in respect of the high
end autos cargo unless there is actual physical damage to the vehicles," said Gordon. n
top stories
Fossil fuel reserves
unusable: study
between 2011 and 2050 need to be limited to around 1,100 gigatonnes of carbon
dioxide.
However, the greenhouse gas emissions
contained in present estimates of global
fossil fuel reserves are around three times
higher than this and so the unabated use of
all current fossil fuel reserves is incompatible with a warming limit of 2 deg C.
“Our results show that policy makers’
instincts to exploit rapidly and completely
their territorial fossil fuels are, in aggregate,
inconsistent with their commitments to
this temperature limit,” Dr McGlade said.
“Implementation of this policy commitment
would also render unnecessary continued
substantial expenditure on fossil fuel exploration, because any new discoveries could
not lead to increased aggregate production.”
Commentators say the uneven distribution
of resources raises conflicts for countries
wanting to exploit their natural resources
while trying to strike a global deal on climate change:
The Middle East would need to leave
about 40% of its oil and 60% of its gas
underground;
The majority of the huge coal reserves in
China, Russia and the United States would
have to remain unused;
Undeveloped resources of unconventional
gas, such as shale gas, would be off limits in
Africa and the Middle East, and very little
could be exploited in India and China;
Unconventional oil, such as Canada's tar
sands, would be unviable.
Rob Bailey, research director for energy,
environment and resources at Chatham
House, told the BBC the finding that half of
natural gas reserves must remain untapped
will make uncomfortable reading for governments seeking to replicate the US shale
revolution and displace dirtier coal.
"The recently heralded golden age of
gas will be short lived if we are to avoid
dangerous climate change," he was quoted
as saying. n
fallout after several years of cost cutting.
The US blamed North Korea for the hack,
linked to Sony’s release of “The Interview”, a
comedy movie with a plot based around assassinating the Asian pariah state’s leader.
“I would say the cost is far less than
anything anybody is imagining and certainly
shouldn’t be anything that is disruptive to our
budget,” said Lynton, quoted by Reuters, adding that losses were “well within the bounds of
insurance”.
Estimates for the cost of the hack have been
placed as high as $100m – including repairing
or replacing damaged systems and software,
and additional steps to prevent a repeat of the
attack in future.
One third of oil reserves, half of gas reserves and over 80
per cent of current coal reserves should remain unused from
2010 to 2050 in order to meet the target of a 2 deg C rise
in temperatures above pre-industrial levels, according to new
research.
The 2 deg C rise is widely accepted among
scientists as the threshold beyond which
dangerous and possibly irreversible climate
change will take place.
Research published in Nature by Christophe McGlade and Paul Ekins of University College London (UCL), Institute for
Sustainable Resources, used an integrated
assessment model to explore the implications of the 2 deg C warming limit for different regions' fossil fuel production.
They further found that the development
of resources in the Arctic and any increase
in unconventional oil production are incompatible with efforts to limit climate change.
It has been estimated that to have at least
a 50 per cent chance of keeping warming
below 2 deg C throughout the twenty-first
century, the cumulative carbon emissions
News in brief
Sony Pictures says
cyber attack fully insured
Sony Pictures thinks it can bear the cost of the
November 21 cyber attack through insurance
alone, removing the need for further cost cuts,
according to the company’s chief executive.
Michael Lynton, Sony Pictures’ CEO, said
insurance would spare the firm from further
Stable outlook for Mexico: Fitch
A stable outlook on the Mexican insurance
industry has been maintained by rating agency
Fitch, but it warns of dangers ahead.
Fitch said that the Mexican insurance sector
would probably grow by about 6% this year in
nominal terms. Economic growth as a whole is
likely to come in at about 3.6%.
But challenges persist for the sector, the
agency said. “The combined ratio of the whole
insurance industry could increase this year due
to pricing flexibility, high-impact catastrophic
events, costs associated with the implementation of the new regulatory framework and, to a
lesser extent, remaining claims from hurricane
Odile”.
14 january 2015
|9
top stories
Threats and
opportunities
in Africa
Nazare felt that the slowdown in China
would lead to changes in the global
economy, while the oil price crisis could
impact oil-exporting countries in Africa. The
termination of quantitative easing has led to
a flight of capital from emerging and developing countries' capital markets, he said.
The four geopolitical risks expected
to present grave medium-to-long-term
consequences are the escalating extremist
spawned terror crisis across the Middle East,
parts of Asia, North Africa, East African the
Sahel, and West Africa, as well as major cities across the globe.
Elsewhere the geopolitical risks include
the rise of right-wing nationalist movements
in Europe, a possible "New Cold War", that
could result in "a new bipolar schism with
no fundamental ideological base", and,
fourthly, "territorial claims motivated by
resource prospects, for example in the South
China Sea and Antarctica".
Overcapacity in Africa because of
an influx of “naïve” foreign capacity
is causing a meltdown in insurance
pricing, particularly for peak
exposures, according to Lawrence
Nazare, executive director of
African reinsurer Continental Re.
Nazare expressed concern that lower commodity prices could lead to capital flight, fiscal
pressures on governments, and a negative impact on all sectors, but particularly insurance.
Opportunities in Africa were expected to
come from consumer-driven sectors such
as fast-moving consumer goods, property,
telecoms and health. All of these should ex-
perience continued expansion because of the
growing number of middle-class Africans.
Africa's fastest-growing regions faced
threats from a lack of fiscal space for governments, reduced governmental commitment to social services and infrastructure,
and the danger of expanding but fragile
economies into extreme poverty. n
News in brief
Swiss Re to sell Brevan
Howard stake?
Swiss Re is reportedly seeking to sell its 15%
stake in asset management company Brevan
Howard. The stake has been valued at between
$350m and $500m.
Brevan Howard is one of Europe’s largest
hedge fund managers. Brevan Howard is based
in Geneva, while Brevan Howard Asset Management LLP is domiciled in Jersey. The funds are
domiciled in the Cayman Islands.
The $24bn Master Fund dropped 0.8% in
value in 2014, a decline more significant for its
psychological rather than financial impact. The
macro fund had never before made an calendar
year loss. Brevan Howard has 11 funds in total.
Neither Swiss Re nor Brevan Howard would
comment on the report, initially from the Wall
Street Journal.
