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WOMENLEADERS2017PAGE 43

Donald TrumpProtectionism Manmade quakes Aviation renewals

2017Risks for a changing world

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December 2016/January 2017

03Editor’s comment

Welcome to a packed Reactions double issue for this December and

January, in which we bid farewell to the drama and surprises of 2016, and usher in whatever the New Year might bring. That’s the subject of our cover this month, and of a special report within, posing a crucial question to senior re/insurance market contributors: what risks will 2017 bring?

Technology, disruption, cyber risks and a digitalised world figure prominently, as you might expect. The past year has seen a number of developments that should loom large in the minds of re/insurance decision-makers.

Topics such as the Internet of Things, the emergence of blockchain for smart contracts, and a glimpse of a disruptive business model – in the shape of US peer-to-peer insurer Lemonade – have all shown flickers of what might be yet to come.

I’m reminded of a pithy but pointed “meme” seen online recently. Its gist was this: “The world’s biggest taxi firm, Uber, owns no taxis; the biggest hotels operation, AirBnB, owns no hotel rooms; and biggest media website, Facebook, writes no news. So how long until your business model faces the same disruptive forces?” A sobering thought for us all.

One sure-fire way to avoid group-think and improve decision-making at the top is, of course, for the insurance sector to do a better job at diversity and inclusion (D&I). So, in an industry the composition of which is still way too homogeneous, and particularly male-dominated at its upper echelons, Reactions again asks a selection of women leaders what needs to change.

Turning to the present, when looking back on 2016 – tough pricing and over capacity aside – reinsurers really

dodged a bullet. Yet again, the Weather Gods have favoured the industry, as Hurricane Matthew glanced the US coast, rather than slamming straight into Miami as many had feared. Of course, in the world’s biggest insurance market, a near miss still causes far more insured losses than a similarly huge natural catastrophe would if it were to land a direct hit on a less mature market.

Italy and Ecuador provided lessons there, where governments were left to pick up the tab for economic losses. For an emerging country such as Ecuador, even in a known quake risk area, this might be expected. But Italy? There lies good reason for the governments of natural catastrophe-exposed countries, whether in Europe, Asia Pacific or elsewhere, to do more to encourage risk transfer through reinsurance, and also to set up catastrophe risk

pools where they can help, rather than rely on divine

providence to see them through future years.

Governments have been the other major story of 2016. Populism is – once again – a political force to be reckoned with. Insurance, a naturally conservative industry, is well used to political lobbying, particularly in the US market. With the shock election win of President-elect Donald Trump, and the advent of a new US administration in 2017, the industry might be just one of many which needs to place renewed emphasis on its lobbying efforts.

The London market is already experiencing this risk, following the shock Brexit

referendum result back in June for the

UK to leave the EU. The forces behind Brexit have been widely touted as an augur of Trump’s US victory, and maybe for things yet to come for Europe, as right-wing alternative populists and popular discontent with the establishment and against globalisation threaten to boil over.

The threat to roll back globalisation ought to trigger an alarm for the reinsurance sector. Reinsurers need globalisation at the core of their business model: to diversify, spreading risk geographically while not facing capital fences and hurdles as they accept risks across countries and continents. This forms another feature within this issue (see page 32). I hope you enjoy the magazine.

David Benyon Editor

Ghosts of re/insurance future


Contents

Comment

03 Editor’s comment David Benyon on the dangers that lie ahead

13 Managing editor comment Christopher Munro looks back on 2016

14 Garry Booth comment Silent cyber risk threatens innovation and the industry is failing to manage exposure

Analysis

06 Project Landmark: a new Aon fac facility in the works Aon Benfield is in the early stages of developing a new facility for EMEA fac

08 Responding to the changing terror threat Violent extremism is a transforming risk, and insurers are struggling to keep up

09 Investing in a firm’s greatest asset Re/insurers must attract new employees and fill 400,000 jobs by 2020

10 R&Q acquires Maryland Motor Truck liabilities Randall & Quilter is targeting more self-insurance transactions

12 Compliance: the importance of being earnest Insurers diligent about regulation are also more profitable, according to Deloitte

Cover story: 2017 Risks

15 Top risks for 2017 Reactions considers the risks facing re/insurers in 2017. From the continued soft market to dangers posed by the Internet of Things, senior executives from Aon, Munich Re and others look towards the emerging challenges

30 Flood coverage raises questions Holborn asks if US citizens may be better off with private schemes

Special report: Women Leaders

43 20 views from female re/insurance leaders Women in senior leadership positions share their experiences and explain what more can be done, as the industry seeks to attract talent and promote diversity and inclusion

Features

32 Reinsurance protectionism on the rise Globalisation isn’t what it used to be, and protectionist barriers are springing up around the world

36 The US election sparks speculation Donald Trump’s victory brings uncertainty but also talk of tax cuts

38 Modelling manmade quakes With earthquakes in Oklahoma on the rise, RMS is working on manmade quake risk

40 Waste water liability lawsuit Can pollution policies be claimed on if waste water drilling causes quakes?

58 Americas 2016 roundup A series of North American claims and near misses garnered headlines in 2016

62 EMEA and Asia Pacific 2016 roundup East goes west, as Asia Pacific makes a splash in re/insurance M&A

66 Broadening the horizons of ILS The insurance linked securities market looks to the casualty and legacy sectors

68 Aviation faces challenging times Airline underwriters have taken a harder stance on end-of-year renewals

72 Xceedance targets a new outsourcing model The Indian services firm aims to change the way the sector thinks about outsourcing, innovation and insurtech

74 Gracechurch underwriter rankings The research consultancy names London’s top underwriters by business class

77 ReinsuranceSecurity: decision making and the use of ratings Having more sources of information helps, ReinsuranceSecurity suggests

Regulars

80 People moves The industry’s senior people moves

82 Riskbitz Your favourite re/insurance satire by Riskbitz

INSIDE

04

INSIDE


05


Contents

EditorDavid Benyon+44 (0)20 7779 [email protected]

