eu uses Solvency ii to shift insurers into infrastructure

Transcription

every wednesday • Issue 17 • 15 october 2014
EU uses Solvency II to shift
insurers into infrastructure
Insurers are attracting policymakers’ attention in the EU as lawmakers try to
drive investment in long-term infrastructure projects needed to underpin the
region’s struggling economic recovery.
The European Commission
on Friday published Solvency
II updates for insurers that
include lower requirements for
investments in cross-border
funds focused on lengthy
projects.
Last year, EU financial
services chief Michael Barnier
proposed that funds meeting minimum EU criteria on
governance and strategy should
be designated ‘European long
term investment funds’ and are
designed to increase non-bank
financing for companies.
The European Commission
said that the proposed rules
would encourage insurers to
shift a higher proportion of
their investment funds into
safe, simple and transparent securitisation markets in
Europe, thus encouraging their
development and increasing
their liquidity.
The new rules would permit
a lighter capital treatment for
top-rated asset-backed securities (ABS).
Top quality securitisation
includes only the most senior
tranches of simple, top rated
ABS. It excludes "sliced and
diced" derivative securitisations, such as collateralised
debt obligations, which were
seen as major contributors to
the financial crisis of late 2008
and early 2009.
The funds would also be
Continued on page 4 >
Monsoon rains cause most
economic loss in September
Monsoon rains led to catastrophic flooding throughout parts of Pakistan and
India in September, killing at least 648 people and damaging or destroying
375,000 homes.
In India’s Jammu and Kashmir
region, the local government
tentatively estimated economic
losses of INR1.0trn – $16bn.
Insured losses were estimated at
INR9.0bn or $150mn. In Paki-
stan, economic losses in Punjab
Province alone were put at
PKR200bn – $2.0bn – representing the fifth consecutive year that
Pakistan has endured a billiondollar flood event, according to
the latest Global Catastrophe
Recap report from Aon Benfield's Impact Forecasting
Elsewhere in Asia the seasonal
rains resulted in flooding across
Continued on page 4 >
ALSO in this issue: Starr v US govt court case page 8-10
2 EDITORIAL comment
4TOP STORIES
11TOP STORIES
13 FEATURE
15NEWS ROUND up
21people moves
• First phase of Starr
International case
comes to an end
•Capsicum Re signs
deal with AJG
• Lloyd’s FC beats
Aon 3-2 to start
season
• M&A activity on
the up, but is there
more to come?
• Liberty Mutual
faces battle over
Louisiana sinkhole
• Lockton Asia
appoints new
Greater China head
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Editorial comment
The “first phase” of what is ostensibly the case of
Starr International v The US, but which in reality is
Maurice “Hank” Greenberg v the Washington and
New York financial establishment, is now over.
The “big three” – Tim Geithner, at the time head
of the New York Federal Reserve and soon after
the US Secretary to the Treasury during Barack
Obama’s first administration; Henry “Hank”
Paulson, Geithner’s predecessor as Secretary to the
Treasury, serving under George W Bush; and Ben
Bernanke, at the time the Chairman of the Federal
Reserve Board of Governors – all took the witness
stand last week, facing questioning from celebrity
lawyer David Boies.
Boies had previously made his name in high-profile sports cases, forming his own firm in 1997 when
Time Warner, a client of the firm where he was
partner objected to Boies representing the New York
Yankees. Time Warner owned the Atlanta Braves
and the Yankees suit was against Major League
Baseball en masse.
Boies relationship with Greenberg goes back
many years. In 2006 the partnership Boies, Schiller
& Flexner negotiated a settlement with AIG on
behalf of CV Starr.
CV Starr (named after AIG’s founder Cornelius
Vander Starr and, when Greenberg led AIG, his
sole predecessor as leader of the company) was
in those days an odd company. It traces its roots
back to 1919 when Cornelius founded an insurer
in Shanghai. Those links to China served the Starr
companies, and AIG, well. In 1950 CV Starr was
incorporated and became the parent company of the
various Starr insurance businesses. But it was also
an investment operation and a pension fund. Senior
executives in AIG were linked to CV Starr through
the way their pensions were structured. It was a
system that worked well in encouraging loyalty and
longevity of service.
Greenberg was ousted as the leader of AIG in
2005, partly because of a financial reinsurance
strategy that had helped AIG to smooth its earnings
quarter by quarter. Eliot Spitzer, New York Attorney
General from 1999 to 2006, was a key player in
AIG’s decision to drop Greenberg, and statements
made by Spitzer about Greenberg in 2012 have led
to a legal action for defamation.
This web of disagreements, most of which
involve Greenberg, has led to some commentators
asserting that Greenberg is seeing conspiracies
round every corner. In 2012 US District Judge
Paul Engelmayer said, of one of the many actions
brought by Greenberg, that his complaint “paints
a portrait of government treachery worthy of an
Oliver Stone movie”.
But, as the saying goes, just because you are
paranoid doesn’t mean they aren’t out to get you.
Boies’ arguments in court, that the rescue of AIG
violated shareholders’ constitutional rights, and
that it was only accepted by AIG board members
at the time because the alternative was worse, have
led to tough questioning of Geithner, Bernanke and
Paulson that has often raised more questions than it
has elicited answers.
And the fundamental questions – why was AIG
charged an interest rate more than three times as
high as Citigroup, and was the government within
its legal rights to take equity rather than debt – have
not really been answered.
The general defence used, and one which has
gained some traction with commentators, is that
AIG shareholders profited from the rescue, that
they were better off than if the rescue had not taken
place. However, none of the three star witnesses
demonstrated causation; and it does not address the
argument of Boies and Starr, who concede that a
rescue was necessary.
Bernanke and Paulson in the main put up a solid
stonewall. While there were lots of “I don’t recalls”,
Boies found it impossible to break them down.
Paulson even had the generosity to say that he held
Greenberg in high regard – a phrase that did not
come to the more academic Geithner, who could
only refer to Greenberg as a “unique” character.
The kernel of Starr’s case does not seem to this
writer to be unsound, but the defences throw up
enough dust to make the fundamental case almost
irrelevant. If it really is the establishment on trial,
then more often than not the establishment wins.
Strangely, as he was perhaps the least successful of the three witnesses for the defence, Geithner
has put forward the most solid moral point – that
the aims of the rescuers were noble and that the
relative harshness of the terms was because (a) to
impose the same on banks (which, implicitly, was
what they deserved) would have been financial and
economic suicide and (b) it was necessary to be
punitive to discourage other institutions from taking
the “government bailout” route. Geithner, therefore,
is stating that AIG was treated harshly not so much
because of what it did, as because it was possible to
do so and because it would discourage others from
doing the same.
This might not appear fair, but late 2008 was not
about fairness, it was about the possible. Looked at
this way, even if Boies proved beyond all reasonable
doubt that Starr International shareholders had their
constitutional rights trampled upon, were hung out
to dry while others got off lightly, tat the AIG Board
had a gun held to its head when it “voluntarily”
accepted the government rescue proposal; even if
all that was shown to be undeniable indefatigable
fact, a defence that the alternative would have
been economic meltdown of the financial system
and financial disaster for many millions more will
probably work. “They did what they had to do”
walks along the same path as the American dream,
of the movies High Noon, Shane, Stagecoach, Three
Violent People, and Steinbeck’s The Grapes of
Wrath. “I know this man – a man got to do what he
got to do.”
Boies might have got the better of at least one of
the big three, but he will find it hard when he has
the spirits of Steinbeck, Heston and Wayne lined up
against him n
Peter Birks, Managing Editor, Reactions
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|3
top stories
Capsicum Re signs deal with AJG
Capsicum Re, the specialist reinsurance broker set up by ex Aon Benfield chief executive Grahame
Chilton, has signed a deal with Arthur J Gallagher under which the reinsurance broking team of Arthur
J Gallagher – AJG Re – will transfer to become a partnership within the Capsicum Re Group.
Grahame Chilton
All current and future treaty reinsurance
business handled by Arthur J Gallagher will
now be conducted by Capsicum Re.
The AJG Re team, consisting of 14 people
and led by Matt FitzGerald, has joined Capsicum Re and will continue under FitzGerald's leadership. The group moved to AJG
in 2012 from Execution Re, then a part of
Espirito Santo Investment Bank.
Fitzgerald said: "This is an exciting
development for our team and allows us to
combine the influence and market presence
of our US parent, Arthur J Gallagher, with
the dynamic and entrepreneurial vision of
Capsicum Re".
Capsicum Re chief executive Grahame
Chilton said: "This is a great move forward
for Capsicum Re and consolidates our position as Gallagher's primary treaty reinsurance outlet". n
EU uses SII to shift insurers into infrastructure
< Continued from page 1
given a passport to market themselves
throughout the 28-nation bloc.
“Obviously we want to make sure
that there are no obstacles for investing
in those kinds of funds, where we hope
then the money will be channelled into
those projects that we want to promote,” said Barnier in an interview with
Bloomberg in early October.
Following the publication of the
Solvency II Delegated Acts, Michaela
Koller, director general of Insurance Europe said: “Insurance Europe welcomes
the publication of the Delegated Acts,
which are a vital part of the implementation of Solvency II."
"We are now examining them, paying
particular attention to their treatment of
long-term investments which, as well as
impacting policyholders, could impact
insurers’ abilities as the leading institutional investor to help fund European
growth and provide market stability.”
The insurance rules, and bank rules
that accompanied the announcement,
take the form of "delegated acts" that
add detail to broader EU laws. The
proposals are sent to the European
Parliament and national governments
for review. Bot the parliament and local
governments can object.
In the case of insurance, Friday's
measure adds requested detail to Solvency II, which will come into law in
early 2016. n
Monsoon rains cause most economic loss in September
< Continued from page 1
parts of Thailand, China, and northeastern
India, causing combined economic losses
in excess of $2.1bn.
Asia Pacific head of Impact Forecasting
Adityam Krovvidi said that “floods causing significant economic losses are on the
rise in Asia. Though the insured losses are
very low for many events, the potential for
a big surprise like the 2011 Thai floods is
high. Pearl River Delta and Ho Chi Minh
City among others are good examples
in the region. Impact Forecasting has
recognized the potential for major insured
losses and has been developing several
realistic disaster scenarios (RDS) for Asian
floods in addition to fully probabilistic
models. Work is complete or in progress
in Thailand, China, Vietnam, Jakarta and
Malaysia.”
In developed markets, flooding hit the
US, with one event seeing the aftermaths
of Hurricane Norbert and Tropical Storm
4
| 15 october 2014
Dolly combining with monsoonal moisture
to generate flash floods in Arizona, Nevada
and California. Some locations recorded
rainfall totals equal to a 1-in-1,000 year
event, and the total economic loss approached $225m, with insurance losses
approaching $100m.
Hurricane Odile struck Mexico’s Baja
Peninsula, killing five people and injuring
135 others. Total economic losses are expected to reach the low-digit billions of US
dollars. Preliminary insured losses were
put at a minimum of $522m.
Elsewhere, typhoon Kalmaegi made
separate landfalls in the Philippines, China,
and Vietnam, killing 31 people and producing combined economic losses of almost
$3.0bn. n
TUNIS RE CAPITAL INCREASE RESERVED TO A STRATEGIC PARTNER
CALL FOR EXPRESSIONS OF INTEREST
OBJECT OF THE TENDER
As part of the final step of its development plan for the period 20102014, Société Tunisienne de Réassurance ("Tunis Re" or the
"Company") plans to open its capital through a capital increase
reserved to a strategic partner ("Strategic Partner"), to 25% of its
share capital after increase (the "Transaction").
The extraordinary general meeting held September 19, 2014 decided
a capital increase reserved to a Strategic Partner with the amount of
25 million dinars, divided into 5,000,000 shares with a nominal value 5
dinars, from 75 million to 100 million dinars.