R&Q completes Norway to Malta
transfer
Randall & Quilter has completed a portfolio
10
| 14 january 2015
transfer from Aker Insurance, a wholly owned
Norway-domiciled captive, to R&Q Insurance
(Malta), the group’s EU run-off consolidator. The
total consideration is NOK22.3m. The transferred current liabilities total NOK14.3m.
The policies being transferred provide workers’
compensation and personal accident cover
for the years 2003 to 2009 to the Norwegian
employees of parent company Aker Group.
Aker specialises in offshore construction and
engineering.
After the transfer is completed the claims
will be managed by R&Q Triton, in Oslo, which
is R&Q’s locally based insurance and claims
management company.
Paul Corver, head of M&A at R&Q, said that
the deal was “the first transfer from an EU
captive into our Malta platform” and that it
demonstrated R&Q’s ability to execute crossborder EU transfers, “along with the advantages
this brings”.
Corver said it was R&Q’s understanding that
there were more Scandinavian insurers “that
would benefit from removing legacy liabilities,
especially in preparation for Solvency II”.
Korean Re moves to secure Lloyd’s
“bridgehead”
Korean Re is seeking to create a Lloyd’s business, with a view to overseas expansion, the
company’s president has said.
The South Korean domestic market reinsurer
has stated a strategy to increase its international underwriting into a majority of its business.
“Visiting London in the UK in Sept. last year,
we have talked with prospective partner companies about establishing a joint company, and
we have also finished market research,” said the
company’s president, Won Jong-kyu.
“Once Korean Re has its foreign organization
for underwriting itself in the advanced European
market, the company will secure a bridgehead
for overseas expansion,” he said.
“A local corporation will be established with
the size of £10m ($15.24m; KRW16.75bn),”
added the Korean Re boss.
top stories
Guy Carpenter prop-cat
ROL down 11%
Reinsurance pricing fell in many segments at the January 1 renewals according to
Guy Carpenter’s new report, “Shaping the Future, Positive Results, Excess Capital &
Diversification”.
www.reactionsnet.com
Figure 1. Global property catastrophe ROL index – 1990 to 2013
450
400
350
300
250
200
150
100
2012
Source: Guy Carpenter & Company LLC
product offerings and terms and conditions
that benefit our clients".
Guy Carpenter vice-chairman David
Priebe said that “the sustained influx of
capital from new entrants and growth from
traditional sources continues to reshape the
reinsurance landscape’s capital structure and drive innovation in the form of
insurance-linked securities (ILS) and col-
1/1/13
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
1991
50
1990
The reinsurance broker said that the price
falls affected nearly all lines of business
and geographies. It said that a major factor driving market conditions was the low
number of natural catastrophes in 2014
– valued at about $30bn – which was the
lowest total for four years and 25% less
than the benign 2013.
The GC prop-cat ROL Index was down
11% year on year at the January 1 renewals.
Guy Carpenter said that "renewals continued
to be characterised by lower rates, excess
capacity and broader terms and conditions".
Guy Carpenter said that third party
capital was also a driver, continuing to flow
into the reinsurance market, with institutional investors seeking higher yields.
"As convergence capital has expanded,
utilisation within catastrophe products
grew to 18% of total catastrophe limit, or
$60bn, up from 15% at year-end 2013".
Lara Mowery, Global Head of Property Specialty at Guy Carpenter, said that
"market conditions that continue to bring
downward pressure on pricing are being met with tremendous, client-focused
innovation", adding that "the result has
been a customised approach with expanded
lateralised aggregate solutions."
Priebe said that Guy Carpenter was also
witnessing reinsurers "execute strategic
decisions through the utilisation of thirdparty capital facilities and M&A activity
in response to new market realities". He
said that this was further blurring the lines
between "alternative" and "traditional"
markets. n
Follow us @reactionsnet
14 january 2015
| 11
feature
Prospects of M&A surge increase
The conditions are right for the oft predicted rise in merger and acquisition activity
to actually take place, with XL Group’s deal to buy Catlin expected to be the first of
several such deals in 2015. Christopher Munro reports
This year could finally see the long mooted
spate of merger and acquisition activity in
the re/insurance market actually taking place,
with XL Group’s acquisition of Catlin the
first of what many have speculated to be a
surge of such deals.
Competition in the reinsurance industry is
as intense as it has ever been, and opportunities for growth are being stymied by vast
quantities of surplus capacity in many lines
of business, as well as an influx of so-called
alternative capital from third parties such as
pension funds.
Furthermore, with a lack of major losses
befalling the market, companies in both the
insurance and reinsurance markets are not
capital stressed.
At the same time, one of the growing
trends in 2014 was for insurers to have only
the largest companies on their reinsurance
programmes. This trend, referred to by many
as tiering, saw insurers fill their reinsurance
programmes with the industry giants, with
those lower down the food chain subsequently missing out, as Nick Frankland, chief
executive for Europe, the Middle East and
Africa at Guy Carpenter, explained.
“Last year, there was a heavy focus on the
top six reinsurers, with most clients seeking
to maximise their relationships with these
companies.”
However, he noted that has now changed
somewhat, with this group expanding.
“Now, we have quite rightly seen a
broadening of these panels and this renewal
we saw that primary group of six expanding
to about 10 to 12 reinsurers, with the ideal
number being over 20.”
Competition between reinsurers to be in
that 10 to 20 bracket is fierce however. Economies of scale will be a crucial decider in
whether companies make it into that group.
Consequently, combined with the aforementioned pressures the wider re/insurance industry as a whole, it would appear the industry is
ripe for merger and acquisition activity.
“This [tiering] is going to stimulate M&A
activity through next year,” said Frankland.
“You will not only see smaller entities
looking to combine operations to create
scale, but also the same will apply to all those
organisations that are currently outside of the
top six.”
Should the deal complete, XL Catlin - the
12
| 14 january 2015
Mike McGavick, XL Group CEO
name that will be given to the combined
business - will be the eighth largest reinsurer
in the world. Therefore, the proposed merger
can certainly be seen as one that provides the
two separate entities with a far greater presence in the international marketplace.
At the same time, Catlin’s position as
the largest underwriter in Lloyd’s will be
strengthened even further following its acquisition by XL.
By now firmly sitting within that top 10 reinsurance groups in the world, the combined
company may well find there are plenty of
opportunities for additional growth, especially if the aforementioned trend of tiering
continues. That is because XL Catlin will
now be in and amongst that group of major
players that the leading insurers will be looking to buy reinsurance from.