Managing EditorChristopher Munro +1 212 224 [email protected]

Senior ReporterJohn Hewitt Jones+44 (0)20 7779 [email protected]

US ReporterMichael Heusner+1 212 224 [email protected]

Contributing EditorGarry Booth+44 (0)1986 874 [email protected]

PublisherGoran Pandzic+1 212 224 [email protected]

Head of events and marketingAlana Patricia Gutierrez+1 212 224 [email protected]

Design & productionPaul SargentPeter WilliamsEwan Harwood

Divisional directorDanny Williams

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Reactions (ISSN No. 002-263) is an online information service supported by a print magazine published by Euromoney Institutional Investor PLC.©Euromoney Institutional Investor PLC London 2014. Although Euromoney Institutional Investor PLC has made every effort to ensure the accuracy of this publication, neither it nor any contributor can accept any legal responsibility whatsoever for consequences that may arise from errors or omissions or any opinions or advice given. This publication is not a substitute for professional advice on a specific transaction

36

The DonaldTrump’s victory: what’s next?

32

ProtectionismRolling back globalisation

43

15

Risks for 2017What’s on the horizon?

58

2016 roundupTwo features for a global view

Women LeadersViews from the top

Aon Benfield’s ReSolutions team is working on a new facility for facultative business

codenamed “Project Landmark”. Project Landmark is to be focused on Europe, Middle East and Africa (EMEA) business, Reactions has revealed.

The platform is still in the early stages of development work, Reactions has learnt. With a launch date envisaged for the first half of 2017, the new EMEA facility could reach a size of around $400m premium placed using the facility, according to London market sources.

Project Landmark would follow a similar formula to Project Marlin, the reinsurance broker’s existing $600m facility for Latin American fac business. Latam-focused Marlin launched in 2016, with backing from Lloyd’s fac underwriters MS Amlin, Travelers, Barbican, StarStone, Neon and Hiscox.

Aon Benfield had originally planned to go live with Marlin in January 2016, but delayed its launch until July, as well as scaled back the scope of the portfolio as the project progressed, Reactions’ sister title The Insurance Insider previously reported. Marlin is focused on property, marine and energy business, but at present excludes aviation, personal accident, fidelity, surety and life.

Landmark is understood to be managed by the broker’s ReSolutions team in London, which is led by its CEO Terry Masters. According to sources, ReSolutions managing director Andrew Matson, who worked on Project Marlin, has been involved on the new EMEA facility.

Reactions spoke to several reinsurance buyers and brokers about broker facilities. There was consensus that such facilities are an effective way for brokers to boost revenues, which have been largely flat among intermediaries, faced by a challenging market. Aon itself reported

reinsurance organic revenue up 1% at 2016’s halfway point, year on year, with that modest increase partly attributed to growth in fac placements.

How beneficial facilities are to cedants is hotly contested. “Broker facilities need to prove their worth. Cui Bono?” responded one senior broker at a London market firm competing with Aon. “I think there’s more benefit to the participating reinsurers and the brokers themselves, and I don’t think clients have difficulty finding fac covers, especially in this market.”

One source responsible for reinsurance buying at a UK insurer, added: “I see it as generic capacity. From a client’s perspective it can be seen as very cost effective, although it’s seen as capacity, rather than as a sustainable relationship with a reinsurer. I’d rather deal with my reinsurers separately, rather than going through a facility.”

A CEO of another rival London market broker described previous experience of a client suggesting such facilities could save on time and perspiration in getting successfully risks transferred in the countdown to renewal.

“For some customers it’s absolutely in their interest – it takes away a whole lot of pain and friction,” said the broking CEO. “Compelling arguments can be made for the customer, in terms of the rating of the capacity and facilitating the placement of the risk.”

Subscribing reinsurance capacity tends to be following capital, sources agreed, which from a buying perspective in a Lloyd’s market context,

having that in place via a broker facility can quicken the placement process for a broker’s slip, completing the order faster.

From a reinsurer’s perspective, sources suggested that while aggregate pricing may be considered cheap, getting instant access the business was also a major factor. “If I was a reinsurer and I could get access to it, I’d sign up for it too,” said one senior broker.

In terms of the size of the facility, sources suggested that for those reinsurers that might participate in Landmark, a combined following share similar to Marlin’s 15% was considered a prudent figure. “I think 20% is considered a safe threshold, before one might wander into a potentially unsafe place, in terms of competition law or conflicts of interest,” said the broker.

Aon created a Lloyd’s market stir back in 2013 with its exclusive coinsurance arrangement with Berkshire Hathaway, while its reinsurance facility initiatives have involved treaty business as well as fac. The rise in broker facilities, which although not new have become more widespread in recent years, reflected “market commoditisation”, sources suggested.

Only the biggest brokers have attempted such facilities. “It’s just the world of the largest brokers. They have the size and scale of portfolio to enable this to happen. And it’s in their interest in terms of requiring fewer staff, too,” said the broker CEO source.

“What is happening really represents an evolution of the marketplace,” the source continued. “Someone like Aon has the data, they have the distribution, and by launching such facilities, they’re really doing what the re/insurers have been doing.”

Sources told Reactions that Aon Benfield had determined that there is sufficient market interest for Project Landmark to launch within the first half of 2017. Aon Benfield declined to comment.

06 Analysis


Aon developing Project Landmark EMEA fac facility

“ For some customers it’s absolutely in their interest – it takes away a whole lot of pain and friction”

Focused on your goals. First.

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The threat of terrorism has shifted heavily since 9/11 shook the industry to its core.

Prior to the terror attacks on the Twin Towers, there were no exclusions for terror attacks, so insurers were unprepared to pay for such a vast loss, estimated at nearly $40bn by the Insurance Information Institute.

The contemporary insurance market has evolved heavily since then, building products specifically around terrorism, but a shift in the way that terrorists acts are perpetrated over the past few years has led to further changes in the way that the peril is insured.

Attacks from Brussels to California have had a chilling effect, as the demographics and methods of the terrorist shift, making it harder for governments to intercept them.