It’s expected that the Strategic Partner provide strong expertise in
order to participate to the improvement of its technical and financial
ratings including the strengthening of its financial and commercial
capacity at the regional and international levels.
KEY HIGHLIGHTS
 Tunis Re, a leading reinsurer in the Tunisian market, was
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established March 25, 1981 at the initiative of the authorities with
the help of insurance and reinsurance companies as well as some
local banks.
At the end of June 2014, Tunis Re generates nearly 64% of its sales
in the local market and 36% in the MENA region including 14% in
Africa.
To confirm its status as a regional reinsurer, Tunis Re initiated in
2012, its first representative office in Ivory Coast.
Tunis Re has been assigned several national and international
missions, including the reduction of remittance flows of reinsurance
abroad and contributing to the establishment and development of
national reinsurance pools. Tunis Re is in charge of their
management on behalf of the Tunisian State.
Tunis Re is the first African reinsurance company listed on the stock
market. The IPO funds raising was achieved in May 2010. In 2012,
a second public offering was performed to increase the capital of
Tunis Re from 45 to 75 MTND.
Tunis Re is certified to MSI 20000 standards by the Institute of the
Paris Stock Exchange since October 2010.
The international rating agency AM Best reaffirmed, in July 10,
2014, the technical and financial ratings of Tunis Re B + (Good) with
a stable outlook, which confirm the strength of the Company and its
ability to overcome difficulties.
This confirmation reflects the good capitalization adjusted on the
Company risk, better underwriting policy and a strong position in its
market.
In early 2011, Tunis Re has launched a specialized unit of islamic
reinsurance "Retakaful" to target high added value crenel. This
structure operates in accordance with the Islamic insurance rules
and norms and is followed by a Chariaa supervisor.
PRE-QUALIFICATION PROCESS
Investors wishing to be pre-qualified to participate in the tender are
invited to express their interest individually or by forming a
consortium in accordance with the terms and calendar described in
the pre-qualification document ("DPQ").
The strategic partner should be an internationally renowned financial
institution:
A direct insurer or reinsurer interested in a presence in the
African and the MENA region markets
And/or
A bank, a specialized investment fund or an international
renowned financial institution those are willing to expand
or diversify its insurance and reinsurance activities.
Expressions of interest must be submitted at Banque d'Affaires de
Tunisie ("BAT") no later than November 14th, 2014 at 17:00 whose
contact details are mentioned below.
Tunis Re reserves the right, at any time during the process, to not
retain one or several Investors to participate in the process of
increasing the capital, in case of non-compliance by interested
Investor(s) with the current rules of law and public order.
REGISTRATION AND WITHDRAWAL OF DPQ
Investors interested in participating in the Transaction must register
first. To register, Investors should submit to the Advisor, whose
details appear at the end of this notice, by fax or email, the
Presentation Sheet ("Presentation Sheet") dully filled according to
model available at the Advisor.
Then, Investors will be invited to:
(i)
sign the non-disclosure agreement (the "NDA") available
at the Advisor (Cf. contact details at the end of this notice.
(ii)
Pay the non-refundable registration fee, amounting to
3,000 dinars or 1,300 Euros or 1,700 USD.
After steps (i) and (ii) Investors will be invited to withdraw DPQ,
which presents the investment opportunity, the process and prequalification criteria.
Registration fees are payable by certified check or by bank transfer to
BAT in its account #10.010.124.1085140.788.94 (STB Bank).
DUE DILIGENCE
Pre-qualified investors will have access to the tender document
("DAO") and the Rules of data room, and have the opportunity to (i)
conduct due diligence works as part of a virtual data room that will be
open according to a timetable and specific rules (rules of the data
room and list of available documents), (ii) to visit the Company
buildings and (iii) meet with its management.
The closing of the Transaction is planned for February 2015.
Contacts and information:
Banque d’Affaires de Tunisie ("BAT" or le "Advisor") was retained by Tunis Re as exclusive advisor to realize the Transaction. Any
request for information, NDA, presentation Sheet or DPQ must be sent to:
Mr Thameur CHAGOUR / Mr Tarek MANSOUR
10 bis, Rue Mahmoud El Materi, Mutuelleville, 1002 Tunis, Tunisie
Tel.: +216 71 143 804 / +216 71 143 806
Fax: +216 71 891 678
Emails: [email protected] / [email protected]
Web site: www.bat.com.tn
top stories
Hamilton buys US licences
Nearly a year after a consortium of investors led by industry veteran Brian Duperreault bought SAC Re
and transformed it into Hamilton Re under parent company Hamilton Insurance Group, New Jerseybased Hamilton USA’s parent Hamilton US Holdings has bought US-based admitted insurer Valiant
Insurance and US-based surplus lines insurer Valiant Specialty from a subsidiary of TIG Insurance,
itself a subsidiary of Fairfax Financial Holdings.
Brian Duperreault
On completion Valiant Insurance Co will be
renamed Hamilton Insurance Co and Valiant
Specialty Insurance Co will become Hamilton Specialty Insurance Co. TIG Insurance
Co will reinsure all insurance business written by the two companies prior to closing. It
will also assume all other liabilities, giving
the new Hamilton Insurance Co and Hamilton Specialty a "clean slate".
Hamilton Insurance Co will be the admitted US carrier for Hamilton USA, while
Hamilton Specialty will be the surplus lines
US carrier for Hamilton USA.
Hamilton Insurance Group chief executive Brian Duperreault said that, with the
completion of these acquisitions, "we will
begin to explore in earnest the potential that
data analytics represents for the insurance
industry. Under Conan Ward's leadership,
we're entering an exciting chapter in the
group's growth and development".
Sac Re was only formed in 2012, with
$500m in capital from Capital Z and Steven
Cohen, founder of SAC Capital Advisors.
But an insider trading scandal led to $1.8bn
in civil and criminal penalties, with SAC
stopping the management of external investors' funds. That effectively eliminated the
raison d'etre SAC Re, hence the sale to the
6
| 15 october 2014
Duperreault consortium.
Duperreault formed his new company,
which has ex Citigroup boss Sanford
"Sandy" Weill as non-executive chairman,
in association with hedge fund Two Sigma
Investments. Bob Deutsch was appointed
chief strategy officer half way through this
year. Deutsch has said that Hamilton plans
to expand in the London market, another
example of companies initially seen as reinsurers moving into the primary space.
Fairfax bought Valiant in 2011 as part of
its acquisition of First Mercury. AT the time
Valiant was in run-off, and was subsequently
transferred to TIG. Fairfax said that Valiant
had effectively become a shell company,
and it made sense to monetize the licences
it held rather than dissolve the business. The
sum paid by Hamilton was not disclosed.
Nearly a year after a consortium of investors led by industry veteran Brian Duperreault bought SAC Re and transformed it
into Hamilton Re under parent company
Hamilton Insurance Group, New Jerseybased Hamilton USA's parent Hamilton US
Holdings has bought US-based admitted
insurer Valiant Insurance and US-based
surplus lines insurer Valiant Specialty from
a subsidiary of TIG Insurance, itself a subsidiary of Fairfax Financial Holdings.
On completion Valiant Insurance Co will
be renamed Hamilton Insurance Co and
Valiant Specialty Insurance Co will become
Hamilton Specialty Insurance Co. TIG
Insurance Co will reinsure all insurance
business written by the two companies prior
to closing. It will also assume all other liabilities, giving the new Hamilton Insurance
Co and Hamilton Specialty a "clean slate".
Hamilton Insurance Co will be the admitted US carrier for Hamilton USA, while
Hamilton Specialty will be the surplus lines
US carrier for Hamilton USA.
Hamilton Insurance Group chief executive Brian Duperreault said that, with the
completion of these acquisitions, "we will
begin to explore in earnest the potential that
data analytics represents for the insurance
industry. Under Conan Ward's leadership,
we're entering an exciting chapter in the
group's growth and development".
Sac Re was only formed in 2012, with
$500m in capital from Capital Z and Steven
Cohen, founder of SAC Capital Advisors.
But an insider trading scandal led to $1.8bn
in civil and criminal penalties, with SAC
stopping the management of external investors' funds. That effectively eliminated the
raison d'etre SAC Re, hence the sale to the
Duperreault consortium.
Duperreault formed his new company,
which has ex Citigroup boss Sanford
"Sandy" Weill as non-executive chairman,
in association with hedge fund Two Sigma
Investments. Bob Deutsch was appointed
chief strategy officer half way through this
year. Deutsch has said that Hamilton plans
to expand in the London market, another
example of companies initially seen as reinsurers moving into the primary space.
Fairfax bought Valiant in 2011 as part of
its acquisition of First Mercury. AT the time
Valiant was in run-off, and was subsequently
transferred to TIG. Fairfax said that Valiant
had effectively become a shell company,
and it made sense to monetize the licences
it held rather than dissolve the business. The
sum paid by Hamilton was not disclosed. n
News in brief
BoE brings in 100%
insurance compensation
The Bank of England’s Prudential Regulation
Authority (PRA) has confirmed the fears of many in
the financial services industry by imposing capital
requirements and consumer protection that goes
beyond new European rules.
The added confusion about forthcoming obligations mainly concerns banks, which have estimated
the ongoing costs of the new requirements at
between £35m and £50m a year on an ongoing
basis, plus a one-off cost of between £250m to
£390m.
The Bank of England also intends to raise to
100% from 90% compensation for holders of
insurance policies for annuities, protection against
accidental death or injury, and incapacity and
professional indemnity, should an insurer collapse.
top stories
Flood Re seeks
retro broker tenders
Flood Re has published a tender for the services of a Retrocession
Broker on the Crown Commercial Service’s website.
The tender invites bidders to apply for an
initial 4-year contract, extendable by Flood
Re for further periods so that the term may be
up to 7 years in total, with award scheduled
for early December 2014.
According to the Association of British
Insurers (ABI), 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.
The closing date for completed tender
responses is 18 November 2014.
The ABI said Flood Re has also received
a healthy response to the Managing Agent
tender from a number of organisations.
The evaluation of these submissions is
currently being finalised, with an e-auction
planned for later this week.
Final selection of the Managing Agent will
take place before the end of October.
Tom Woolgrove, interim Flood Re CEO,
said: "The Flood Re programme and ABI are
delighted that tender documents for the appointment of the Broker have been published.
Accessing global reinsurance, to transfer
risk and manage volatility, is a key part of
the Flood Re business model, and by using
a broker's expertise, we hope to balance the
cost effective placement of reinsurance with
accessing innovative solutions."
"Both tenders demonstrate our good
progress, and are further major milestones in
implementing Flood Re. n
Fema to issue flood
premium refunds
One million US homeowners are to receive refunds from the
Federal Emergency Management Agency (Fema) after paying what
have been deemed as excessively high flood premiums under the
Biggert Waters Act.
The refunds are part of the Homeowner
Flood Insurance Affordability Act, which was
passed on March 13 by Congress and signed
by President Barack Obama on March 2. It
was proposed by Republican representative
Michael Grimm.
The bill amends the Biggert-Waters Flood
Insurance Reform Act, which included
gradual elimination of subsidies aimed at putting the National Flood Insurance Program
(NFIP) on sounder financial footing. The
scrapping of the subsidies led to higher premiums for a number of homeowners.
The new law limits yearly premium
increases to an average of 15%, and caps any
increase at 18%.
The NFIP sent out revised guidelines in
April advising its insurance partners on the
new rates outlined in the flood legislation and
their implementation.
It also advised its partners on the best ways
to provide relief to homeowners whose flood
insurance premiums had risen prior to the
passage of the Homeowner Flood Insurance
Affordability Act through Congress as part of
the original Biggert-Waters legislation.
“Starting today, millions of Americans,
including thousands of homeowners in Staten
Island and Brooklyn living in flood-prone
areas will be able to remain in their homes
and enjoy a breath of much-needed financial
security,” said Rep. Michael Grimm (R-NY).