XL’s deal for Catlin may be the biggest
proposed M&A deal in recent times, but it
follows hot on the heels of RenaissanceRe’s
deal to acquire Platinum Underwriters Holdings in a $1.9bn deal that was first announced
back in November.
As Kevin O’Donnell, RenRe’s president
and chief executive, explained at the time,
the acquisition of Platinum will “accelerate
the growth of our US specialty and casualty
reinsurance platform and as a result, create
enhanced value for our shareholders”.
With trading conditions in many of the
classes of business that RenRe specialises in
going through something of a rough patch,
the move to gain a presence in the US market
via the acquisition of Platinum will give the
business an opportunity to operate in the
largest market in the world and provides the
possibility of the company achieving some
additional growth.
There was an uptick of merger and acquisition activity last year, with Standard & Poor’s
noting $33.6bn of deals took place in 2014.
That, according to figures from the rating
agency’s Capital IQ, was a close-to 50%
increase on the previous year’s $24.8bn of
deals.
As Reactions reported at the beginning of
the year, December was a particularly busy
month, especially in the US. Assured Guaranty acquired Radian’s financial guaranty
business for $810m, while Ace picked up the
personal lines operations of Allianz-owned
Fireman’s Fund for $365m. On top of that,
auto insurer Progressive took a controlling
stake in property insurer ARX Holdings for
$875m.
Aon Benfield, in its Reinsurance Market
Outlook, said the rise in merger and acquisition activity has been driven by the acquirers’
desire to either expand geographically, move
into new products or distribution or increase
its scale and efficiencies.
“We believe that this acquisition motivation
will continue to be supplemented by sellers
becoming increasingly focused in divesting
books of business that do not earn its cost of
capital,” the reinsurance broker said. n
feature
Reinsurance tiering
to expand – Guy Carp
A soft market, rates down at renewal, excess capacity
and the regionalisation of the pricing effects of
catastrophe loss events will contribute to major
changes in the reinsurance space, according to the
reinsurance broking arm of Marsh & McLennan.
Guy Carpenter used four bullets to sum up
its appraisal of the state of the reinsurance
market at this year’s January renewals:
consolidation; scale; diversification; and
so-called tiering.
The latter is not a new trend, but rather
an extension of one which several brokers
have pointed to in recent years.
“Last year, there was a heavy focus on
the top six reinsurers, with most clients
seeking to maximise their relationships
with these companies. Now, we have quite
rightly seen a broadening of these panels
and this renewal we saw that primary
group of six expanding to about ten to
twelve reinsurers, with the ideal number
being over 20,” said Nick Frankland, Guy
Carpenter’s EMEA CEO.
This dovetails with the consolidation and
(economies of) scale bullets, both of which
mean heightened mergers and acquisitions
(M&A) activity for reinsurers fighting to
make up the last places within the coveted
top 20 list within the tiering trend.
“This [tiering] is going to stimulate
M&A activity through next year. You
will not only see smaller entities looking to combine operations to create scale,
but also the same will apply to all those
organisations that are currently outside of
the top six,” he said.
“I think we’ll see a bigger fight between
those [reinsurers] who are not big enough
to be part of that yet,” added Frankland.
For the reinsurers, while the increased
role of pension funds and other capital markets is set to continue, it is still
focused on US property catastrophe and
retrocessional markets – the best modelled
perils the industry can offer.
However, the reduced rates of continued
market softening seen at renewal are not
going to put off capital market investors,
stressed Frankland – reinsurance offers
them one of the exceptionally rare niches
to invest which were uncorrelated to
systemic risk in other financial markets,
proven in the 2009 financial crisis.
Furthermore, he noted, the relatively
low equity recent returns for reinsurance
shareholders – accustomed to 15% return
on equity – will not put off pension funds,
who are only investing a tiny proportion
of their portfolio within the industry, can
sustain big losses on their proportionally
small investment, and regard single digit
returns as acceptable.
“We are poised on the brink of a fundamental change in this industry and the
next 12 months are likely to confirm that,”
said Frankland.
“The business generally will need a
reset. It needs to work to a lower cost
of capital model which will see a period
of increased creativity around the use of
additional and alternative capital instruments, as well as enhanced return vehicles,” he said.
Alternative capital into the industry had
reached 18% in 2014, suggests Guy Carpenter. Of this: 8% is collateralised reinsurance; 7% is insurance-linked securities
(ILS; cat bonds); 2% is sidecars launched
by traditional reinsurers; and 1% is industry loss warranties (ILW) (see chart).
The rates picture at 1/1 was a continued
slide with no evidence for a reverse in the
offing, suggested Guy Carpenter. Frankland noted that he was confident this was a
consensual view, across other brokers and
reinsurers themselves.
He said 2014’s low $34bn figure for
global cat losses, combined with “inexorably increasing” industry capital, had led to
consistently oversubscribed programmes,
for less than the lowest quoted terms.
In basic terms, property cat reinsurance
was down 11%, said Frankland.
Furthermore, when looking at instances
when cat pricing had risen in previous
years – after the US hurricanes Katrina,
Rita and Wilma (KRW) in 2005, and after
the Japanese Tohoku Earthquake and tsunami of 2011 – Frankland pointed to the
regional nature of rate rises.
KRW only hit US pricing in 2006 – although representing the biggest cat market
– just as Tohoku only affected regional
Asian pricing in 2012, he noted.
“What you’ve got now is a market that
responds locally and regionally,” said
Frankland.
Pointing to where pricing is for 2015,
he noted that levels are still above those
seen before previous large cat events, with
nothing suggesting they will not continue
to fall significantly.
“We’re still way ahead of historic lows.
Pricing is going down because there is
still margin in this business,” he said.
Casualty lines had also fallen, he continued, mostly down 5-10%, with even
loss-hit business such as US D&O or
E&O down by 5%.
In Europe, Guy Carpenter noted that
UK motor reinsurance was up by 7.5%,
and that this might indicate other European motor – in France and Italy, in
particular – could be expected to rise, as
pricing had slipped elsewhere despite the
same pressures which had led to an acknowledgement that UK pricing had been
due a rise.
Specialty pricing was consistently
down, suggested Chris Klein, managing
director and head of strategy for the UK
and EMEA at Guy Carpenter.
Aviation and aerospace was down by
7.5%, he noted, with the rare exceptions
of loss-hit business, such as that from
2014’s Malaysian Airlines losses.