The pervasiveness of radicalisation through the internet, as well as the increasing political divide in the US, means that almost anyone can be converted into an attacker, domestic or otherwise, dedicated to causing as much damage in as short amount of time as possible.

While large-scale explosive attacks such as 9/11 and the London 7/7 bombings were the hallmarks of the early 2000s, today’s attackers are more fond of using small arms to attack seemingly random soft targets, where many people are likely to gather.

This offers a new difficulty for insurers and governments who now have to provide coverage for attacks which often do not cause much in the way of physical damage.

The issue for insurers is that, “business interruption for non-direct attacks is not there yet”, according to Shane Latchman, assistant vice president at AIR Worldwide.

New Paradigm Underwriters, a Florida based managing general agency, has recently attempted to remedy that situation.

The coverage, called Terrorism PM, is designed for companies that might suffer a loss of business from a terrorist attack, even if the business itself is not targeted.

According to Evan Glassman, chief executive officer and president of New Paradigm, while the Terrorism Risk Insurance Act (TRIA) was a necessary part of the insurance landscape following 9/11, it has issues which he believes can be remedied.

“There are certain things that the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) doesn’t do well. For example, it requires at least a $5m loss, and a Federal certification that an incident was indeed a terrorist attack,” he explained.

The Paris terror attacks, which occurred in November 2015, saw 130 people killed through the use of explosives and small arms. While there were bombs detonated, no buildings collapsed, and no structures were permanently damaged.

However, despite the light amount of damage to any insured structures, the attacks may have cost the French economy €2bn ($2.1bn), according to an early estimate from the French Treasury.

This clearly shows the impact of terror attacks on the broader economy, surpassing even simple business interruption coverage.

It may seem impossible to calculate and insure such unquantifiable losses, but different branches of the industry are attempting to tackle that very issue.

The role of modelling when it comes to the analysis of these attacks is arguably one of the most important aspects when it comes to developing new products to deal with the evolving risks.

AIR Worldwide, which released its Dynamic Rings Analysis last year, has allowed businesses to determine their greatest insured exposures, which has shifted from tangible objects, to people in many cases, who are more likely to be targeted in this new era of terrorism.

According to Latchman, “there is an increased likelihood of an impact on casualty insurers, as many attacks are now a mixture of both gunmen and bomb attacks”.

“The reason that these attacks is on the rise is, when it comes to the terrorist’s point of view, multiple small explosives are more effective, and cheaper, than large bombs.”

One reason for the seeming abandonment of the theatrical when it comes to terror attacks is cost.

As most attackers in recent years have not been professional, but rather radicalised lone wolves, improvised devices and small arms are often all they can get their hands on.

One estimate for the cost to perpetrate the Paris attacks fell at $10,000 according to one French counterterrorism official.

08 Analysis


Market races to keep up with terror threatTerrorism has evolved into an almost completely new risk that insurers are having trouble keeping up with.

09


Analysis

Reports highlighting a shrinking workforce in the US property and casualty

(P&C) insurance market should not scare away potential market recruits, Navigators’ president and chief executive Stan Galanski insisted during a recent Reactions event.

As McKinsey & Company has highlighted, the re/insurance industry is facing something of a crisis in that some 400,000 jobs will need to be filled by 2020 should the retirement rate continue on its current path. That same report said that over half the professionals in the insurance business are over 45 years of age, and a quarter of them are anticipated to retire in the next four or five years.

“That creates a lot of opportunity, but one of the problems insurance companies have is they hire a millennial who then quits and move onto another job before the people they’re hired to replace even retire,” Galanski, who was speaking at the Reactions Human Capital Risk & Talent Management Conference in New York, said.

Another concern for those looking to enter the industry is that the size of the P&C insurance industry’s workforce is shrinking.

The US insurance industry employed some 2.5m people as of 2015, and of these approximately 1.4m of them were in the life and health insurance space. Another 25,000 worked within the reinsurance market, and between 900,000 to 1m were employed by insurance agents and brokers. Some 600,000 or so were employed in the P&C insurance market.

But, as Galanski explained, those 600,000 P&C market staffers are actually part of a shrinking workforce.

“If you look back to 2013, that number was 650,000 and then it dropped to 593,000 in 2014, and now it’s climbed back up to 600,000,” Galanski said. “During that time,

employment in life and health insurers actually grew by 6.7% while property and casualty shrunk, and agents and brokers grew by 15%. So something is going on in the property and casualty business – productivity or efficiency maybe – that’s actually reducing the number of jobs. [But] my bet is there will be dramatically less jobs when you look out in five or 10 years down the road.”

While these numbers make gloomy

reading, Galanski was adamant that the re/insurance industry remains an attractive career opportunity to young people. “Is it still worth being in the insurance business? You bet… The insurance industry needs to fill about 70,000 positions in 2017 and another 70,000 positions in 2018 just to cover the retirements, so clearly there’s an opportunity in a business that’s shrinking,” Galanski said.

The comments from Navigators’ front man followed those of Duane Bollert, the global insurance industry leader at Marsh & McLennan Companies’ subsidiary Mercer, who said the insurance industry may need to broaden what has been a very traditional recruitment policy in order to attract some of the brightest and best talent entering the workforce.

“The insurance industry needs to attract the best people to succeed, and in the past what that’s mostly meant is attracting the best insurance people,” Bollert said.

“But, as the world has gotten more complicated and the pace of change has accelerated and virtually every business is more technology-

dependent, [our clients] are telling us they need to change their organisations in order to attract the social marketers and the people with the predictive analytics capabilities that are needed [to help their businesses] and which are the people that maybe haven’t historically been in the insurance industry. Now those companies have to compete with every other industry to attract those people,” Bollert added.

It is a tough situation for the re/insurance industry to find itself in, especially at a time when the wider market is also struggling with various financial woes. But, as Bollert stated, it is vital for the insurance industry to try and overcome its rather grey and unsexy image if it is to attract the next generation of decision makers.