“Thanks to Congress rising above partisanship and passing my bill earlier this year,
starting today my constituents will be able to
afford their homes, buy and sell their homes,
and avoid a crippling housing market crisis in
our community.” n
Berkshire
launches fiduciary
liability cover
Berkshire Hathaway Specialty
Insurance has launched Executive
First Fiduciary Liability Insurance, a
policy providing up-to-date protection
for fiduciary liability exposures related
to an organization’s employee benefit
plans oversights.
“Our Executive First Fiduciary Liability
policy addresses the most current regulatory,
litigation, and pension and welfare issues
facing large commercial and financial companies, their directors, officers and employees -- and gives companies the flexibility
they want in defending claims," said Dan
Fortin, senior vice president of executive
and professional lines, Berkshire Hathaway
Specialty Insurance (BHSI).
The policy has a flexible defence agreement, which gives policyholders the freedom to choose how and who they want to
drive their defence.
Insured's have the duty to defend all
claims (with defence costs advanced), but
can tender claims defence to BHSI if they
prefer.
A roster of highly sought ERISA (Employee Retirement Income Security Act)
litigation defence attorneys will be available
to insureds facing claims, but their use is not
obligatory.
The policy also provides full “settlor”
coverage (with no sublimit) for litigation
stemming from certain business decisions
made about employee benefit plans, and
extends Affordable Care Act "gap" coverage
for no additional premium.
Additional highlights include a broad
definition of "plan," and expansive fines and
penalties coverage.
Up to $100m in capacity is available. n
Warren Buffett
15 october 2014
|7
top stories
Oct 7
STARR INTERNATIONAL TRIAL
Paulson admits political factors in AIG bailout
Henry “Hank” Paulson, former US Treasury Secretary, told a US
Federal Claims Court yesterday that New York-based insurer
AIG was subject to tougher rescue terms than other financial
institutions because regulators wanted to send a message to the
markets that any US government help that was offered would not
come cheaply.
Tim Geithner, head of the New York Fed
in 2008, had told the court that Paulson
was responsible for the 14% interest rate
charged to AIG, termed extortionate by Starr
International, a major shareholder in AIG at
the time of the rescue. Starr, whose CEO is
ex-AIG boss Maurice "Hank" Greenberg, is
suing the US government for up to $25bn in
damages for shareholders.
Paulson said that when it came to regulating markets he valued stability above
everything else, but then said that market
participants needed to be responsible for the
consequences of their actions.
Starr asserts that the government exceeded its rights when it took an 80% stake
in AIG in consideration for a loan of $85bn.
Its lawyer David Boies has noted that the
equity demand was not made of any other
rescued financial institution.
Paulson echoed previous testifiers, which
Henry “Hank” Paulson
have included two general counsels and one
regulatory head, that if AIG was not kept
alive, the country faced "a real disaster".
Lehman Bros had been allowed to go bankrupt on September 15 2008 and the fallout
was dramatic – with liquidity in the markets
suffering drastically.
Paulson said that Citigroup had escaped
the severe terms imposed on AIG because
the government feared that tough terms
would encourage short-sellers to attack other banks. In the insurance sector there was
no such threat of a "domino effect", Paulson
said, implying that AIG was punished not so
much because of what it did as because the
impact of the punishment would not have
wider economic implications.
Boies put it to Paulson that the punishment of AIG was political, to which Paulson
replied that he had indeed wanted to minimise the political opposition to what the
government was doing. At the time the two
major political candidates for the November 2008 election were Republican John
McCain and Democratic Party candidate
Barack Obama. The George W Bush administration was heading towards a painful
close. Paulson accepted that the bailout of
AIG might be linked in political and public
eyes with the second half of the Troubled
Asset Relief Program (TARP). The concern,
said Paulson, was that an injection of $40bn
into AIG might stir up public and political
opposition to the second half of the $700bn
TARP program.
Paulson repeatedly insisted that he did not
recall the details of the rescue package, and
was off the stand in under two hours. n
www.reactionsnet.com
8
| 15 october 2014
Oct 8
top stories
Geithner testifies in AIG case
Former US Treasury Secretary and head of the New York Federal Reserve Tim
Geithner said in court on Tuesday that it was necessary for the US government to
rescue New York-based insurer AIG in September 2008 because if AIG had gone
under there could have been a second Great Depression.
Starr International is suing the US government
in the Federal Claims Court in New York,
claiming that the bailout of AIG, though necessary, was on extortionate terms that infringed
the rights of shareholders. Tuesday morning
saw Starr's lawyer David Boies introduce as
evidence several emails that Geithner wrote and
received during the days either side of the initial
bailout offer. Boies also read aloud several
quotations from Geithner's book on the matter,
stimulating the response from Geithner that he
stood by what he wrote in his book.
A Bloomberg TV commentator observed that
clearly "it was not the place that he wanted to
be at this particular time", and that his responses
were "slow and deliberate".
Geithner, as was the case with the other witnesses called so far by Boies, often stated that
he could not recall certain details of the rescue.
It was noted that events at the time were moving at a rapid pace, and that many of the emails
sent and received by Geithner were timed
later than midnight, indicating the round-theclock activity at the time as financial regulators worldwide attempted to stop the global
economy collapsing. Days earlier Lehman Bros
had been allowed to slide into bankruptcy and
the consequent liquidity crunch had put a strain
on several financial institutions. Many of those
had AIG as a debtor because of AIG Financial
Products' insurance of credit default swaps.
AIG would eventually pay out to counterparties, which included some of the world's major
banks, at 100 cents on the dollar, payments
seen at the time as being helpful for the global
economy, but not for AIG.
A major plank of Starr's case is that the high
interest rate set for AIG, and the taking over by
the US government of 80% (eventually 92%) of
AIG's equity in return for the bailout, was extortionate when compared with the rates charged
to other financial institutions such as Citigroup.
Geithner admitted that he was, ultimately, the
person responsible for setting the interest rate
charged – 14% – and claimed that the rate was
modelled in part on a tentative private rescue
plan that would have been led by JP Morgan
Chase and Goldman Sachs. But he didn't think
he had seen any written reasoning for the 14%,
noting instead that "we were moving kind of
quickly". He could not recall who drafted the
proposed terms, or whether he had seen a term
sheet from the private lenders. He then stated
that his information about the proposed terms
for the AIG rescue were conveyed to him by
someone "authoritative" at the New York Fed,
but he couldn't recall their name.
He also pulled back from some of the statements he made at the peak of the crisis, when
AIG's name was public mud. Some felt that
at the time he had almost boasted that AIG's
shareholders would be "effectively wiped out".
He told Boies that the phrase was not accurate,
because in fact the rescue benefited the shareholders rather than penalized them. Geithner
had also said that the government takeover of
a majority stake gave it the power to "carve up,
dismember, sell or restructure" the insurer. That
had appeared to be the fate of AIG until Bob
Benmosche took over and rallied the troops,
rebuilding the company. A point not raised
in court was whether perhaps shareholders
Oct 9
benefited more from Benmosche's defiance of
original government plans, rather than because
of the rescue.
Geithner told the court that the government
did not have a specific kind of equity in mind
when the rescue was being planned. Part of
Starr's case is that the government changed the
type of equity it wanted from common stock to
preferred shares because it realized that existing
shareholders would not approve the deal.
Geithner, who became Treasury Secretary
under President Obama in January 2009 and
served until January 2013, is scheduled to return
to the stand today. He will be followed by the
third pillar of the AIG rescue, Ben Bernanke.
Judge Thomas Wheeler is presiding in the
case, in the US Court of Federal Claims. n
Geithner testifies, day 2
Discrepancies between the public pronouncements and the internal emails of ex New York
Federal Reserve boss Tim Geithner at the height
of the US financial crisis served to make it an
uncomfortable morning in the witness box for
the ex-Treasury Secretary.
Starr International's legal representative in
the court David Boies, questioning Geithner
for a second day in the Starr International v US
Govt case in the Federal Claims Court of New
York, confronted Geithner with emails and other
documents in which he appeared to say that the
US Government was taking on significant risks
with its loans to AIG in return for equity. Boies
compared this with Geithner's public pronouncements that the loans were relatively low-risk.
In exchanges that occasionally became heated,
Boies also produced documents that indicated
Geithner's opinion at the time to be that losses
had been imposed upon shareholders in AIG
proportionate to the mistakes made by the firm.
Boies then noted that the US government hadn’t
undertaken any analysis specifically to ascertain
what those mistakes were, how big they were,
and who was to blame.
Geithner's response was that AIG was a
unique case in the size of the problems it was
facing (in Q4 2008 it booked a loss of $61.7bn,
mainly because of continued severe credit
market deterioration, and for 2008 as a whole it
lost $99.3bn). Citing the benefits of hindsight, he
added that it was not possible to assess the exact
effect of each management decision at AIG.
Geithner also observed that AIG was an insur-
ance company – regulated by the states in the US
– which meant that the Central Bank had little
insight into the risks that AIG was taking. This
was compounded by the fact that AIG Financial
Products, the division that generated most of
AIG's stratospheric losses, was headquartered in
New York but was effectively based in London.
Geithner said that the Fed had "no formal supervisory relationship with AIG" and that this had
created "an exceptional set" of moral hazards.
Defending the high rate of interest – a core
part of Starr International's case that the rescue
was unfair to AIG shareholders – Geithner said
that the terms had to be tough enough not to
create further moral hazard; if the loan rate was
generous, the rescuers feared that other companies might deliberately travel the government
bailout route. He also said that the government
wanted some protection in the event that the
collateral placed by the AIG parent company –
mainly stock in its operating insurance company
subsidiaries – declined in value. As it transpired,
the US government ended up making a significant profit on the scheme, while AIG shareholders lost more than 90% of their interest in the
recovery.
Under friendly questioning from a lawyer
from the US Department of Justice, Geithner
said that the New York Fed did not decide until
the last minute that it had the authority to provide
AIG with a loan secured by equity as collateral.
A key point put forward by Boies was that the
US government acted in a way that it new was
beyond its technical powers. n
15 october 2014
|9
top stories
Oct 10
Geithner wraps up lengthy time on stand
Former US Treasury Secretary and head of the New York Fed at the time of the bailout of insurer AIG
in late 2008, Tim Geithner, finished two and a half days on the witness stand Thursday morning.
The main arguments between David Boies,
legal representative for Starr International,
and Geithner revolved around whether the
loan from the US government to AIG posed
substantial risks to the government.
Boies asserted that it was a low-risk loan, on
unjustly harsh terms. Starr International is suing the US government in the Federal Claims
Court, asserting that shareholders in AIG were
treated unfairly by the terms of the bailout. A
defence of the government is that AIG shareholders eventually benefited from the deal, as
did the US government, to the tune of more
than $22bn. However, the US government also
maintains that it was taking a big risk when it
Oct 10
bailed out AIG and that this was one justification for the high interest rate charged.
Justice Department lawyer Kenneth Dintzer
introduced to the court previous Geithner
The main arguments between David
Boies, legal representative for Starr
International, and Geithner revolved
around whether the loan from the US
government to AIG posed substantial
risks to the government.
statements that the US government faced a risk
of substantial losses as a result of the bailout.
Geithner also somewhat damned ex-AIG
boss and current Starr boss "Hank" Greenberg
as someone whose confidence and optimism
were "unique".
Geithner's ambiguity when he was asked by
Boies what he thought of Greenberg had appeared earlier in his testimony and contrasted
with the public opinion of Henry Paulson,
Geithner's predecessor as Treasury Secretary, who said in the witness box that he held
Greenberg in "high regard".
Starr is suing the US government for up to
$40bn in the Federal Claims Court. n
Bernanke defends terms of AIG bailout
On Thursday former Federal Reserve Chairman Ben Bernanke became the fifth witness to take the
stand in Starr International vs US in the US Federal Claims Court, and the third of the three most
significant – Henry Paulson, Tim Geithner and Ben Bernanke.