Credit, bond and political risk was
down further, by 15%, said Klein, while
retrocessional pricing was dragged down
by underlying cat reinsurance drops, to
between a 10 and 15% drop, said Guy
Carpenter. n
14 january 2015
| 13
feature
Acappella looks to next steps
in holdings company move
Acappella is launching as an insurance holdings company in a bid to attract more
capital to the London market from third parties. The venture – formed as Syndicate
2014 under Pembroke, which had been acquired by Bermuda-based Ironshore in 2008,
is also backed by Willis, and is led by former Faber chief executive, Jason Howard.
The business says Acappella in its new guise
will operate as a managing general agent
(MGA), “providing capacity to the market
through specialist underwriting teams, as
well as a fund management company, to
manage the investment of third party capital
into insurance underwriting businesses”.
Acappella also intends to create a Lloyd’s
managing agency offering its services to
other syndicates, subject to Lloyd’s approval.
“There are three strands to the business,”
says Howard, Acappella’s CEO, speaking
to Reactions. “There’s the Lloyd’s business, which is currently being managed
by Pembroke, owned by Ironshore, which
is a joint venture partner in this deal. Our
intention is this year to apply to Lloyd’s for
our own managing agency, which would
ultimately look to taking over the running of
the syndicate.”
“All of this is subject to Lloyd’s giving
us that authorisation. Within the next year I
look forward to being well advanced in that
process,” he says. “On the MGA front, we
are applying for regulatory status with the
FCA and getting ready to present to them.
That will take a few months to do, so we
are looking forward to that entity platform
regulated and authorised,” he says.
“From a fund management perspective,
by the end of the year we should certainly
have the platform in place to deliver that
business. What the intention is to raise funds
to put into underwriting entities. It’s matching risks with capital, and the key to doing
that is to get the best underwriting teams
together to write that business,” continues
Howard.
Questioned about the space’s attractiveness – London as a hub and reinsurance as
a sector – he is bullish about Acappella’s
prospects.
“We’re looking at niche and specialist business and London is very much the
centre of that and will continue to be,” says
Howard. “London has a huge pool of talent
and training facilities. It’s a good fulcrum
and place to bring people and business
14
| 14 january 2015
“We’re looking at niche and specialist
business and London is very much the
centre of that and will continue to be”
– Jason Howard, Acappella’s CEO
together from across the world. We want
access to that.”
“For the very big people it’s more difficult to avoid some of the difficult pricing
out there in the market. We’ll be relatively
small, but I think we can make money in
the niches within the classes of business we
look to get into,” he adds.
Speaking about the numbers needed for
success, Howard is more cautious – highlighting the project’s nascent stage – with
several major hurdles yet to pass.
“We have it in mind the numbers we’ll
need to break even and deliver profits to
shareholders,” says Howard. “To run a
Lloyd’s managing agency, you probably
need to be around the £200m mark. We’ll
be looking towards getting to that and above
that eventually.”
Acappella is developing with two major
backers: two-thirds Willis; one third Ironshore. Willis’ enthusiasm for the underwriting management side – internationally – is
already proven. However, Howard describes
those relationships, particularly with the
broker, as “at arm’s length”, and is at pains
to clarify Acappella’s independence.
“We need to see business from the other
brokers, and Willis is by no means our
biggest partner among the brokers, into the
syndicate, nor into our MGAs,” he says.
That said, he notes that Ironshore –
through Pembroke – has been “tremendously helpful” in supplying the systems making
the syndicate tick. He also highlights
Ironshore’s desire to showcase its turnkey
skills, via Acappella, as a supporting pillar
for would-be start-up ventures.
Supervising the construction of such
building blocks has been occupying Howard
for the past six months, he notes, since
joining the business in July, seconded from
Willis, where he was previously CEO of its
Faber Global arm. Howard describes the
lines of business on which the Lloyd’s-based
syndicate has been built thus far.
“The syndicate…writes a property treaty
account in the US and Canada, a casualty
treaty account in the US, it writes a political
risk account on a worldwide basis, it writes
a cargo account, it’s got a personal accident
account, it’s got a direct and fac international liability business, and a US property
binders business,” says Howard.
“All of those classes we think are capable
of making good profits, written in the right
way. There could be other classes we will
look to – but on a case by case basis – so
we’re open-minded, and we will analyse and
decide on business plans to determine where
we want to go,” he suggests.
Talent is crucial at this stage he suggests,
and remains one of the London market’s
greatest strengths.
“We have some very good underwriters
who absolutely know how to make money in
those classes. We also have a great pipeline
of people we are talking to at the moment
who are keen to join Acappella,” says
Howard.
“Right now is a good time, with a lot of
underwriters wanting to establish their own
businesses within a strong franchise,” he
says. “They like what they see at Acappella;
it has no legacy issues; but it has two very
big backers in Willis and Ironshore, to offer
the financial strength and stability to offer a
good platform.” n
feature
Charles Taylor
buys Scottish
Widows life runoff
Nuclear fund in
India faces hurdles
The Indian government is seeking a way to solve the
nuclear incident liability problem and is floating the
idea of a Nuclear Insurance Fund. However, political
considerations could slow any progress.
Charles Taylor has agreed to
buy the Scottish Widows’ runoff
life insurance business.
The Jersey-based Scottish Widows International Limited (SWIL) provides unit-linked
life insurance policies and portfolio bonds to
individual investors.
Charles Taylor said it intends to redomicile the unit to the Isle of Man following the
acquisition, with its policies then transferred
into its life subsidiary there, LCL International Life Assurance Company Limited.
“This agreement to acquire SWIL from
Scottish Widows plc follows our recent
purchase of Nordea Life and Pensions,” said
David Marock, group CEO, Charles Taylor.
“It demonstrates our commitment to grow
our life insurance business in the Isle of
Man.”
“This agreement to acquire SWIL from
Scottish Widows plc follows our recent
purchase of Nordea Life and Pensions”
– David Marock (pictured), group CEO,
Charles Taylor
“Over the last four years we have made
four life insurance company acquisitions.
We expect the acquisition to be earnings
enhancing and generate an early payback of
our investment,” he added.
The firm said the acquisitions were part
of its ongoing strategy for “making further
acquisitions in the international life sector”.