“What our clients are saying is they need to overcome that staid, conservative image of the insurance industry, and that means changing what have been traditional, perhaps rigid, siloed organisations with rigid career paths, to be more flexible and dynamic to attract the workforce you’re going to need in the future.”

Held in partnership with the St John’s School of Risk Management, Insurance and Actuarial Science in New York, the Reactions Human Capital Risk & Talent Management Conference in New York brought together some of the industry’s leading human resource executives to discuss how to manage the market’s talent. Sponsored by Mercer, Navigators and Ironshore, it was the second time the event has occurred.

Investing in a firm’s greatest asset

“ Is it still worth being in the insurance business? You bet… The insurance industry needs to fill about 70,000 positions in 2017 and another 70,000 positions in 2018 just to cover the retirements”Stan Galanski, Navigators

Staff can be a company’s greatest asset, and the re/insurance industry needs to adapt if it is to attract the best employees, delegates at the Reactions Human Capital Risk & Talent Management Conference were told.

Randall & Quilter Investment Holdings (R&Q) expects its move to novate the liabilities

of a Maryland-based self-insurer will be the first of many such deals, with the business hopeful of carving out a niche in what is a multi-billion dollar market.

London-based R&Q announced in November that it had agreed to novate the associated liabilities of the Maryland Motor Truck Association Workers’ Compensation Self Insurance Group (MMTA) into its US admitted carrier Accredited Surety and Casualty.

The agreement to novate the MMTA liabilities into Accredited is the first transaction R&Q has undertaken with a US-based self-insurer.

And R&Q is hopeful that the MMTA transaction is the first of these deals that it will make.

“This is a very exciting development for us because with self-insurance, we’re where we were with captives six years ago,” Tom Booth, group chief financial officer at R&Q, told Reactions.

“We’ve done so many transactions with captives, but I think there’s probably an even bigger opportunity for us with self-insurers.”

The US self-insurance industry is vast, and is a particularly attractive option for companies and their workplace healthcare plans. However, it is the property and casualty part of the self-insurance industry that appeals to R&Q.

This sector, Booth explained, is worth tens of billions of dollars, and there is plenty of potential for R&Q to tap into the market and help those businesses that wish to remove self-insurance liabilities from their balance sheets.

MMTA is a classic case in point. Formed in August 1994, MMTA was a workers’ compensation self-insurance group for the members

of the Maryland Motor Truck Association. It stopped accepting new risks at the beginning of 2006, and R&Q subsidiary Accredited has now assumed all of MMTA’s liabilities for the years 1994 to 2006, thereby providing full finality to the self-insurance vehicle.

“This deal reinforces our team’s innovation in structuring transactions to provide full finality to an increasing variety of entities with legacy insurance liabilities in the US marketplace,” Ken Randall, R&Q’s chairman and chief executive, said following completion of the MMTA transaction.

R&Q’s ability to novate self-insurance liabilities has only become possible since the firm acquired Accredited in November 2014 for some $25m. At the time, Florida-based Accredited was a bail bonds and surety specialist with active licenses in 49 US states and the District of Columbia.

“Until Accredited got the workers’ compensation licenses and the authority to write legacy covers, it was just a live surety writer,” said Booth.

“The regulation [for self-insurers] is tighter than it is with a captive,” said Booth. “It’s a really exciting expansion because we could do novations for captives and we could effectively allow them to wind up by doing novations or just buying them and giving finality, but we couldn’t do the same for self-insurers because we weren’t a licensed insurer in the same state.”

However, since acquiring Accredited, R&Q has managed to secure licenses

in 10 of the largest states for workers’ compensation business and can now work on novating and bringing finality to such self-insurance business.

R&Q has developed a reputation for being able to successfully transfer captives onto its books and then manage the run-off. The firm is now trying to do something similar with the self-insurance market, and while the two industry segments may at first appear similar, they are in fact quite different.

“Because of the regulatory filings, there is a lot more cost associated with [self-insurers], so that means there’s more capital tied up with them than

captives,” explained Booth, adding: “It’s a really nice niche where we can prove our capabilities.”

After R&Q had announced the MMTA deal, Randall highlighted how the US self-insurer market is very substantial in size and that his business had several legacy deals within the sector in the pipeline.

Booth reiterated this, adding: “We’ve got a lot of these deals on the horizon.”

“They’re good, cash positive transactions in the main. I hope we can announce more deals before the end of the year, but if not, then it will be in early first quarter 2017. There has been a lot of interest, and a lot of the deals we procure come from brokers rather than direct because of the conflict a risk manager might have internally. For now, this is a great tool for brokers, many of whom didn’t know this option was even available to their clients.”

10 Analysis


R&Q makes pioneering self-insurance move

“ This deal reinforces our team’s innovation in structuring transactions to provide full finality to an increasing variety of entities with legacy insurance liabilities in the US marketplace”Ken Randall, R&Q

Randall & Quilter Investment Holdings is targeting more self-insurance transactions following on from November’s pioneering acquisition of Maryland Motor Truck Association Workers’ Compensation Self Insurance Group.

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Aspen - Reactions ad.pdf 1 28/04/2016 15:44:28

According to a US report from Deloitte, regulatory compliance may mean more

than simply satisfying lawmakers - it could mean profit. The report, which included 15 of the largest life and P&C insurers, documented the correlation between mature compliance programmes, and overall income.

The rise of mature compliance programmes has occurred simultaneously with the sentiment that the insurance industry is being unfairly, and harshly, regulated.

It is no secret that the US re/insurance industry is strongly against any type of Federal insurance regulation, including that brought forth by the Dodd-Frank Act, which is an example of regulation passed in response to the 2008 financial crisis.

Once American International Group (AIG) was bailed out, the Federal government decided to treat big re/insurers similarly to banks, in that they were all lumped under financial institutions for the purpose of regulation.

Not only have insurance companies been treated more like banks, the designation of MetLife and Prudential Financial as systemically important financial institutions by the Financial Stability Oversight Council sent ripples of panic throughout the industry as a whole.

Insurers could no longer grow their business comfortably without being designated as systemically important, meaning much tougher regulatory guidelines.