Bernanke has had the advantage of seeing
the thrust of Starr's lawyer David Boies case
against the US via the questioning of Paulson
and Geithner.
Bernanke, who will be testifying again
today, Friday, said that the 14% interest rate
charged to AIG, more than three times higher
than was charged to comparable banking
institutions that needed bailing out, was
justified in that it prevented AIG shareholders
from benefiting from the $85bn bailout.
Bernanke, like Paulson, has used terse,
non-conversational responses to Boies questioning. He said that the lower rates charged
to banks was intended to get funds into the
system, improving liquidity. Bernanke accepted that this might lead to shareholders in
the banks benefiting, but claimed that there
were offsetting considerations that did not
exist in the case of AIG.
News in brief
China quake destroys 7,000 homes
An earthquake destroyed almost 7,000 homes
and injured 324 in southern China last night,
the official Xinhua News Agency has reported.
One person was killed in the 6.6-magnitude
quake in Yunnan province but major casualties
are expected to be low, the Ministry of Civil Affairs said in a statement.
The Ministry said water, electricity, communication is normal on their website.
However, the Earthquake Administration had
previously said the earthquake had caused “great
casualties and heavy losses” and it carried out an
emergency plan for earthquakes that cause 50 to
300 deaths or heavy economic losses.
Xinhua said there were 6,988 homes collapsed and 13,017 damaged today.
As part of the rescue effort 10,000 tents,
10,000 quilts and 10,000 winter coats will
be sent to the area to the area, the provincial
government said.
10
| 15 october 2014
IAG announces major
brand repositioning
Australian insurer IAG has announced a major
repositioning of its brands, with its intermediated business to fall under the CGU banner,
Lumley to be established as an underwriting
agency and Wesfarmers Insurance to remain a
small, rural brand.
A new set of CGU products will be released
from next April and will combine the best of
CGU and Lumley policies, IAG Commercial
Insurance CEO Peter Harmer told insuranceNEWS.com.au.
IAG Commercial will have a broader and
increased appetite as a result of larger scale
achieved following IAG’s takeover of the Wesfarmers underwriting business on 1 July.
The new Lumley Agencies business will use
this scale to “aggressively grow”, said Harmer.
He also said that the insurer is looking for
partners to create new agencies with.
He told Boies that at the time of the bailout
he did not know the basis for the interest rate
charged, but that he had learned something
about the matter since. "I understand the
overall goal was to minimise the windfall to
the stockholders from AIG being bailed out,
but I couldn't go term by term".
When Boies pushed for specifics about
prevailing rates at the time of the crisis, Bernanke effectively dismissed the question with
the statement that he did not think that it was
worth "splitting hairs" on this one. On being
asked if the Federal Reserve's power to set
interest rates for loans to financial institutions
in trouble included the right to demand equity
in return, Bernanke said that he did not recall
even thinking about it.
Thomas Baxter, general counsel for the
New York Fed and the first witness to take
the stand, had asserted that the central bank
did have the power to demand equity under
the "incidental powers" but also said that
the Central Federal Reserve, i.e, the Federal
Reserve Board of Governors, had seen this as
"loophole lawyering".
Bernanke told Boies that AIG had performed worse than he had anticipated, eventually requiring $182bn in loans and ceding
a 92% stake. This possibly contrasted with
Geithner's testimony. He had said that he was
pleasantly surprised with how well AIG eventually performed. Under Bob Benmosche
AIG stopped its break-up strategy and end of
the AIG name, reasserted itself as a brand and
paid off the loan. n
top stories
Lloyd’s FC beats Aon 3-2 to start season
In a basement near Lloyd’s, international DJs played whilst a magician worked the crowd, as sax and
drum players weaved in an out of champagne fuelled revellers last week.
It wasn't the scene you'd usually associate
the with the London Market, but is something we can expect more of as the Lloyd's
Football Club has decided to up its game.
Despite having a huge membership, the
club has admitted it has not done much in
recently years to raise its profile. But now
they have decided to turn things around to
attract some interest from outside the club.
After a slow start, the night suddenly accelerated when an influx of strapping young
men flooded the basement (much to the
delight of some of the gorgeous girls crowding round the bar). A coachload of Lloyd's
FC players had just arrived, triumphant from
their opening match of the season against
Aon, having beaten them 3-2. James Lakey,
a claims broker who joined Howden Insurance in 2008, was named man of the match.
Lloyd's FC is set to play Oxford University today. Other fixtures for the season also
include the Royal Air Force and London Legal League. David Flint, who has been the
team's manager for the last ten years, and is
currently a partner at insurance recruitment
agency TPD Associates having previously
worked as an insurance broker spoke to Reactions about the best and worst parts of his
extracurricular activities.
"It's an extremely fun job but it can seem
like a thankless task on a rainy Wednesday
in March and you have only nine players
because no one can get out of work," laughs
Flint.
Players are usually recommended to Flint
via word of mouth. "Most of the players
we have are playing at a semi-professional
level," he says. There are about 115 players
on the list, which come from all walks of
life across all companies associated with the
London Market.
However, the club is not exclusively for
the industry's elite, young men. There is a
"vets" team for over 35s (all over 35 readers - you're now officially past it), and Flint
plans on having a women's team playing a
match before the year is out.
The club has become somewhat of an
institution having run for 62 years, but Flint
admits things needed a shake up. By holding
more events and raising the club's profile,
Flint hopes to raise funds which will go
towards the club's expenses which include
their international tours. These have previously included destinations such as Singapore and Houston, with Bermuda and New
York planned for 2015.
Last year about £12,000 was also given
to charity. Previously the club have grown
good relationships with the Prince's Trust
and Spark, but this year the guests at the
club's annual dinner will be able to choose a
charity per table to allocate donations too.
"The dinner is our major event, sponsored
by Aon. We have about 600 of the great and
the good attending," explains Flint. This
year the event will be on November 13 and
celebrity guests will include football players
Dennis Law and Billy Bonds. Ex-referee
Howard Webb will be the guest speaker and
Brian Conley will be the comedian. n
News in brief
Swiss Re unit offers
food & drink product
Swiss Re Corporate Solutions has launched
Contaminated Products Insurance for the food
and drink industries in the UK, Ireland and Italy.
Swiss Re said that the cover would offer protection in both the primary and excess layers
for manufacturers, retailers and distributors.
The move into an area separate from the
concept of traditional reinsurance is helped by
an agreement with food and drink consultancy
RQA Group. RQA will provide policyholders
with crisis management support in the event of
product contamination or failure.
Swiss Re Corporate Solutions head of
Europe, Middle East and Africa Tony Buckle
said that the food and drink sector was one of
the largest manufacturing segments in the UK,
Ireland and Italy, and that “the consequences
of contaminated or defective products pose
serious challenges to companies operating in
the sector”.
Buckle felt that the extent of the Swiss Re
cover, added to in-house risk engineering and
local claims expertise, plus the consultancy
support from RQA, represented “a compelling
value proposition to clients”.
RQA managing director Vince Shiers said
that the food and drinks sector was one of the
sectors most exposed to crisis conditions. He
said that RQA’s main focus was “on lowering
the occurrence of such incidents”.
15 october 2014
| 11
feature
top
stories
Swiss Re buys stake
in East African insurer
Swiss Re has bought a minority stake in Kenya-based insurance
group Apollo Investments Limited in a bid to increase its stake in
the African market.
"This is a financial investment into an area,
sub Saharan Africa, which is a focus area
for us in our high growth markets strategy
and where we expect to generate attractive and financial risk adjusted returns," a
spokeswoman for Swiss Re said.
Swiss Re has not disclosed the price of
the deal, but said it would take a 26.9%
minority stake in Apollo, which also has
operations in Uganda and Tanzania.
The reinsurer will have the right to a seat
on the company's board but it will not be
involved in daily management or operations.
Michel Liès
Private equity firm LeapFrog Investments
sold its stake to Swiss Re disclosed the
deal on Wednesday. n
Florida property insurance
debate in election battle
Florida’s property rates are spiralling upwards for homeowners,
despite not seeing a hurricane for almost nine years
Republican Governor Rick Scott, currently
going re-election, has kept a free market approach to the industry as he tries to grow the
private insurance industry.
He has tried to transfer thousands of policyholders out of state-owned Citizens Property Insurance to cut back state exposures.
The average annual premium for homeowners' policies has grown from $1,544 to
$1,933 under Scott, according to The Business Journals.
In the run up to elections, Democratic former governor Charlie Crist said he will act
to reverse rate increases that have occurred
under Scott's free-market.
Most of Florida’s insurance industry back
Scott, The Business Journals reported.
Citizens coverage has been reduced for
many customers to just main buildings,
leaving unprotected awnings, gazebos, tiki
12
| 15 october 2014
huts, and most carports and screened-in pool
enclosures, which are more vulnerable to
hurricane damage.
Lynne McChristian, the Florida representative for the Insurance Information Institute
said Scott’s model was "pay now" while
Crist's is offering "pay later".
Shealso said Crist's rate-reduction proposal appears "arbitrary," rather than based on
actual claims costs, which include historical
losses from natural disasters.
MacManus said the survey found that
concerns about property insurance have
risen since a prior survey in 2012.
Jay Neal, president and chief executive
officer of the Florida Association for Insurance Reform, said a non-political middle
ground is needed between Crist simply rolling back rates and Scott wanting to further
deregulate the industry.
He argues that rates could be lowered
about 7% by reforming the reinsurance
industry, which is heavily based offshore.
During Scott’s 2010 campaign he promised to ensure that Citizens has consistently
on actuarially sound rates, but premiums
have increased while more than a halfmillion policies were moved into the private
market. n
And now the
space weather
forecast from the
Met Office
A new forecast centre dedicated to space
weather was opened by the UK’s Met Office
today. The Space Weather Operations Centre
is intended to protect the UK's economy and
infrastructure from severe events caused by
space weather, the disruptive influence created by explosive eruptions on the Sun.
The worst storms can disturb satellites,
cause fires in power grids and disrupt radio
communications.
As with terrestrial weather, the Met Office
will co-ordinate operational forecasting with
other centres such as in the US, which has
had a prediction service for several years.
Solar storms are listed on the UK’s National Risk Register as one of most serious
threats, along with ‘flu and volcanic eruptions in Iceland. These phenomena have the
potential to cause major economic upheaval,
and the Government has ordered contingencies be put in place to help protect the UK.
Dependence on technology has heightened the risk of damage from space weather.
In 2004 the US National Academy of Sciences estimated that the economic cost of
a repeat of a solar storm that happened in
1921 would be USD2 trillion for the first
four years - but with recovery taking up to
ten years for the US alone.
A report from Aon Benfield last year
pointed out that global manufacturing
capacity for high voltage transformers is
estimated to be only about 70 units per year.
A repeat of the 1921 space weather event
might damage at least several hundred such
units worldwide, with replacement of so
many transformers taking a year or more.
An earlier report from Lloyd’s emerging
risks team stated that satellites are vulnerable to disruption by space weather, as are
aircraft. Another problem for airlines is that
space weather can also increase radiation
levels on board planes.
The report said that all GPS systems
are vulnerable to space weather which
means that the road and maritime transport
industries could also be adversely affected.
Even railways could be disrupted, as space
weather can also cause incorrect signal settings on lines.
Mobile phone links are vulnerable to interference from solar radio bursts, and there
is also a threat to wireless communication,
including wireless internet.
Go to http://www.metoffice.gov.uk/publicsector/emergencies/space-weather
feature
M&A activity on
the up, but is there
more to come?
After a three-year slide mergers and acquisitions (M&A)
activity in the insurance sector appears to be recovering but
the jury is out on whether this uptick marks a turning point in
the market or an anomaly, writes Andrew Holderness, Global
Head of the Corporate Insurance Group at Clyde & Co.