“By merging the business into Charles
Taylor’s life insurer, we will be able to
deliver further efficiencies without compromising service,” said Jeffrey More, CEO,
Charles Taylor Insurance Services.
The insurance services firm noted that
the deal is still subject to Jersey Financial
Services Commission regulatory signoff, as
well as court approval.. n
On January 5 finance minister Arun Jaitley
said that the liability law as part of an act
passed in 2010 had been worked on by both
the then opposition BJP and the now-opposition Congress.
The Vidhi Centre for Legal Policy has released a report which offers possible solutions
to the current impasse. Foreign suppliers, who
were the main sufferers under the 2010 liability rules, have said that the unintentional effect
of the law had been for companies to refuse to
supply Indian nuclear plants with materials.
The government is thought to feel that there
should remain some level of supplier liability,
while the Vidhi Centre for Legal Policy
recommended that the section of the 2010 Act
that gave a right of recourse of suppliers, and
a separate section which stated that victims
could sue suppliers under other laws as well.
India’s strict nuclear liability laws mean that
no single company can assume the exposure
on the plant because of the size of the risk
associated with it. Last year the Department
of Atomic Energy asked the finance ministry to form a nuclear insurance pool after
India’s state owned insurer, General Insurance
Company (GIC) was not able to provide sufficient cover for the nuclear power plants. The
proposed nuclear reinsurance pool will cover
material damage and the civil liability arising
out of any harm to the hot and cold zones of
nuclear plants. An alternative insurance pool
for nuclear plants that was proposed by staterun reinsurer GIC Re did not come to fruition
as the Indian government was unable to come
to a consensus with international reinsurers
regarding the inspection of nuclear facilities.
GIC Re managed to raise $78m from local
insurers for the proposed nuclear insurance
pool, which will provide cover to the existing, as well as new, nuclear installations in the
country.
The Indian state reinsurer was seeking the
remaining coverage, around $242m,from
overseas nuclear insurance pools.
The government said that it would act as
insurer of last resort for up to $300m.
The tentative plans for a nuclear liability
funds would see the government supplying
GIC Re with a loan. The remaining funding
would come from premiums paid by suppliers
when they purchased insurance. The theory
would be that the fund would slowly accumulate funds as new reactors came online and
more equipment was bought. Additional funds
would be obtained from a small fee from
electricity sales.
Indian and US officials met in December
last year with a view to completing the administrative arrangements of the nuclear deal, and
are eager to seal some kind of agreement in
time for President Obama’s forthcoming visit.
That nuclear agreement is significant because
it is likely to be used as a template for subsequent nuclear deals with Japan and Australia.
The dispute over where potential liability
should lie is a symptom of deeper underlying
divisions within the Indian political hierarchy.
It has included an interesting interpretation
of the meaning of the word “supplier” by one
of the negotiators, RB Grover, that Indian
companies manufacturing components were
not suppliers because they only manufactured
according to specifications and designs supplied by others. That, asserted Grover, made
them “vendors” rather than “suppliers”.
Both foreign and Indian suppliers are
uncomfortable with the way the nuclear manufacturing and assembling system has apparently shifted as much liability as possible away
from the nuclear operators. L&T’s YS Trivedi
said that the law imposed disproportionate
liability and risk on the supplier, and noted
that the previous UPA-coalition government
had recognized the problems with the 2010
act and had tried to cap the potential liability
in 2011. Trivedi said that the 2010 rules would
have had an impact on the credit-worthiness of
suppliers.. n
14 january 2015
| 15
news round-up
Pakistan working on new risk
standards
AlphaCat secures
$564m new subscriptions
AlphaCat Managers, part of Bermudabased Validus Holdings, has secured
$564m of new subscriptions and commitments for deployment during 2015.
The new capital consists of $409m for the
AlphaCat ILS funds and $155m for special
purpose vehicle (SPV) AlphaCat 2015 Ltd.
Alpha Cat 2015 invests in collateralised
reinsurance and retrocessional contracts
written by AlphaCat Reinsurance Ltd.
Third-party subscriptions and commitments represented 95% and 82% of the total funds raised in respect of the AlphaCat
ILS funds and AlphaCat 2015 respectively.
AlphaCat has now fully deployed the
funding called on January 1, representing
75% of the new AlphaCat ILS funding and
92% of AlphaCat 2015 funding.
AlphaCat chief executive Lixin Zeng
said that the unit was “pleased with the
strong level of investor support for the
AlphaCat business and continued success
in growing assets under management”.
Other operating company subsidiaries
of Validus Holdings are Bermuda-based
short-tail reinsurer Validus Re, Talbot
Holdings (Bermuda parent of mainly
Lloyd’s insurer Talbot/Syndicate 1183)
and US specialty lines company Western
World Insurance.
RELEASE DATES DIARY
16
The Securities & Exchange Commission of
Pakistan (SECP) is working with the World
Bank to reform the country’s regulatory
framework and to strengthen the SECP’s
supervisory capacity.
SECP chairman Zafar Hijazi met with
a team from the World Bank this week to
discuss the SECP’s help in insurance law
reforms. A technical assistance project has
been launched that will assist the SECP to
help it strengthen and reform Pakistan’s
insurance laws. However, Hijazi said that
the recommendations in the report and the
implementation plans should take account
of the socioeconomic outlook of Pakistan.
The plan is to introduced a risk-based
capital and risk-based supervision of insurers within Pakistan.
During the project’s first phase, the World
Bank will offer a comprehensive report
based on an analysis of the gaps in the
existing insurance regulatory framework.
These will include the insurance core principles of the International Association of
Insurance Supervisors (IAIS).
Company
Release of
4th Quarter Results
Company
Release of
4th Quarter Results
Kemper
06 February 2015
Lancashire
12 February 2015
Ace
27 January 2015
MetLife
11 February 2015
AJ Gallagher
03 February 2015
MMC
06 February 2015
Allied World
04 February 2015
PartnerRe
04 February 2015
Arch
10 February 2015
Prudential
04 February 2015
Aspen
05 February 2015
RenRe
03 February 2015
Assurant
12 February 2015
RGA
02 February 2015
Axis Capital
03 February 2015
The Hartford
02 February 2015
Cigna
05 February 2015
United Health
21 January 2015
Cincinnati
05 February 2015
Willis
10 February 2015
Everest Re
04 February 2015
WR Berkeley
05 February 2015
Hanover
04 February 2015
| 14 january 2015
news round-up
PartnerRe Singapore subsidiary
gets licence
Old Mutual grows with UAP
stake
South Africa’s Old Mutual has bought
a 23.3% stake in UAP Holdings Ltd in
a move which expands its presence in
the eastern part of its home continent.