While the legal battle over insurers being designated as systemically important is ongoing, the post Dodd-Frank regulatory era has left many companies feeling like they have been given a bad deal.

From the Rendez-Vous de Septembre in Monte Carlo to The Property Casualty Insurers Association of America annual meeting in Dallas this year, the issue of overregulation has been an issue weighing on many people’s minds.

While many in the market feel that the government is overregulating the insurance industry, those who make earnest attempts to satisfy regulatory requirements are actually more profitable, according to Deloitte.

“Today’s great compliance function is increasingly considered to be an asset to insurers, where investment in the function is associated with increased top and bottom lines, as well as lowered danger of reputational and other risks. It is not just an overhead cost driven by regulatory demand as those more distant from its evolution may assume,” Deloitte said.

As more insurers shift from looking at compliance and ethics programmes in a purely financial sense, the value of these programmes actually becomes more apparent and tangible.

This shift has come from the highest levels of these organisations, in what has been coined the ‘tone at the top’, of these firms.

According to Eric Dinallo, partner at Debevoise and Plimpton, “the more that investors and the market believe a company has top compliance programmes, the more positive the pricing outcome.

“Better pricing helps prevent a negative income for all aspects of a company,” he added.

“Ten years ago compliance was a check box function. Modern compliance gets ahead of where regulators are going and moves corporate functions towards what regulators expect, before they expect it,” added David Grosgold, fellow partner at Debevoise and Plimpton.

“Realistically you have to change culture from the top to change anything within the company. Companies now believe that and regulators now believe that,” said Grosgold.

“Over the years we have seen an enhanced desire to get that tone at the top right, as companies realise that when everyone is equally impacted [by regulation], then compliance becomes a differentiator,” he explained.

Perhaps the most important aspect of compliance is not what profit it can bring, but what losses it can prevent.

“Ethics, or the price of right, is essentially priceless. Once a reputation is lost, no amount of money can buy it back,” warned former Deloitte board chair Sharon Allen.

The fact that executives and directors are also personally being sought after in lawsuits alleging wrongdoing at an ever increasing pace is also causing insurers to ensure that they have a well-functioning compliance unit.

According to the Insurance Information Institute, the number of post-reform act class-action settlements of securities lawsuits aimed at company executives grew to 80 in 2015 due in part to three years of increases in case filings.

The number of Federal securities class actions also reached a record high of 54 in the first quarter of 2016.

12 Analysis


Compliance is a valuable asset – DeloitteThe value of a mature compliance programme is becoming increasingly evident to insurers.

13


Comment

Another year has come to an end, and it’s again time for some reflection on the global

re/insurance industry that we cover at Reactions.

As you’ll find later in this double-edition of Reactions, David and I have written features looking back at some of the key issues that have impacted our respective regions of the globe. Doing so was not easy, and indeed many readers will point out that we have missed some of the biggest points. So now is an opportunity to set some of those straight.

My look back at 2016 feature focuses on North America, and for the sake of argument I’ve used that definition to refer to the US and Canada, excluding Mexico as here at Reactions, that country forms part of our Latin America region.

So what did I miss out… Well if I’d glanced eastwards into the Atlantic, I could have highlighted the introduction of a Solvency II equivalent regime in Bermuda.

At the end of March, the European Union signed off on Bermuda’s long awaited bid to gain Solvency II equivalence.

It meant the island joined Switzerland as one of only two jurisdictions that had been granted Solvency II equivalent status.

It took Bermuda six years to reach that point, although it had reached a major breakthrough the previous November when its equivalence status was signed off by the EU. It then took another 90 days as part of a review conducted by the European Commission and the European Parliament before Bermuda joined Switzerland in being granted Solvency

II equivalent status.As 2016 ends, the process of moving

into Solvency II-style regulation appears to have been fairly smooth, although apparently some have found it more difficult than anticipated.

It was not only being granted Solvency II equivalence that dominated discussions in Bermuda earlier in 2016 as there was also much talk about who was rumoured to be next up for grabs in the merger and acquisition merry-go-round.

While it took a little longer than many expected, Bermuda finally got its standout M&A deal for 2016 when it was announced in October that Japan’s Sompo Holdings was to acquire the John Charman-led Endurance Specialty for $6.3bn, representing a 1.36x multiple to the re/insurer’s book value.

It was yet another example of Japanese giants making a play in the Western re/insurance world, following on from Tokio Marine’s acquisition of HCC for $7.5bn in June 2015 as well as Mitsui Sumitomo’s $5.3bn deal for Amlin in September 2015.

Elsewhere, and more recently, came the announcement that Chinese conglomerate Fosun was to sell its US specialty insurance business Ironshore

to Liberty Mutual. Boston-based Liberty Mutual is paying roughly $3bn to take Ironshore off Fosun’s hands, equal to 1.45x book value. That represented something of a coup for Fosun as it had originally bought the US excess and surplus lines insurer at 1.25x book value, with the total consideration paid for the business amounting to $2.3bn.

What was intriguing about that is Fosun’s divestment of Ironshore has come about because the US carrier’s ratings have been under pressure. Ironshore currently enjoys an A (excellent) rating from AM Best, but that was under review with negative implications because of what the rating agency called Fosun’s “weak financial profile”, as represented by its high financial leverage and constrained liquidity position.

As such, that Fosun was able to get such a good price for Ironshore is testament to the strength of the underlying business. Indeed, Liberty Mutual was able to acquire Ironshore after something of a bidding war erupted for the firm with companies such as The Hartford, Markel, Canada’s Intact Financial and Axis all rumoured to have been considering making a play for the firm.

Evidently that did not happen, but there continues to be plenty of speculation of who the next target in the M&A battle will be. And one thing is almost certain – that we will continue to see more M&A in 2017.