Despite the persistent presence of a number
of factors that can be detrimental to M&A
activity – such as considerable excess capital in the market, soft pricing and economic
fragility in the Eurozone – there is a sense of
renewed energy around transactions across
the re/insurance market which has spurred
an increase in the number of deals.
The volume of M&A worldwide increased in the first six months of 2014 to
192, compared to 157 in the second half of
2013 and 162 in the same period a year ago.
This increase has been driven by activity in
Europe – which has overtaken the Americas
in the number of completed transactions in
the last 12 months. As Solvency II now has
more granularity around its implementation
and some key economies are showing signs
of sustained recovery, many re/insurance
businesses are looking carefully at their
structure to ensure that they can take advantage of any upturn.
Meanwhile, M&A in North America over
the last five years shows activity peaking in
2011, and then trending steadily downward.
Contributing factors include differing buyer/
seller perceptions of company value, ongoing regulatory uncertainty, the uncertain
economic outlook, and some companies’
preference to reinvest excess capital into
the business or to satisfy shareholders with
stock buybacks and dividends. However, it
seems the bottom of the market was reached
in the second half of 2013, and activity
picked up slightly in the first half of 2014.
In the last few years, in contrast to other
regions around the world, the volume of
M&A activity in Asia Pacific has remained
comparatively steady. The region remains
an attractive proposition for insurers looking
for growth opportunities. Increasing levels
of GDP and improving insurance penetration rates are delivering premium growth,
benefiting both domestic and international
insurers, and spurring those hungry for
opportunities both from within Asia Pacific
and beyond - either to build or strengthen
their presence.
However, despite some geographic differences, there are a number of common drivers of transaction activity around the world.
The desire for growth remains a priority
for many re/insurers. With opportunities
increasingly hard to find, foreign investors
continue to look further afield outside their
own, often stagnant, domestic markets.
Others are disposing of assets and books
of business due either to the on-going fallout
from the global financial crisis or from
problems that have occurred during normal
operations. Meanwhile, regulators across
the world, eyeing developments in Europe
and the US, continue to introduce legislative changes of their own as they seek to
strengthen the market through the desire
for fewer, stronger insurers; measures that
area actively driving consolidation often
as smaller players struggle to comply with
more demanding capital requirements.
While it remains to be seen whether the
recent uptick in M&A is sustainable, the
most powerful trigger for deal activity in the
coming year will be the excess capital overhanging the sector. Shareholders are looking
for decent returns on their investments and,
if management cannot deliver this operationally, then there will be pressure either
to return it or deploy it elsewhere. The key
challenge is for those companies that cannot
demonstrate underwriting excellence or are
unable to scale up and move into different
markets to acquire new business.
In the absence of a catastrophic event
causing significant balance sheet damage,
and with rates having trended downwards
steadily over the last several years, re/insurers have become even more active in their
search for alternative strategies. In addition,
size appears to be becoming increasingly
important – and balance sheet strength seen
as being critical to clients. If this is the case,
then strategic mergers and acquisitions will
be driven by the desire to reach optimal
scale and relevance. n
15 october 2014
| 13
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news round-up
Liberty Mutual faces battle over
Louisiana sinkhole
The collapse of a salt dome that resulted in
a 37-acre sinkhole in a Baton Rouge swamp
has resulted in a $50m insurance dispute
between the mine’s operator, Texas Brine,
and its insurer, Liberty Mutual.
Salt domes are natural underground formations that are common throughout south
Louisiana and can be found in association
with natural gas deposits.
Texas Brine wants Louisiana’s state
insurance commissioner James Donelon to
order New York based Liberty mutual to
pay out on the $50m claim which was designed to kick in after the company's other
insurers paid more than $75m in claims.
The mining company claims the limit has
been reached.
Liberty Mutual however, claims that it is
under no obligation to pay and has asked
a federal court in Houston to rule that it
owes nothing to Texas Brine because the
company knew it was mining close to the
edge of the dome.
The insurer alleges that in 1998 a Texas
Brine internal memo warned against a
number of measures that would potentially
result in the collapse of the dome if the
mining company got too greedy in its mining efforts.
In its plea to Louisiana Insurance Commissioner Jim Donelon, Texas Brine claims
Liberty breached confidentiality by basing
its allegations on privileged material provided by Texas Brine to all of its insurers,
and making that material public.
According to Texas Brine, Liberty continues to claim that it is inexplicable that
other insurers have paid $76m in claims
to Texas Brine under five separate policies
because the mining company was not owed
it. Liberty continues to base this claim on
the internal memo sent in 1998, and it states
that because Texas Brine is not owed any
insurance payout the $75m limit hasn't been
reached.
3Q15, and it will provide the insurers the
chance to re-price the policies to reflect
unfavourable trends in catastrophes.
The current practice is the charge a flat
price throughout the protection period for
this product. In addition, Japanese non-life
insurers plan to increase premium rates for
insurance products that cover fire, wind and
flood risks from the financial year ending
31 March 2016.
Super Typhoon Vongfong
threatens US base
Japan non-life insurers tighten
risk controls
Japanese non-life insurers are expected
to retain less risk on their balance sheets
going forward as they seek out alternative
risk transfer solutions such as cat bonds and
reinsurance.
Ratings agency Fitch said in a market
announcement that despite recent catastrophes in Japan being classed as financially
manageable, there is a perception among
non-life insurers that the frequency and
magnitude of catastrophes is on the rise,
therefore pushing insurers to limit their
exposure.
The ratings agency said that tighter risk
controls will be targeted at typhoon primarily, as well as earthquake and other natural
risks.
Japanese non-life insurers will soon start
to cap the maximum protection period for
residential property fire insurance (covering damage from fire, wind and flood) to
10 years, instead of the previous practice of
insuring these risks as long as the mortgage
repayment lasts.
This change is likely to take place in
Super Typhoon Vongfong, the strongest
tropical cyclone of the year, is continuing
its destructive path towards Japan with the
potential of hitting one of the US’s largest
military bases, according to experts.
With the equivalent power of a Category
5 hurricane, the typhoon is on track to strike
one of the US military's largest concentrations of manpower and firepower on the
islands of Kadena and Okinawa, forecasters
said Thursday morning.
The cyclone has "intensified explosively,"
with maximum winds of 165 mph, and is
set to turn northward toward Japan itself,
the Japan Meteorological Agency said.
"It's safe to say Vongfong is the strongest
storm on earth since Haiyan last year," said
The Weather Channel's Michael Lowry.
Kadena Air Base — home to 24,000 U.S.
and Japanese military personnel and contractors — and the cluster of U.S. bases on
Okinawa have begun stocking up on food,
water supplies and fuel.
The Navy's Joint Typhoon Warning
Center has reported that ocean waves were
already as high as 50 feet.
Pro Global reports
strong order pipeline
UK-based specialist provider of operational
outsourcing and consulting services Pro
Global Insurance Solutions plc has reported
its results for the first six months of 2014,
stating that it was "a year of transition" with
the Pro team "laying solid foundations for
2015 and beyond".
Its key strategic goals are to become the
leading specialist service provider addressing the complex operational needs of global
insurers and reinsurers, and also "to achieve
15 october 2014
| 15
news round-up
annual revenue of £60m at a sustainable net
margin of 15% in the medium term".
The demerger of Tawa plc was announced in December 2013, with the risk
carrying business distributed to its then
existing shareholders. That demerger was
completed on April 3, leaving the remaining
subsidiaries. Pro was formed the following
day, enabling it to focus on its services business without the accompanying volatility of
the risk-carrying business.
The loss from continuing operations,
being the demerged business without the
volatile risk-carrier businesses, was £1.2m,
compared with a loss of £1.5m in 2013.
Pro said that revenue for the first half was
impacted by the demerger activities. Pro
said that it was "seeing a significant upturn
in its consulting revenues towards the end
of the second quarter and continuing into
the third quarter". The company said that
its order pipeline remained strong. The
2014 results to date include reorganisation
and restructuring costs of £1.6m, with an
expected reduction in operating costs of
£1.0m a year going forward.
Pro retains a 33% stake in turnkey managing agency services company Asta, which
Pro said continued to perform strongly.
Pro's share of Asta profits in H1 were
£0.7m.
Pro close the sale of Hamburger Internationale Rückversicherung AG to Compre
Holdings in August this year.
Pakistan and EFU Group are both adopting
takaful products, with EFU looking at life
and general products, Reuters reported.
As Takaful products have greater consumer appeal in the Islamic world regulators are keen to encourage them, however
currently traditional insurers are bigger and
have more longevity.
Pakistan's insurance regulator expects at
least half the 50 conventional insurers to
eventually offer takaful, with 25 insurers set
to enter the takaful industry in 2015.
Five of Pakistan's takaful insurers initially
fought new regulations allowing traditional
insurers to offer takaful products as well as
conventional insurance, as it may put pure
takaful insurers at a competitive disadvantage.
The dispute was cleared in May after an
agreement that requires insurers to allocate
50 million rupees to their window operations, compared to no such requirement in
the original rules, Reuters reported.
Pakistan's Jubilee Insurance to
offer Takaful
China's Anbang acquires NY's
Waldorf Astoria
Pakistan's Jubilee General Insurance
Company wants shareholder approval to
offer Takaful insurance after the regulator
allowed traditional insurers to offer Shariacompliant products earlier in 2014.
Jubilee, a private insurer, will consult
shareholders at its extraordinary general
meeting on November 7 to gain permission
to offer takaful insurance and reinsurance
locally and internationally the insurer said
in a stock exchange filing.
The United Insurance Company of
16
| 15 october 2014
China’s Anbang Insurance Group Co has
agreed to acquire the world famous Hilton
Worldwide Holdings-owned Waldorf Astoria New York in a deal valued at $1.95bn.
While Anbang has bought the hotel,
Hilton will continue to manage the property
for the next century. The hotel will now
undergo a major restoration and renovation
project while its former owner intends to
use the monies gained from the sale to fund
further hotel acquisitions in the US.
“We are very excited to be entering into
this long-term relationship with Anbang,
which will ensure that the Waldorf Astoria
New York represents the brand's world-class
standards for generations to come,” said
Christopher Nassetta, president and chief
executive officer of Hilton Worldwide.
“This relationship represents a unique
opportunity for our organizations to work
together to finally maximize the full value
of this iconic asset.”
Widely recognised as an Art Deco masterpiece, the hotel occupies an entire block
in mid-town Manhattan.
Anbang is a Beijing-based company that
operates in the property, life and health
insurance sectors within China. It also has
an asset management arm in addition to
businesses acting as both insurance sales
agents and insurance brokers.
It has assets valued in excess of Yuan700bn ($114bn) and operates out of 3,000
outlets across 31 of China’s provinces and
autonomous regions.
Pembroke broadens space
coverage
Ironshore’s Pembroke Managing Agency
has broadened the range of products it
offers the space sector launching a new
coverage aimed at protecting manufacturers
and operators of satellites.
The insurance coverage is designed to
protect satellite operators, manufacturers
and launch service providers from losses
associated with launch delays.
Pembroke, which operates as Ironshore’s
managing general agent in Lloyd’s, will
offer a suite of new contingent products to
cover contractual liabilities and financial
exposures, which the parties incur through
launch delays.
The insurance coverage is linked to contractual exposure rather than being based on
a physical loss or damage trigger.
Satellite operators may enhance their coverage to protect against the consequences
of political risk, contract frustration, loss
of export license or delay caused by a copassenger’s payload.
news round-up
Pembroke says that its new products will
address operator exposure surrounding
financial repercussions resulting from lost
lease payments due to contract termination and liquidated damages payable to the
operator’s customer for launch delay.
Insured parties may, in certain instances,
be required to retain part of the risk as coinsurance.
Capacity limits, available up to $15m,
vary for each of the six new products.
“Pembroke’s new financial products
for the space sector are more comprehensive than those currently available in this
specialty lines market,” said Neil Stevens,
director of Pembroke’s space unit.