UAP has is a financial services company
based in East and Central Africa which
operates in six countries. Old Mutual has
paid KES8.88bn ($97.5m) for the 23.3%
shareholding. “This investment is another
significant step in delivering the group’s
aim of becoming an African financial services champion,” said Ralph Mupita, chief
executive of Old Mutual emerging markets.
“UAP is an ideal and complementary fit to
our existing Kenyan businesses and we look
forward to deepening and broadening our
relationship in the future.” UAP is the third
largest property and casualty player and the
second largest health carrier in Kenya. It
also has a considerable property investment
portfolio in the country as well as a rapidly
growing life assurance business. In Uganda,
UAP is the second largest property and
casualty and health carrier, and is also the
third largest life insurer. While its operations in Kenya and Uganda make up the
bulk of its business, UAP’s offices property
and casualty offices in Rwanda, Tanzania
and South Sudan also make significant contributions. On top of these, the group also
owns a brokerage business in the Democratic Republic of the Congo.
Extended Benefits, marine, engineering and
credit insurance. As a result of the deal it
will become a part of the Howden broking
operation. CIMB Group will remain “a key
partner” and would “continue to play an
important role in CIB’s future”.
CIB will continue to be led by current
chief executive Eddy Hon.
Hyperion chief executive David Howden
said that Asia was “a region where we have
been developing scale over several years;
we have strong ambitions in the South
East Asian market, and partnering with the
highly-respected CIMB banking group will
enhance our position immensely”.
Howden noted that Malaysia had generated compound annual premium growth of
about 8% over the past five years, and that
this rate of growth was forecast to continue,
“particularly in marine, energy, financial
lines and employee benefits sectors”.
Bermuda-based multi-line reinsurer PartnerRe’s wholly owned Asian subsidiary
Partner Reinsurance Asia Pte has been
licensed by the Monetary Authority of
Singapore to operate as a non-life and life
reinsurer, capitalised in Singapore.
From April 1, the main date for many
Asian renewals, PartnerRe Asia will be the
principal reinsurance carrier for PartnerRe
business underwritten in the Asia-Pacific
region.
Alain Flandrin, who is currently Head of
Partner Reinsurance Europe SE’s Singapore
Branch, has been named chief executive
(CEO) of the newly licensed company.
PartnerRe CEO Costas Miranthis said
that PartnerRe had supported the growth
of insurance business in the Asia-Pacific
region ever since PartnerRe was founded
in 1993. He added: “Over the past year we
have localised more business in Singapore
and Hong Kong and increased underwriting
resources in the region to enhance proximity and responsiveness for our clients”.
Howden makes Malaysia move
Broking group Howden, a subsidiary of
Hyperion, has signed a deal with Malaysiabased banking group CIMB under which
Howden Broking Group has acquired an
initial 49% stake in, and management control of, CIMB Insurance Brokers (CIB).
CIB is a Malaysian retail broker specialising in financial lines, commercial,
14 january 2015
| 17
news round-up
Marsh acquires Belgian broker
Marsh is to acquire Belgian credit insurance
broker Trade Insure NV for an undisclosed
amount in a move which will expand its
credit protection presence in Belgium.
Trade Insure employees 16 people its
office in Aalst, just North of Brussels, and
serves around 500 clients.
Starting January 2015, the combined
entity will trade under the name of Marsh
Trade Insure and will comprise of all the
members of Marsh’s existing trade credit
team in Belgium as well Trade Insure’s current employees.
The team will continue to be based in
Aalst and will operate through Marsh’s offices in Brussels, Antwerp, Roeselare, Liège
and Luxembourg.
“I am delighted to welcome the experienced team from Trade Insure to Marsh.
Trade Insure has developed a compelling
credit insurance offering for both SME and
multinational clients across Belgium,” said
Flavio Piccolomini, chief executive (CEO)
of Marsh Continental Europe.
“When combined with Marsh’s capabilities, we will be able to offer them worldclass services and solutions.”
Trade Insure is the largest trade credit
insurer in the Belgian market, holding a
market share of approximately 20%.
Following the acquisition, the company
18
| 14 january 2015
says it will be able to provide specialty
solutions for political risk and structured
credit, as well as other services such as
non-financial bonds alongside its traditional
trade credit products.
“This transaction is exciting news for
both our clients and colleagues,” said Luc
Gillijns, managing director of Trade Insure.
“Our clients will have access to a wider
range of products and services and our
colleagues will have enhanced career opportunities.” The acquisition is Marsh’s first of the
year. In 2014 it made moves to expand into
Latin America with the acquisition of a
majority stake in its long-time corresponding broker Sesuma on undisclosed terms in
June.
Nigeria’s Oasis Insurance
acquired by FBN
Nigeria-based Oasis Insurance Plc has
been delisted from the Nigerian Stock Exchange (NSE) daily official list after Oasis
was acquired by FBN Insurance Limited, a
subsidiary of FBN Holdings Plc.
According to NSE, after the acquisition
was completed, Oasis Insurance applied
for voluntary delisting from the exchange.
FBN Insurance had acquired 71.2%
equity interest in Oasis Insurance through
a block divestment in February 2014.A
mandatory take-over bid for the remaining 28.8% equity interest in Oasis Insurance was then made by FBN Insurance
Limited.
By the close of the takeover bid on July
31, 2014, FBN Insurance Limited received
a total of 1,289,493,953 ordinary shares
bringing its shareholding in Oasis Insurance Plc to approximately 91.1%.However,
FBN Insurance Limited elected to exercise
its rights under Section 146(2) of the
Investments and Securities Act to acquire
shares belonging to the minority shareholders having crossed the 90% threshold.
At the end of the 20-day statutory
notice period, FBN Insurance Limited
increased its holdings by an additional
22,603,617 shares bringing its holdings
in Oasis Insurance Plc to approximately
91.4%. The company then transferred the
sum of N310,649,730 to FBN Registrars
(as a consideration for the outstanding
560,808,895 shares or 8.6%) to keep in
trust for shareholders who are yet to tender their share certificates, according to
Nigerian news service This Day Live.