A glance back at 2016…

“ As 2016 ends, the process of moving into Solvency II-style regulation appears to have been fairly smooth”

Christopher MunroManaging Editor

14


Comment

The risks and opportunities around digitalisation are high on the agenda at both of the

UK’s insurance industry watchdogs. In a stern letter to London market CEOs recently, Chris Moulder, director of general insurance at the Prudential Regulation Authority (PRA), warned that the risks emanating from writing cyber insurance “are potentially significant to the viability of the firms involved and the reputation of the UK insurance industry as a centre of excellence and innovation”.

He’s worried that, against a background of softening rates and challenging market conditions, insurers might not be managing their cyber risk exposures as well as they should. Moulder said that most firms simply don’t use robust methods for quantifying and managing ‘silent’ cyber risk (that’s where liability insurance policies don’t explicitly exclude cyber risk). Moreover, the PRA’s work suggests that insurers writing affirmative cyber cover don’t fully understand the real extent of its aggregation and tail potential. “Firms are limited by a lack of expertise and an insufficient length of claims data. Moreover, using past claims data to estimate future cyber losses may not be appropriate due to data being non-stationary,” Moulder said.

The introduction soon of the EU Data Directive is likely to add to the number of firms looking to expand their offering in Europe as well. Any perceived geographic diversification benefits for insurers could be offset by an increase in cyber risk aggregation potential, Moulder has warned.

Meanwhile over at the UK’s Financial Conduct Authority (FCA), chief executive Andrew Bailey is taking a wire-brush to Big Data and specifically how the technology could revolutionise the insurance model – and not necessarily in a way that benefits consumers. In a nutshell, Big Data is allowing insurers to move the boundary between risk assessment

based on aggregate modelled behaviour and, on the other hand, risk assessment that’s based on the observed behaviour of the individual. The use of telematics in motor insurance is the best example.

In itself that’s no bad thing but what worries Bailey is that insurers might deploy Big Data to exploit their customers. For example, Big Data could be used to identify customers more likely to be “inert”, and insurers could use that information to differentiate pricing between those who shop around and those who do not. The latter will pay more and thereby cross subsidise those who do shop around.

In another example, Bailey posits that genetic identification revolutionises the prediction of life expectancy and each person’s probability of suffering from dementia. The implications for the life insurance market are potentially profound as it might limit some people’s access to insurance they would routinely buy.

Bailey develops an interesting argument around what responsibility the FCA might have in controlling insurers. He thinks that it is the regulator’s job to stop insurers exploiting naïve or inert consumers (in the shopping around case) but that it is the role of government to decide on a public policy issue like genetic testing.

It made me think how fast digitalisation is likely to change the industry. But the interventions by the PRA and FCA reveal how slow the industry itself is in recognising the mixed blessings digitalisation represents.

What’s not to ‘like’An indication of how ill-prepared insurers can be when rushing into the Big Data age was provided by the UK motor insurer Admiral. In November it trumpeted an initiative called firstcarquote that would allow it to use customers’ Facebook posts to help it price their insurance premiums. The idea is that analysis of first-time car

owners’ Facebook accounts will reveal personality traits that are linked to safe driving. For example, individuals who are identified as conscientious and well-organised will score well.

However, on the first day of the trial, just two hours before it was due to go live, Facebook declared that it would not let Admiral access its users’ posts after all. They might have been worried about the adverse publicity that was building around privacy and social media (even though people had to opt in to Admiral’s project). Or they might have thought they should hold on to this valuable Big Data asset for themselves.

Either way, Admiral had to climb down. But how odd they didn’t think harder about the ethics of tapping social media and the potential for controversy such a move would create. As Jim Killock, executive director of the Open Rights Group, told the BBC: “Insurers and financial companies who are beginning to use social media data need to engage in a public discussion about the ethics of these practices, which allow a very intense examination of factors that are entirely non-financial.”

Once bitten, twice shyRenewing my home and contents insurance recently, I had cause to think about why insurers shouldn’t always rely on algorithms. After receiving the renewal letter from Direct Line I decided to see what the rate was if I applied as a new customer. Sure enough, with all the same risk information the premium was about 40% cheaper. When I called Direct Line and told their agent what had happened he said I should apply online again as a new customer. I’m with another insurer now and shan’t be going back to Direct Line in a hurry…

Garry Booth Contributing Editor

UK watchdogs sound the cyber alarm

What are the Big Risks that will hit the re/insurance industry in 2017? That is the question Reactions posed to some

of the global re/insurance industry’s senior and well placed figures. Over

the following pages, you can read their responses.

2017 risks

16 ERIC ANDERSEN GREGORY BUTLER

17 JOHN CAVANAGH KAREN CLARK

18 JUSTIN DAVIES JULIAN ENOIZI

19 DAVID FLANDRO MARK HAWKSWORTH

20 TORSTEN JEWORREK RUSSELL JOHNSTON

21 STEPHEN KORDUCKI JUAN LUIS ORTEGA

22 ANGELA MACPHEE JOÃO MARCELO DOS SANTOS

23 CLIVE O’CONNELL DERMOT O’DONOHOE

24 MOSES OJEISEKHOBA JAMES PIERCE

25 BRENDAN PLESSIS PHIL RATCLIFF

26 BRIAN SCHNEIDER GARY SHAW

27 NICK STEER RUPERT SWALLOW

28 JULIAN TIGHE DAN TRUEMAN

29 VINCENT VANDENDAEL ROBERT WELLS

m 2017 RISKS

The biggest risk insurers face is probably not from any

individual line or territory, but rather their need to evolve within the industry. When we look at the macroeconomic trends of our sector, we see record levels of capital and average to low loss activity, and this translates to high levels of competition for what is an increasingly competitive business involving traditional products.

For those insurers that do not innovate, their results are going to come under increasing pressure, with demands from stakeholders for better returns.

So in my view, and perhaps paradoxically, 2017 is actually a great time for investment for insurers, and by that I mean investing in the skills and capabilities to allow them to allocate their capital to different pools of risk that their customers

are managing on their balance sheets. As examples, we have long been proponents of US mortgage credit business – which requires around $6bn of capacity each year – but we are also excited about the opportunities in cyber, healthcare, facultative facilities, and weather risk – not weather risk in terms of traditional catastrophe covers, but products that utilise the latest satellite imaging technology to provide more granular detail on risk, and allow insurers to buy customised protection for their weather exposures globally.