“Increasing participation by international
operators engaged in the satellite industry
demands that sophisticated coverage solutions are made available for optimal commercial benefit.”
Pembroke has developed something of
a reputation for pushing the boundaries of
the space insurance market ever since Neil
Stevens joined the company as director for
this niche market from the Atrium Space
Insurance Consortium.
Indeed, the company started this year
by launching a product designed to protect
lenders and export credit agencies involved
in satellite procurement financing against
breach of warranty.
Pembroke’s syndicate 4000 leads the innovative consortium and secured $120m of
capacity from various Lloyd’s syndicates in
support of the new product.
Willis makes Swedish
acquisition
Wllis has taken a controlling stake in Sweden's Max Matthiessen in a move which
makes it the largest broker and risk advisor
in the Nordic region.
Willis, which has received approval from
the Swedish Financial Supervisory Authority to conduct the deal, has acquired a 75%
controlling stake in Max Matthiessen he
company. The transaction means Willis,
across its combined Nordic operations, is
now the largest broker and risk advisor in
the region which encompasses the countries
of Sweden, Norway, Denmark, Finland and
Iceland.
“Willis is now the international frontrunner in the Nordic region and in Sweden.
The strong Willis footprint in the region
illustrates the Group’s commitment to
establishing its global strategy in the human
capital and benefits sector,” said Johan
Forsgård, chief executive (CEO) of Willis
Sweden. “We will now look forward to
bringing the best of both organisations here
in Sweden to all of our clients.”
The Nordics represent a substantial
insurance market with Scandinavia alone
- Sweden, Norway and Denmark - generating $90bn of premium in 2013 according
to Swiss Re's Sigma; Finland generated
$25.5bn of premium in the same year.
As well as a means to significantly grow
its presence in the Nordic region, Willis
said the move to acquire a controlling stake
in Max Matthiessen reflects its strategic
focus on growing its global human capital
and benefits practice.
“Max Matthiessen is a well-established
and widely-respected business serving markets where we see strong growth potential,
especially in conjunction with our existing
P&C businesses within Sweden,” said Tim
Wright, chief executive of Willis International and leader of the global human
capital and benefits practice.
“Max Matthiessen will bring a powerful set of capabilities to the Willis Group
globally, as well as benefiting from Willis’s
global footprint. This is an important acquisition for us and it reflects our commitment to both this exciting sector and to the
Nordic region.”
Max Matthiessen is one of Sweden’s largest independent advisers in retirement savings, health plans and personal insurance,
with around 420 employees in 23 locations
across Sweden.
Willis Sweden and Max Matthiessen have
held a strategic partnership since 2009, and
the acquisition means the two will work
even more closely together. The Max Matthiessen brand will be retained and will run
alongside Willis Sweden.
“We are very happy to now be part of
the Willis Group. The combined business
will benefit both sides as we can offer our
clients a broader product portfolio,” said
Christoffer Folkebo, CEO of Max Matthiessen.
“Max Matthiessen will operate under
the same brand as before but with Willis’s
international knowledge and experience
enabling us to expand even further.”
Technology investment top
priority for Bermudians
Bermudian reinsurers are making investment in technology one of their top business priorities says a survey undertaken
by technology services company Xuber, a
division of Xchanging.
The survey results revealed that that having first-class technology was seen as critical to reinsurers' businesses and essential to
remaining competitive in the years to come.
Almost a fifth (19%) of the executives
surveyed identified technology as their
top business priority in 2015, followed by
searching for attractive yields and results
(12%) and talent (11.5%), according to the
survey.
The survey revealed that almost half
(46%) of the respondents felt analytics
enabled them to provide underwriting assistance to insurers, and over a third (38%)
said they are executing a big data programme – highlighting the central role of
technology within the market.
Executives also agreed that both analytics and big data were likely to be issues of
growing importance for their future success.
“Our research has uncovered some
fascinating insights. Despite the many challenges faced by the reinsurance industry,
including an ongoing soft market, the
pressure of alternative capital, mergers and
acquisitions, and impending regulatory
reform in the form of equivalency with the
EU’s Solvency II regime, the survey results
show Bermuda is as adaptive and forwardthinking as it has ever been,” said Chris
Baker, managing director of Xuber.
“This market has always been renowned
for its innovation, particularly the development of new and smarter risk management
products. As such, the dynamics of the
Bermudian reinsurance market are changing
and reshaping the way reinsurers do business, as well as influencing future business
priorities.”
The survey also revealed that 73% of
executives identified the regulatory and political framework of Bermuda as attractive
reasons for doing businesses there, as well
as the domicile’s prominence in the field of
insurance-linked securities.
15 october 2014
| 17
news round-up
P&C insurers' net
income rises in H1
The average net income of the property/
casualty insurers in the US rose in the first
half of the year as realised capital gains
made up for shortcomings in operating
income.
According to ISO, a Verisk Analytics
business, and the Property Casualty Insurers
Association of America (PCI), property/
casualty insurers' net income after taxes
rose by $1.6bn to $26bn in H1 2014 from
$24.4bn in first-half of 2013.
However, insurers' pre-tax operating
income fell by $1.9bn to $23.9bn in the first
six months of the year from $25.8bn in H1
2013.This was offset by improved investment performance as realised capital gains
on investments rose by $3.3bn to $7.2bn
in the first half of the year compared with
$3.9bn in the same period of 2013.
Net gains on underwriting fell to $300m
in the first-half of 2014 from $2.2bn in firsthalf of 2013. The combined ratio - a key
measure of losses and other underwriting
expenses per dollar of premium - deteriorated to 98.9% for first-half 2014 from 98%
for first-half 2013, according to ISO and
PCI.
"While insurers' net income rose modestly in first-half 2014, the deterioration in
underwriting results and the drop in investment income both raise questions about the
quality or sustainability of insurers' earnings. Other factors raising questions about
the quality or sustainability of earnings
include the extent to which underwriting
results benefited from favourable reserve
development and the extent to which insurers' net income benefited from realised
capital gains dependent on developments
in financial markets," said Michael Murray,
ISO's assistant vice president for financial
analysis.
Despite the fall in operating income
for the US property/casualty industry , it
remains extremely well capitalised and able
to handle a large loss event should it occur.
However, industry experts warn that despite
the benign nature of recent catastrophe
seasons, it only takes one major storm to
change the face of the market and to substantially reduce capacity.
"The $18.2bn increase in policyholders'
surplus to a record-high $671.6bn at June
30, 2014, is a testament to the strength
and safety of insurers' commitment to
policyholders. Insurers are strong, well
capitalised, and well prepared to pay future
claims," said Robert Gordon, PCI's senior
vice president for policy development and
research.
"But it only takes one powerful storm to
disrupt countless lives and cause tens of bil-
18
| 15 october 2014
lions in damage, and this hurricane season
is far from over."
Since 1950, there have been 15 catastrophic fourth-quarter hurricanes including
Superstorm Sandy, which occurred in the
last days of October 2012.
Typhoon Phanfone makes
landfall in Japan
The Japanese city of Hamamatsu was buffeted by hurricane force winds on Monday
as Typhoon Phanfone made landfall in the
country.
According to catastrophe modelling firm
AIR Worldwide the storm had weakened
considerably by the time it made landfall
with winds equal to those of a Category 1
hurricane; just five days earlier Phanfone
had intensified to the equivalent of a Category 4 storm.
Phanfone brought with it sustained
10-minute winds when it made landfall with
wind speeds at just over 80mph with gusts
of up to 115mph.
“[Despite weakening] the storm nevertheless delivered torrential rain and strong
winds to central Japan in general and to
the Kanto region in particular,” said Anna
Trevino, scientist at AIR Worldwide. “The
storm was most intense in the Tokyo metropolitan area between 9 am and 10 am local
time, but minutes after the eye had passed
precipitation thinned into a light drizzle and
blue skies appeared.
“By the afternoon the storm had moved
out into the Pacific and forecasters were
expecting conditions to improve by nightfall. Typhoon Phanfone is now a developed
low east of Japan moving northeastward at
46mph, and is no longer a major threat to
the region.”
Despite the progress of the storm weather
advisories remain in place for most of
Japan, and there are warnings currently in
Iwate, Miyagi, Ibarki, Saitama, Nagano,
Niigata, and Ishikawa for flood, high waves,
and heavy, ground-loosening rain, said AIR.
Although the strongest winds from the
typhoon were on the coast, AIR notes that
Tokyo experienced record wind speeds.
“While the strongest winds from Typhoon Phanfone were on the immediate
coast, there were near record-setting winds
recorded in the city of Tokyo,” said Trevino.
“A peak gust of 47 mph was recorded in
Central Tokyo with a gust of 70mph at
Haneda Airport.
“The highest historical wind speeds for
Tokyo include a 69.3mph sustained wind
and a 104.5mph gust both recorded on
September 1, 1938.”
AIR notes that flooding from the a Phanfone’s storm surge remains a concern as
does inland flooding from the storm’s heavy
rainfall which brings with it the widespread
risk of landslides.
The catastrophe modeller said that an
initial report issued by Japan’s Fire and
Disaster Management Agency at 9 pm local
time indicates low counts of residential
structures were impacted by the storm.
"Some landslides have been reported and
more may result from slope saturation, but
the indications at this time are that there
will not be significant insurance losses,"
said AIR.
US homeowners eligible for
drywall damages
Almost 4,000 homeowners are eligible
for damages from drywall manufacturer
news round-up
Taishan Gypsum Co after a US court ruled
the Chinese firm's products had damaged
homes.
The judge ruled that homeowners who
say Chinese drywall ruined their homes
are eligible to share any further damages
he may award in lawsuits against Taishan,
which failed to turn up to the hearing.
Notices of US District Judge Eldon Fallon's order were sent Friday to the homeowners in Louisiana, Mississippi, Florida,
Virginia, Texas and Alabama, Leonard
Davis an attorney in New Orleans said
revealed on Monday.
According to the Associated Press (AP),
Chinese drywall was used in 12,000 to
20,000 Southern-based homes and businesses following hurricanes Katrina, Rita
and Wilma in 2005 prior to the housing
bubble bursting. However, certain chemicals in the drywall caused excessive odour
and sometimes corroded pipes and wiring.
Another manufacturer, German-owned
Knauf Plasterboard Tianjin Co, and four of
the companies it supplied agreed in 2010
to pay for home repairs. That settlement is
expected to total $1.1bn, Davis said.
In his ruling last week, Judge Fallon
certified all the remaining plaintiffs in nine
lawsuits as members of a class-action suit
against Taishan.
Fallon previously ordered Taishan and
other defendants to pay $2.7m to owners of
seven homes in Virginia. Individual awards
ranged from $90,000 to $482,000, plus interest. He recently held Taishan in contempt
of court for ignoring proceedings over harm
done by the drywall.
Innovate or perish warns
Aon's Australia chief
Insurers must be innovative if they are to
survive and stay relevant as they face a
myriad of new risks, Aon Risk Solutions’
Australia chief executive (CEO), Lambros
Lambrou, has warned.
Lambrou, speaking at last week’s Aon
Advanced Risk Finance Conference, said
traditional risks were getting larger and new
risks were becoming more potent, forcing
insurers to be more creative.
“The real challenge for business lies in
understanding and developing the tools and
solutions necessary to succeed in the face of
the ever-accelerating change and complexity of today’s risk landscape,” said Lambrou.
Lambraou said that the breadth and
potential severity of new risks poses a real
threat to the industry and it is up to insurers
to mitigate a potential catastrophic loss
from one of these newer risks.
"Our industry is very sophisticated in
handling smaller risks, such as health,
vehicle and even safety. There is a wealth
of data and experience around these risks
which informs decisions at all levels of the
value chain.
"However, when something goes wrong
outside established "comfort zones", while
it may be less frequent, it is more likely to
be catastrophic. And the truth is that the risk
industry has struggled to develop strategies
relevant to clients' needs in the catastrophic
risk space," he continued.