This means FBN Insurance Limited
now holds a 100% equity interest in Oasis
Insurance Plc, instigating its application
to NSE for delisting.
The acquisition would enable the FBN
Holdings to expand its insurance business
as FBN Life seeks to harness Oasis Insurance’s relative strengths.
Oasis Insurance is expected to leverage
FBN Holdings’ wide network.
news round-up
Years before UK’s PPI misselling scandal is over,
ombudsman says
More cat losses covered by
insurance in 2014
Increasing levels of insurance penetration
mean a higher proportion of catastrophe
losses suffered in 2014 were covered by
insurance compared with the long term
average.
Just over a quarter of the $110bn of
catastrophe losses suffered in 2014 were
covered by insurance - a higher proportion
than the average over the past 30 years, figures from Munich Re show. Approximately
$31bn of the catastrophe losses that arose in
2014 were protected by insurance, equal to
almost 28.2% of the overall total.
Over the past 30 years, average annual
catastrophe losses stand at $130bn, of
which $33bn is insured. That equates to an
average of close to 25.4% of catastrophe
losses being covered by insurance in each
of the last 30 years.
The figures for 2014 were a marked
reduction on those from the previous year
when $140bn of catastrophe losses hit, of
which $39bn was insured. In 2014, 980
loss-related natural catastrophes were registered, a far higher number than both the
average of the past 10 and 30 years which
stand at 830 and 640 respectively. However, this higher number of natural catastrophes did not translate to greater financial
losses. The higher number of catastrophe
events did not also translate to a higher
number of fatalities, with some 7,700 individuals losing their lives in these disasters.
That is significantly less than the 21,000
deaths that arose from natural catastrophes
in 2013, and the long term annual averages
of 97,000 over the past decade and 56,000
in the past 30 years.
“Though tragic in each individual case,
the fact that fewer people were killed in
natural catastrophes last year is good news,”
said Torsten Jeworrek, a board member at
Munich Re. “And this development is not
a mere coincidence. In many places, early
warning systems functioned better, and the
authorities consistently brought people to
safety in the face of approaching weather
catastrophes, for example before Cyclone
Hudhud struck India’s east coast and Typhoon Hagupit hit the coast of the Philippines. “However, the lower losses in 2014
should not give us a false sense of security,
because the risk situation overall has not
changed. There is no reason to expect a
similarly moderate course in 2015.
It is, however, impossible to predict
what will happen in any individual year.”
The biggest event in terms of overall
losses in 2014 was cyclone Hudhud
which hit India and cost in the region
of $7bn. Of this, $530m was covered by
insurance. As Munich Re explained, this
may be a comparatively small proportion,
but insurance penetration in the country
is increasing at what the global reinsurer
called “pleasing constant growth”. For the
insurance industry, the costliest event in
2014 was a winter storm and heavy snow
that affected Japan. Combined, this cost
underwriters $3.1bn.
Complaints about Payment Protection Insurance are still the main driver of financial
disputes in the UK, according to Caroline
Wayman, chief of the Financial Ombudsman Service. In its plans and budget for the
2015/16 financial year published today, the
watchdog says it is planning to resolve a
further 250,000 disputes involving missold payment protection insurance (PPI)
– reducing the number of existing PPI cases
from around 280,000 to 180,000.
“Although numbers are slowly declining,
it will be years before we can truly say this
mis-selling scandal is over,” Wayman said.
“Our plans take into account the increasingly hard-fought and complex nature of the
cases we are seeing – not only in PPI but
also in areas like mortgages and pensions.” The plans and budget set out how next
year (2015/2016) the ombudsman is also
planning to: answer 1.4 million front-line
consumer enquiries; tackle 88,000 banking complaints, 33,000 insurance cases and
17,000 investment complaints; and recruit
an additional 200 adjudicators and ombudsmen.
The proposals to manage and fund this
workload include lowering the total cost
of the ombudsman to the financial services
sector by 13% – with a reduced operating
income of £220.7m. It says it is freezing the
case fee paid by businesses at £550 – payable only after the 25th case – which means
99% of businesses will continue to pay no
case fee at all. The ombudsman will continue the groupaccount charging arrangement for the eight
largest businesses that generate the most
complaints, resulting in three-quarters of its
expected workload being funded on a more
financially stable basis.
Around 5,000 people a week ask the ombudsman to look into their PPI complaint.
The service was set up by MPs to settle
disputes between financial firms and consumers. Since 2011, banks have paid £16bn
to customers in compensation, according to
the Financial Conduct Authority.
14 january 2015
| 19
people
news
round-up
moves
Guy Carpenter
broadening business
Florida approves
more policy take-outs
The Florida Office of Insurance Regulation has approved a further 93,500 policies that can be transferred to four private
insurers in March.
The announcement came on Friday
January 9th, two days after Citizens chief
executive and president Barry Gilway said
in a meeting with legislators that he had
revised his earlier projection that Citizens
would retain about 650,000 policies, but
that this estimate had been reduced to
between 525,000 and 550,000.
Gilway told Florida’s House Insurance
& Banking Subcommittee that “I would
have told you a year ago that nobody was
going to write a mobile home in Florida
that was produced (during or before)
1994. Yet we now have a company in
Florida, Mount Beacon, that’s basically
focused on mobile homes in Florida that
were built in 1994 or prior.
Two years ago Citizens had nearly 1.5m
policies on its books, but has managed to
reduce this to little more than 650,000,
although the strategy has not been without controversy. Many of the policies
have gone to start-up insurers established
specifically to “take out” policies from
Citizens. critics have claimed that, although the potential financial exposure to
Citizens had been reduced, says Gilway,
to $200bn from more than $510bn, this
did not mean that the potential liability
for the Florida taxpayer had been reduced
by a similar amount. However, private
companies tend to seek the least risky of
the Citizens policies, which mitigates the
likely payout, although not the absolute
liability.
A major part of Citizens’ reduction has
not related to take-outs, but to a new electronic clearing-house. This compares new
and returning residential policies. When
a private firm’s pricing is found to be
within 15% of Citizens for a new singlefamily policy, that policy has to go to the
private insurer rather than to Citizens.
Mount Beacon Insurance was approved
to acquire up to 35,000 single-family
home policies; Anchor P&C was allocated up to 28,000 single-family home
policies; Heritage P&C was approved for
up to 20,000 single-family home policies
and 500 commercial-residential policies.
Southern Oak Insurance was allocated up
to 10,000 single-family home policies.