In 2017, we will also see global developments in the use of autonomous vehicles, and while perhaps not a concern for the next 12 months, the adoption of autonomous vehicles, in time, will have a profound effect on the auto insurance sector, both in terms of the level and type of cover required.

ERIC ANDERSEN CEO, AON BENFIELD

“For those insurers that do not innovate, their

results are going to come under increasing

pressure, with demands from stakeholders for

better returns”

As surplus capacity continues to flow into the US primary

insurance market, it is clear the current soft market conditions will be the “norm” for the foreseeable future. Over the past five years, the hunger for top-line premium has conveniently ignored disciplined underwriting. However, I believe that, during 2017 and beyond, a new market trend will develop which will see capital placing a new emphasis on underwriting.

The primary market, similar to the reinsurance market of two years ago, is reluctantly acknowledging that rates cannot continue on their current trajectory and still deliver acceptable returns. Reserve releases and fingers crossed is not a long-term strategy. Despite this, many companies are still struggling to maintain their conviction when underwriting discipline requires walking away from underpriced

business. Instead they continue to seek to justify the value of “distribution” relationships or fool themselves with model adjustments.

The unfortunate reality, however, is that most US business is underpriced right now. There are very few pockets of opportunity where margins are adequate to justify deploying capital.

Faced with these conditions, a flight to quality underwriting should be our market’s focus - not just “access to business”, but real underwriting discipline. Reinsurers have been saying for several years that they are focusing on core clients and making bets on cedants who they believe are best in class. I expect that trend to find its way into the primary insurance market during 2017, with capital seeking out those underwriters which have implemented the requisite infrastructure and transparency that can support the underwriting of business that can be profitable across the cycle. I think this move is long overdue.

GREGORY BUTLER PRESIDENT, ICAT

“The primary market is reluctantly acknowledging that

rates cannot continue on their current trajectory

and still deliver acceptable returns”

www.reactionsnet.com16

2017 RISKS m

www.reactionsnet.com 17

Cyber risk is the industry’s biggest opportunity in 2017,

but also its biggest challenge. PWC estimates that annual gross written premium will grow from around $2.5bn today to $7.5bn by the end of the decade. These figures highlight a potential growth area for insurers, and present an opportunity for an industry struggling to feed excess capital. However, our ability to capitalise is stifled by reluctance.

Despite the opportunity this new risk class offers, many insurers approach cyber with caution. This reluctance to leap in with both feet reflects a healthy level of conservatism justified by the relatively unknown and unassessed nature of the risk. Insurers are unable to determine probable maximum losses with confidence. But the peril is underinsured, and demand is growing. It is paramount that the industry responds.

Potential aggregation of cyber losses will rise with premium income, which has muted many insurers’ appetites. Meanwhile

regulators are demanding that risk carriers gain a greater understanding of aggregation potential. Combined with the reality that we are always one step behind the cyber criminals, apprehension to grow cyber portfolios in line with demand is understandable. Each risk carrier’s exposure will remain largely unknown until they can accurately quantify downside risk.

Before the industry can meet new demand, insurers must be able to calculate potential maximum losses, including the risk of contagion. How best to do so is certain to be debated in 2017. Advanced data harvesting and analytics will be central to addressing aggregation issues brought by the explosion of cyber cover. Once the issue is resolved, our industry will be able to embrace the opportunity this new risk class presents, creating a win for insurers and their customers.

JOHN CAVANAGH GLOBAL CEO, WILLIS RE

“Annual gross written [cyber] premium will

grow from around $2.5bn today to $7.5bn

by the end of the decade”

It may seem odd that 25 years after Hurricane Andrew struck South

Florida, the insurance industry is still not prepared for a storm of this intensity making a direct hit on Downtown Miami. Andrew hit a more sparsely populated area well south of Miami and caused $15bn of insured losses, based on 1992 property values.

The catastrophe models estimate that a repeat of Andrew today would cause nearly $60bn in losses. It’s not difficult to extrapolate that a Hurricane Andrew striking 30 miles north would result in insured losses closer to $200bn due to Miami’s higher population density and property values, even after accounting for improvements in building codes.

The industry isn’t fully prepared for this event because many insurers

buy reinsurance protection up to their 100 year PMLs. PMLs are commonly misinterpreted as the 100 year events or losses when in fact these numbers are actually the loss amounts that there is a 1% chance of exceeding in any given year. Over a 10-year period, there’s almost a 10% chance that these numbers will be exceeded by an actual event.

For the industry as a whole, the 100 year PML for Florida is estimated to be between $100bn and $125bn, and that’s the amount insurers are collectively prepared for (individual companies differ). Hurricane Andrew striking the wrong place will result in losses significantly greater than that number and cause more insurers to go insolvent than did the first Hurricane Andrew in 1992.

KAREN CLARK

“For the industry as a whole, the 100 year PML for Florida

is estimated to be between $100bn and

$125bn”

FOUNDER, KAREN CLARK & COMPANY

The ongoing soft market is making business extremely

difficult for re/insurers, and the notion of market cycles – where prices can be predicted to rise after a major loss – are widely regarded as a thing of the past. In previous years, re/insurers could compensate for poor underwriting performance with healthy returns on investment, but with global interest rates so low, and showing no sign of significant increase any time soon, that revenue channel is also suffering.

Writing more premium volume as a way to increase revenue is one option, but it is fraught with danger because in this highly competitive market, the risk is that underwriting discipline erodes and insurers end up writing poor business.

With deteriorating terms and conditions and wafer thin margins, insurance and reinsurance companies will need to work a lot more efficiently and prudently to

remain competitive. For those that are willing to consider using third party suppliers and/or make a strong commitment to further embrace advanced technology, there are major opportunities to be leaner and

more resourceful, while providing superior service that differentiates them from their competitors.