Lambrou identified cyber risk as having potentially disastrous consequences on
the industry and said that some markets,
particularly Australia, remained behind on
cyber risk mitigation.
“The potential ramifications of cyber risk,
which has been described as “the asbestos of risk”, are widely underestimated,
particularly here in Australia where we
are demonstrably behind the curve when it
comes to even a basic understanding of the
issues,” said Lambrou.
Sanctions dropped
on Iran's NITC
European Union sanctions on Iranian oil
tanker firm NITC are invalid after the EU
failed to appeal a court ruling that ordered
sanctions to be lifted, NITC said.
An EU official told Reuters the European
Union (EU) was working on remedial action for maintaining the entity on the list.
NITC argues that it is privately owned
by Iranian pension funds, so should not be
included on the list as it has no connection
with the Iranian government or revolutionary Guards.
The 2012 sanctions prohibit trade between the EU, its companies and citizens,
and NITC, including the providing services
like insurance or banking.
The EU's General Court ruled there were
no grounds to blacklist NITC in the sanctions, in July.
If the EU cannot carry out the remedial
action required, the NITC will be able to do
business with Europe, including shipping
firms, and have access to potential blocked
assets in the bloc.
However, NITC will remains on the US
government's sanctions list which will make
it difficult for NITC to get international
insurance, according to Reuters.
Banks are also unlikely to risk exposing
themselves to NITC, which could limit its
access to the bigger US market.
"The British Treasury said NITC was no
longer subject to an asset freeze after the
EU failed to appeal the court ruling," said
Reuters.
A six month easing on the sanctions was
announced earlier this year and Iran and
world leaders are trying to agree on a nuclear deal before a November 24 deadline.
Capital utilisation top financial
priority for US P&C
Property and casualty re/insurers are
increasingly focusing on utilising their
capital, a survey of chief financial officers
(CFOs) conducted by Towers Watson has
found.
Despite this being the top financial priority for those surveyed, CFOs expressed contrasting viewpoints with regard to capital
utilisation over the next one to two years,
according to Towers Watson.
The survey revealed that most CFOs
favoured internal investments in their own
companies over external spending. However, at the same time, many saw the broader
industry leaning toward external capital
investments consistent with the search for
organic and inorganic growth.
When questioned about external spend,
over half (54%) of the respondents cited
mergers and acquisitions would be the most
likely use of capital for the broader industry, while 34% noted expansion into new
segments and geographies.
Despite the survey's suggestion that most
CFOs believed the industry would increase
its external spend, only 11% of those
surveyed said their own companies would
utilise capital for M&A transactions, and
only a fifth of the CFO questioned said they
would use it for business expansion.
Surveyed CFOs said their own companies were far more likely to deploy capital
for internal investments such as core data
systems and infrastructure (49%), data and
analytics (40%), new product development
(31%), and building talent and skills within
the organisation (31%).
While these investments in the business
were the top choices, approximately 30%
of CFOs also anticipate returning capital to
owners through dividends or buybacks, said
the Towers Watson survey.
“CFOs’ notion that the market will invest
in M&As may reflect recent activity in
that space, an improving economy and the
capital position of the industry,” said Alejandra Nolibos, director in Towers Watson’s
property/casualty business.
“As regards to their own organisations,
the expected use of capital speaks to an
15 october 2014
| 19
people
news
round-up
moves
increasingly competitive and sophisticated
market where maintaining and upgrading
operations, and the development of new
products and ventures, are keys to success.
And while this points to companies seeing
opportunities in the market in the short
and long term, many still anticipate share
buybacks or dividends, which may indicate
lower expectations for return on equity.”
The survey revealed that the second most
important priority for CFOs was preparing
for the Own Risk and Solvency Assessment
(Orsa) requirements, while the third was
monitoring progress toward the renewal of
the US Terrorism Risk Insurance Act (Tria).
Surprisingly, despite the high priority
CFOs place on Orsa and their own capital
management processes, only 26% indicated
their companies would be investing in internal risk management and capital utilisation
capabilities in the next one to two years.
“This relatively low ranking is somewhat
surprising. Effective risk management is
inextricably linked to informed capital utilisation decisions and a strong Orsa process,”
said Nolibos.
In relation to Tria, Towers Watson said
that over 70% of respondents believed
nonrenewal or material reduction to the
act would have little to no effect on their
organisation, and none expected that the
non-renewal of Tria would have a severe
impact on their companies.
“The nature of the responses regarding
Tria indicates CFOs are paying close attention to the federal government’s progress
on reauthorisation, but they don’t see the
existence of the federal backstop as vital
to their business objectives,” said Nolibos.
“This may reflect an industry on its way to
implementing risk management practices
through which some extreme risks are seen
as manageable.”
operation.”
The insurer will also step up its transformation program, developed during a 2012
strategic review, including a major technology upgrade to replace current legacy systems and aims to standardise platforms used
by Vero across both sides of the Tasman.
“We want to be able to take advantage of
Australia’s scale in the New Zealand business,” Dransfield said.
“We’ll be taking platforms from the Australian general insurance business, which
will enable new claims and policy platforms
across the New Zealand business.
Vero said the final cost for the systems
upgrade will not be available until next
year, but it will be “in the tens of millions”
according to Dransfield. The new systems
are expected to be in place in 2017.
Markel Intl buys German travel
MGA/broker
Vero NZ restructures
earthquake program
Vero NZ will restructure after paying out
$NZ3.7bn in its three-year Christchurch
earthquake response program.
The company has resolved 76% of claims
and expects to have “almost all” claims
finalised by the end of the year.
Vero NZ chief executive officer Gary
Dransfield said the appointment of the
earthquake program’s general manager
Jimmy Higgins to Vero’s head of claims
will effectively end the dedicated earthquake response program.
He told insuranceNEWS.com.au the
move reflects “the great progress we’ve
made with our earthquake program. In essence, our earthquake response will become
a project within our claims operations rather
than running in parallel as a separate claims
20
| 15 october 2014
UK-based specialist insurer Markel International has bought Germany-based managing
general agent and broker MDT Makler der
Touristik GmbH Assekuranzmakler, which
provides insurance for the German travel
sector.
Founded in 2008 by Helmut Deininger,
the Dreieich (near Frankfurt am Main)
based business provides property and casualty package cover, combining professional
indemnity, general liability, credit and
office contents protection, to German travel
agents, tour operators and intermediaries.
It also provides travel insurance to German consumers through intermediaries and
generates additional revenue from its claims
handling service.
The acquisition follows Markel’s purchase of Anglo Underwriting and the subsequent formation of the German Markel
branch office in 2013.
Markel International President and Chief
Operating Officer William Stovin said:
“Travel is an important part of the economy,
with Germans spending €70bn annually,
and MDT is strongly positioned, with
Markel’s help, to grow its distribution and
sales capabilities in the sector.”
New NZ fault 'unlikely to impact
premiums'
The Insurance Council of New Zealand
(ICNZ) has said the discovery of a new
fault in Wellington is “unlikely” to impact
on commercial or home insurance premiums.
The National Institute of Water and
Atmospheric Research (NIWA) announced
the discovery of a new active fault in Wellington Harbour after analysing data from a
recent marine survey.
The Aotea Fault is part of a series of several dozen geological faults in the Wellington region, many of which are considered
capable of generating a strong earthquake.
Scientists also said the fault does not
increase Wellington’s earthquake risk in
any appreciable way and that any groundshaking the Aotea fault could produce is
already considered in Wellington’s seismic
hazard calculations and accounted for in the
building code.
ICNZ chief executive officer, Tim
Grafton said: "The scientific reassurances
that the Aotea fault doesn’t dramatically
increase Wellington’s earthquake risk appreciably will mean it’s unlikely there will
be any impact on insurance premiums."
"This type of research is welcomed as
it gives the territorial authorities a better
understanding for planning and construction
of infrastructure across the fault," added
Grafton.
people moves
ing its portfolio of traditional ‘major risks’
whilst at the same time developing niche
Speciality Liability products.
“At a time when competitors are enhancing their positions locally, we are committed to supporting our London based
Wholesale partners with added product and
service capability,” said Dougall.
Canopius makes two marine
treaty hires
Lockton Asia appoints new
Greater China head
Lockton Asia has raided rival JLT for its
new chief executive for Greater China
as it looks to develop its business in the
region and prepare for the much-anticipated
growth of the country’s insurance industry.
Alex Yip has joined Lockton Asia as
chief executive for Greater China, a role
which sees him lead the broker’s operations
in both China and Hong Kong. He joins
the firm having left his previous position
as chairman and general manager of JLT
China, a role which saw him run offices in
Beijing, Shanghai and Guangzhou.
In his new role, Yip will utilise his closeto 30 years of industry experience to develop Lockton Asia’s business in the region
as well as oversee the broker’s strategic
planning in the Greater China market.
“The China insurance market developed
at an incredible pace over the last two
decades,” said Yip.
“There are already more than 100 insurers covering the life and non-life segments,
and approximately 1,000 intermediaries,
such as brokers, agents and loss adjusters,
operating in the country. With a vast amount
of insurance capital, as well as underwriting
capacity, flowing into the market, competition is increasing and premium pricing rates
are dropping.”
There is little doubt that insurance penetration in China continues to rise despite
growth in the country’s economy slowing
down compared with its heyday of the past
few years.
According to Swiss Re’s sigma study
World Insurance in 2013, China recorded
total non-life premium volume of more than
$125.8bn in 2013, an increase of 20.7%
compared with the previous year.
Despite the expansion, there is a growing
sentiment the cost of cover in the region
will now fall as more companies enter the
market and insurers get a better understanding of the risks they are confronted with.
"Short term trends are hard to pick,” said
Yip.
“Although there is a feeling that the
market will soften, the size, scale, and increasing regulatory oversight of the Chinese
insurance industry means there will always
be opportunities for quality operators.
New product lines and coverage policies,
being offered by international insurers, are
increasingly attracting the attention of the
country's insurance buyers who are becoming more and more risk and insurance
minded.”
MSIG hires class underwriter
MSIG at Lloyd’s has appointed Michelle
Shaw as an international liability class
underwriter.
Shaw has almost three decades’ experience in international liability underwriting
and broking.
Since 2000 she was involved in developing QBE’s London based international
liability operations.
Most recently she was portfolio manager,
international liability managing a large
book of business with an emphasis on Latin
America, Asia and the Caribbean.
“Securing the services of Michelle is a
major boost to the continued expansion of
our Liability proposition globally, particularly given her depth of experience and
contacts in emerging market territories,”
said Andrew Dougall, long tail underwriting
manager.
“Our liability team has enhanced its position significantly over recent years, expand-
Canopius has appointed Andy Gladwin as
head of marine treaty and Oliver Goodwin
as marine treaty underwriter, both with immediate effect.
The Marine Treaty business comprises
both London market and foreign excess of
loss business.
Gladwin will lead the team, reporting to
Stephen Gargrave, chief executive officer of
global specialty.
Gladwin has over 25 years’ reinsurance
experience, predominantly in the marine
market.
He joins from Swiss Re, where, for the
last seven years, he led the London marine
treaty team, overseeing its strategy and
management.
Goodwin joins from Antares where, as
marine excess of loss underwriter, he wrote
a diverse portfolio of marine and energy reinsurance split between foreign market and
London market excess of loss business.
“These appointments give a clear signal
of our commitment to develop our current
marine treaty offering,” said Gargrave.
“Andy has a great reputation in the
marine treaty market, based on his leadership, specialist underwriting expertise and
excellent track record.
“Oliver gained valuable experience in
broking before turning to underwriting, and
he will also enhance the analytical skills of
the team,” he said.
Aviva appoints
Hessing Irish
CEO
Aviva has appointed
Hugh Hessing as its
Ireland chief executive officer, replacing
Alison Burns, who is
stepping down for family reasons.