Guy Carpenter is responding to the
ongoing pressure on broking revenues
by looking to broaden its operations and
evolve into more of a consultancy. While
there have been frequent discussions
about how reinsurers are suffering from
pricing pressure, there has been little
mention of how brokers are also finding
the going tough.
Reinsurance brokers derive their revenue from fees and commissions which are
often related to the sums of money being
placed. With many insurers now spending less on their reinsurance purchase, or
indeed buying lower levels of cover, there
has been a knock on effect for brokers.
Nick Frankland, chief executive of Guy
Carpenter’s operations in Europe, the
Middle East and Africa, said there is pressure on revenues, but at the same time,
his firm is protected from much of it because the contracts with some of its larger
clients include an agreed fee rather than
brokerage based on the business placed.
However, Frankland conceded that clients
are buying less cover, which is having an
effect on revenue levels.
In a bid to offset this, Guy Carpenter
is looking to develop its business outside
of core broking. GC Securities, which
provides alternative capital solutions to
clients beyond traditional reinsurance,
continues to grow and bring additional
revenue to the business. On top of that,
Guy Carpenter is also increasingly focusing on providing advisory services to its
clients through its Global Strategic Advisory arm, a unit of the business which
Frankland said “has added tens of millions of dollars to our revenues”. “It leads
us into a different space,” said Frankland.
“We are trying to raise the level of discussion with how our clients run their business. Our aspiration is to have more of a
consultancy based model along with the
power of being a traditional reinsurance
broker.” n
www.reactionsnet.com
Follow us @reactionsnet
20
| 14 january 2015
people moves
Martijn Meijboom, Senior Underwriter;
Arnout Bijl, Underwriter; and Bart Leijssen, Engineer.
Warren noted that renewable energy was
"a growing area requiring specialist insurance and I am delighted that this highly
skilled and experienced team have joined
Canopius to expand our energy product
range."
Alastair Speare-Cole
Speare-Cole heads to Qatar Re
Alastair Speare-Cole, who was chief executive officer of JLT Re between 2011 and
August last year, has joined Qatar Re as
Chief Underwriting Officer (CUO).
It was announced in August that SpeareCole, who was one of the driving forces
behind the merger of JLT Re and Towers
Re, would be leaving the JLT Re business
at the end of 2014. Mike Reynolds became
CEO there.
Speare-Cole replaces Willi Schürch, who
is retiring from the post of CUO. Qatar Re
chief executive Gunther Saacke said that
it was "a great privilege to have such a
high-calibre and widely respected insurance
executive on board".
Speare-Cole's main experience is on the
reinsurance broking side, having worked
with Aon Re, Aon Benfield UK, and finally
JLT Re.
Willi Schürch joined Qatar Re along with
Saacke back in 2012, when both left Novae
Re.
Canopius launches new division
Specialty re/insurance group Canopius, part
of Sompo Group Holdings, has announced
the launch of a Renewable Energy division,
comprising five specialists and based in
Amsterdam. The team will report to Steve
Warren, Head of Energy at Canopius in
London, and to Jimmy Guman, Managing
Director of Sompo Japan Nipponkoa Nederland. The new team takes up its business
with immediate effect.
The new team joins from Delta Lloyd,
and will be led by Maarten Mulder, Head
of Renewable Energy. Other members are
Aspen Insurance US
appoints excess auto leader
Aspen Insurance US has appointed Martin
Brauner as its new senior vice president and
product leader for excess auto liability.
He will report to Roxanne Mitchell, the
insurer’s executive vice president and chief
casualty officer.
Excess auto liability is one of the five
product lines within Aspen’s US casualty
structure: the other four being real estate
including hospitality; construction; products
liability; and excess casualty.
“Martin’s considerable knowledge of
the US automobile liability market and his
success in managing a profitable operation
will be invaluable to the growth strategy of
the US casualty team,” said Mitchell. “I am
excited to welcome Martin to Aspen as we
expand our Casualty market presence with a
new excess automobile liability facility.”
Brauner joins Aspen with 20 years
of experience in management, product
development, underwriting, and marketing
for commercial automobile liability and
transportation risks. Prior to joining Aspen, he was responsible for a commercial automobile underwriting team across 14 US states with multiple
underwriting offices for Lexington Insurance Company.
Before that he previously held positions
at Big Moose Holdings and United States
Fidelity & Guaranty Company. their vast collective wealth of specialist
knowledge and experience. This will play
a key role in realising our ambitions and
enhancing our strategic development.”
New appointments at Acappella
Acappella Syndicate 2014 has announced
the appointment of David Jones to the post
of Divisional Head of Casualty, Insurance.
Jones joins from AMTrust at Lloyd's,
where he was Divisional Head of Casualty.
Before that he had spent a decade leading
Markel's Casualty team.
Jones is joined by Class Underwriters
Laurie Devereaux and Helen Beamish. also
from AMTrust at Lloyd's. Caroline Matthews joins as Trainee Underwriter.
The team will begin writing in Professional Indemnity, Management Liability
(D&O/Crime) and General Liability.
Godwin named head
of claims at Lloyd’s
Philip Godwin has been named as Lloyd’s
new head of claims to replace David Lang
who has been given the new role of chief
data officer. Godwin has worked within
Lloyd’s claims function ever since he joined
the corporation in September 2007, and
he has played a major role in implementing the market oversight framework as
well as Lloyd’s claims proposition. During
his more than seven years with Lloyd’s,
Godwin has also supported the market in
responding to a range of complex global
situations. On top of that, he spearheaded
the development of the Lloyd’s Market
Strategic Claims Group. He remains the
chairman of that group. Under his leadership, the claims team will continue to have
a two objectives of both providing market
oversight and delivering commercial support to Lloyd’s stakeholders. n
Price Forbes recruits
RK Harrison team
Specialist insurance broker Price Forbes has
recruited Bruno Le Roy as Head of Specie,
as well as nine additional tem members.
Le Roy joins Price Forbes from
brokerage RK Harrison, as do
team members David Cobb, John
Holton, Richard Phillips and
Chris Randall.
Price Forbes chief executive Michael Donegan said: “I
am delighted to welcome our
new Specie team members to
Price Forbes. We have enjoyed
significant growth in this sector.
Under Bruno’s leadership we will
combine our existing expertise
with our new team to harness
Philip Godwin
14 january 2015
| 21