Burns will stay with Aviva, but will become a board member of Aviva Health.
Hessing previously worked at group level
and joined Aviva in 2006 as a director in the
company’s general insurance business.
He was more recently customer experience direction in its British life insurance
arm.
Before Aviva Hessing was a director at
KPMG.
15 october 2014
| 21
people moves
Vibhu Sharma
Sharma to become Zurich head
of non-life in UK
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, as well
as with John B Collins Associates, where
he became COO. Sharma, born in India,
graduated in accounting in Dallas, Texas.
XL's reinsurance head to retire
Jamie Veghte, the chief executive of XL
Group's reinsurance business, will retire on
December 31, 2014. XL is searching for a
replacement.
"On behalf of all my colleagues, I want to
thank Jamie for his two decades of service
Jamie Veghte
to and stewardship of XL," said XL's chief
executive officer, Mike McGavick.
"In a tumultuous industry, Jamie has been
steadfast, building our reinsurance segment
into the strong operation it is today - built
on intelligent underwriting, solid judgment,
and superior client and broker relationships
- all of which are traits that come personally
from Jamie's leadership.
"Jamie has also built one of the finest
teams in the industry. Their tenure and
particular market knowledge has served us
very well and we are extremely confident in
the continued success of the franchise," said
McGavick.
Veghte was appointed as XL's reinsurance chief in 2006.
He previously had various roles within
XL including president of XL Re America,
chief operating officer of XL Re Europe
and President of XL Re Latin America.
Prior to joining XL, Veghte held various positions with Winterthur Reinsurance
Company of America and Mid Ocean Re.
ANV makes two consumer
product hires
ANV has appointed Sanjay Vara as head
of consumer products for ANV Syndicate
5820 as ANV continues to make strategic
investments into its core consumer products
business.
Vara will oversee the strategy and
development of ANV’s growing warranty
portfolio and pursuing global market oppor-
tunities as well as developing partnerships
with London Market clients.
Before joining ANV, Vara was partner
at Lloyd & Partners and was managing
director, Asia Pacific Warranty at AmTrust
Europe.
He is recognised in the market for his
previous work as underwriting director at
Domestic & General and Homeserve Warranties where he pioneered many of their
key warranty products and schemes.
Joining Vara will be Colin Parker as
underwriter responsible for developing the
consumer products portfolio.
Parker joins ANV from Assurant Solutions where he worked predominantly in the
development, pricing, reserving, modelling
and analysis of creditor, warranty and wireless protection products.
For ANV Syndicates, senior underwriter
Phillip Pearce remains at ANV Syndicate
5820 and will continue to grow the consumer products business.
Pearce will continue to be supported by
Tom Griggs, assistant underwriter, who
joined the Syndicate in 2012.
ANV Syndicate 5820 underwrites
consumer products, property & casualty,
political risk & terror and political & credit
risk business.
Matthew Fairfield, founder and chief
executive officer of ANV, said: “In a rapidly
changing world, distribution and use of
insurance products are changing every day.
“The continued quality of our leadership,
our team and our thinking will be the key to
embrace and leverage these changes.
“We welcome Sanjay and Colin who
add to the deep bench strength of ANV’s
Consumer Products team. We congratulate
Philip and Tom for their new roles on our
ANV team,” said Fairfield.
QBE Europe appoints new chair
QBE’s European operation has appointed
Tim Ingram as its new chairman after it was
announced that Sir Brian Pomeroy was to
step down.
Ingram, who was appointed as a nonexecutive director at the Australian insurer
in March, will chair QBE Underwriting and
QBE Insurance in Europe.
He was previously chairman of Collins
Stewart Hawkpoint, and also chairs the
Wealth Management Association and Greencoat UK Wind.
Sir Brian Pomeroy, the company’s previous chairman for Europe, is stepping down
after eight years, following his appointment
to the board of QBE Europe’s Australian
parent company, QBE Insurance Group.
QBE Europe also announced the appointment of Stuart Sinclair as senior independent director.
22
| 15 october 2014
people moves
Sinclair previously worked as president
and CEO of GE Financial Services in the
UK and in China, as well as CEO of Tesco
Personal Finance.
JLT Re appoints head of
facilities division
The experienced founder of Oxford Insurance Brokers has joined JLT Re as its new
head of facilities in yet another move which
the company believes will support its significant expansion plan.
Neill Cotton has formally joined JLT Re
as head of its facilities division after he left
his previous position as commercial director at CFC. Prior to joining CFC, Cotton
had established Lloyd's Oxford Insurance
Brokers Ltd where he held the titles of managing director and chief executive.
“Neill brings a wealth of industry experience to our growing Facilities capability
and we are committed to investing in this
business for future growth,” said Keith
Harrison chief executive for UK & Europe
at JLT Re.
“Neill’s drive, determination and ability
to build relationships are a perfect fit for
the collaborative and positive culture at JLT
Re.”
Cotton's career started in 1980 at CT
Bowring in International Reinsurance
claims, when he left he was International
Reinsurance Claims Director. He then
moved to the underwriting side at Lloyd’s
where he worked with both Zurich Re and
CNA Re.
“I am delighted to be joining JLT Re,”
said Cotton. “With the commitment JLT
Re has made to invest and build on the
opportunities they are seeing in the market
I am excited to be joining the team and
look forward to contributing to the ongoing
success.”
The addition to the broker’s London team
comes just over a month after former chief
executive Alastair Speare-Cole stepped
down from the helm of JLT Re.
Mike Reynolds, formerly the reinsurance
broker's finance director, was appointed
global CEO of JLT Re following SpeareCole’s decision and will retain that role as
well of his new responsibilities until the end
of the year.
Former Liberty Mutual
executive joins CIAB
Former Liberty Mutual lobbyist Amy
Roberti has joined the Council of Insurance
Agents and Brokers (CIAB) as its new vice
president of industry affairs.
Roberti had been vice president of federal
affairs at Liberty Mutual for almost 10
years before departing to undertake her new
role at the CIAB.
In her new role on CIAB’s strategic
resources team, Roberti will be responsible
for analysing commercial property/casualty
and group health insurance market conditions, macro and micro events, and issues
and trends impacting insurance brokers.
She will develop policy positions and
correlating resources for CIAB’s member
firms to utilize as they continue to evolve
the way they advise and serve clients said
the council.
Prior to joining Liberty Mutual she
had been a staffer for Congressman Tim
Holden, a former insurance broker who
represented Pennsylvania’s 17th district for
over a decade before losing his bid for renomination in 2012.
“Amy is an exciting addition to The
Council and brings a combination of government affairs experience, issue analysis
and underwriting knowledge that will be a
tremendous asset as we expand our business
intelligence offerings for members,” said
Ken Crerar, president and chief executive
(CEO) of CIAB.
CIAB announced in September that it had
added seven firms to its number, a total of
21 throughout 2014.
The body has been a particularly vocal
advocate of the renewal of the Terrorism
Risk Insurance Act (Tria), publishing a
statement in June encouraging a solution to
be reached in the House. Roberti's previous
company Liberty Mutual have also been
strong supporters of the programme.
The insurer set up a Tria lobbying site
during the previous renewal negotiations
in 2005 shortly after Roberti joined the
company.
Aquiline adds Worley to re/
insurance portfolio
Aquiline Capital Partners has added to its
portfolio of re/insurance industry investments after taking a majority interest in
Worley Claims Services.
Worley, one of the leading claims adjustment service providers in the US, was
founded in 1976 and, as Jeff Greenberg,
Aquiline’s chief executive explained, has
“an impressive track record of efficiently
managing claims for its clients after catastrophic events and on a daily basis”.
Michael Worley, the claims firm’s chief
executive, said: “Aquiline’s deep understanding of our business and its proven
track record across the insurance industry
make them our ideal partner.”
“We are extremely appreciative of our
former shareholders, Seaport Capital and
Advantage Capital, and we are excited to
engage with Aquiline to pursue opportunities to further strengthen and expand
our client value proposition.”
Following the conclusion of the transaction, Michael Worley and the rest of
the company’s management team will be
investing alongside Aquiline and own a
significant equity interest in the firm.
Aquiline already has a significant
portfolio of investments in the re/insurance industry with Equity Red Star, Ark
Insurance, Pillar Capital Management
and Validus Group just some of those
in which the company holds a stake in.
The private equity firm also used to hold
investments in both the Rod Fox-fronted
TigerRisk Partners and The Wright Insurance Group.
15 october 2014
| 23
people moves
portunity to come and lead Advisen.
“I have followed Advisen since it was
founded in 2000,” he said. “I believe that
Advisen is uniquely positioned to provide
the insurance industry with leading news,
information, data, analytics, and technology.
“What Advisen has accomplished so far
is just the beginning. I look forward to Advisen’s continued success and I’m thrilled
to be a part of the team.”
Keogh will join Advisen on October 20,
following the departure of former CEO
and Advisen co-founder, Tom Ruggieri to
Cooper Gay Swett & Crawford.
“We are confident that Bill brings with
him the right experience, perspective, and
skills to continue Advisen’s successful
growth across the company,” said David
Bradford, co-founder and president of
Advisen's research & editorial division.
“Given his background in P&C insurance
and reinsurance and his proven track record
building insurance analytics businesses, he
was the natural choice to lead Advisen as
CEO.”
Markel hires senior underwriter
Willis Re hands Wildbore
APMETA role
Willis Re has handed Richard Wildbore the
title of regional director for the Indian subcontinent, Middle East, Africa and Turkey
(APMETA West) region with the remit
of building out the reinsurance broker’s
resources in the area.
Wildbore most recently helped launch
Willis Re’s operations in Canada, a role
which saw him open an office in the country’s biggest city Toronto back in 2010.
“[Wildbore] has a successful track record
in establishing and growing the Willis Re
franchise internationally,” said Willis Re’s
managing director Maurice Williams.
“Under his guidance Willis Re will continue to invest in building resources in the
APMETA West region to match our clients'
growth and their constantly evolving and
increasingly sophisticated risk management
needs.”
Based in London, Wildbore will work
closely with Willis Re’s local treaty reinsurance teams across the APMETA West
region. That unit forms part of Willis Re’s
wider APMETA team which is led by Williams who is also situated in London.
figures in the insurance analytics and data
market. He joins Advisen from Ultimate
Risk Solutions (URS) where he is currently
the CEO.
He has more than 25 years in the insurance industry working in insurance and
reinsurance across the US, Europe, and
Latin America.
Keogh started his insurance industry
career as an underwriter at AIG and then
moved into increasingly responsible underwriting positions at NAC Reinsurance and
Swiss Re.
His career in analytics began when Keogh
joined RMS, the world's largest catastrophe
modelling company, where he ultimately
led their global client development team.
In 2008 he joined Eqecat where, as its
president, he guided the design and roll-out
of the new RQE platform.
Just prior to his current role at URS,
Keogh was a senior member of the decision
support team at TigerRisk Partners.
Keogh expressed his delight at the op-
Markel International has appointed Andrew
Carter as senior underwriter for marine and
energy liability.
Carter previously worked at QBE for 19
years and was most recently as portfolio
manager for marine liability.
He also oversaw the marine liability business written by QBE’s US operations.
At Markel Carter will be working with
Chris Fenn and Charles Bragg to expand
the company’s business in the marine liability, energy liability and ports and terminals
classes.
“We are delighted to welcome Andrew
to Markel where he will be a great asset to
the team. He has held a senior position at
QBE for many years and he brings a wealth
of experience and contacts to the Markel
team,” said Paul Jenks, divisional managing
director of marine and energy.
Keogh appointed as new
Advisen CEO
Analytics and data company Advisen has
announced the appointment of Bill Keogh
as its new chief executive (CEO).
Keogh is one of the most prominent
24
| 15 october 2014
Bill Keogh
Andrew Carter

eu uses Solvency ii to shift insurers into infrastructure

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