The industry is awash with data, but an emerging field of data science is rapidly enhancing the structure and predictive strength of disparate information – becoming an ever-more important tool for insurers and reinsurers. Insurance data science is a combination of technology, statistics, domain expertise, machine learning and learning theory to improve operations and profitability. Data remains at the heart of the industry and it covers the full range of the value chain, including pricing, underwriting, product design, marketing, claims and customer service. As the investment banking industry has shown us, the technology is there to make much greater use of modern data science, and the insurance industry could surely leverage it to boost revenue opportunities and profitability.

2016 will undoubtedly be remembered as a year of deep,

global geo-political uncertainty. Britain’s place in the world appears less certain and our path, less clear. The insurance industry is similarly at a crossroads. Its current form faces an existential threat. The nature of the risks which insurers have traditionally been asked to underwrite has shifted and evolved in line with the threats faced by today’s businesses, and terrorism insurance is a case in point.

The horrific acts committed by Daesh and other like-minded groups have laid bare the gaps in the coverage. Attacks on cities across the globe have resulted in large scale economic loss, significant loss of life, but very limited insured losses. This is unsustainable.

In these uncertain times, insurance

can play a significant part in offering businesses the assurance they need to continue trading. It can also buttress the UK’s economy and ensure that we remain an attractive

place to do business. But in order to do so, insurers must evolve their own offerings by developing new products which reflect today’s technology dependent economy and which offer protection against those emerging risks resulting from the environment such as mass migration or climate change, which will inevitably grow in prominence.

In 2017, Pool Re will seek to extend its own coverage to include property damage that results from a cyber trigger. This is a necessary step in line with the expansion of terrorists’ arsenals and will provide a layer of protection for businesses in the UK which is not explicitly available elsewhere. This initiative reflects one of our market’s greatest strengths: our capacity for innovation and our ability to reinvent ourself.

JUSTIN DAVIES

JULIAN ENOIZI CEO, POOL RE

HEAD OF REGION – EMEA, XCEEDANCE

“Writing more premium volume as a way to

increase revenue is one option, but it is fraught

with danger”

“2016 will undoubtedly be remembered as a

year of deep, global geo-political uncertainty”


m 2017 RISKS

As loss adjusters dealing with cyber claims we have seen

denial of service attacks used to cripple online business.

Recent indicators would however suggest that the frequency and scale of denial of service (DOS) attacks are about to increase. Historically, criminals have used spam servers to phish users into compromising their computers for use as bots. A large quantity of bots can be controlled to act as a swarm or ‘botnet’ to create a DOS attack.

The Internet of Things (IoT) provides real benefit to end users of connected devices such as internet cameras, set top boxes, network attached storage and fitness trackers. The increasing number of IoT devices coupled with little or no onboard security and the standardisation of architecture make them attractive to criminals.

A large proportion of these devices

are rarely updated or patched against security vulnerabilities, with many vendors providing no security updates at all. Unlike desktop computers, end users don’t spent time interfacing with IoT devices and would therefore be unaware that

they have been exploited.Recent malware such as Mirai

and Bashlight search the internet for vulnerable IoT devices and use automated processes to comprise them. This malware makes it easier for criminals to build up large ‘botnets’ which can be used for nefarious purposes. There are millions of vulnerable IoT devices, with new devices being added on a daily basis.

It is essential that the ability to compromise IoT devices is greatly reduced. This can be achieved in part by improving onboard security and the ability to apply patch updates. If the wholesale compromise of IoT devices is allowed to continue unchecked, the commoditisation of DOS attacks will become prevalent causing significantly increased issues for online retailers and of course, their insurers.

MARK HAWKSWORTHGLOBAL TECHNOLOGY GROUP LEADER, CUNNINGHAM LINDSEY

“There are millions of vulnerable IoT devices, with new devices being added on a daily basis”

One could be forgiven for characterising the reinsurance

sector as static over the last few years. The same themes have been sustained to the point of monotony – ever larger capital inflows, low catastrophes, low yields and reserve releases have been the drivers. All of this has meant lower pricing in nearly every reinsurance line of business since 2012.

Change is in the air. Last year, JLT Re published a controversial (at the time) market forecast predicting that the rate of new capital inflow would slow, that deficient reserving would again rear its ugly head, that higher inflation and interest rates could ensue and that all of this would have a mitigating effect on pricing declines. All of the above are now coming to pass and some

will become bigger issues in 2017. Inflation is rising markedly in the UK and is on its way up in the US. Yield curves are steepening across the developed world. Multiple and increasing instances of net reserve

deficiencies are being reported, and price declines are slowing.

In this environment, market participants will be increasingly engaged in discussions around adverse development cover, as well as obtaining better catastrophe cover whilst low rates persist. Economic capital management will be at the fore as the relationship between yields, inflation, and reserving becomes more volatile. Insuretech – from technology and data-driven product development to predictive underwriting technologies – will become increasingly important in shoring-up returns as the market enters this next, potentially more turbulent stage.

At JLT Re, we are anxious to help our clients prosper in this new and dynamic environment.

DAVID FLANDROGLOBAL HEAD OF ANALYTICS, JLT RE


“Inflation is rising markedly in the UK and is on its way up in the US”

2017 RISKS m

For our industry, it is crucial to cope with future challenges and

risks in a digitalised world. New technologies and digitalisation are changing the way we live in an increasingly rapid way. And they are also changing the risk landscape. Our industry has to keep pace with this development. Large amounts of previously not available data and sophisticated analysis methods will improve risk assessment, loss prevention and claims handling. Customer expectations and behaviour will change regarding product design, services and sales. These innovation trends mean growth opportunities but also challenges for the insurance industry.

Increasing digitalisation and interconnectivity of the world in almost all areas of the economy also mean that risks are taking on new dimensions. Both private individuals and companies are becoming more

and more aware of this exposure and are seeking insurance protection. Global premium volume for cyber insurance is currently around $3bn, but it is expected to rise to $8–10bn by 2020. Munich Re wants to meet the growing needs of its customers.

So it is systematically expanding its expertise in assessing different types of cyber risk. Dealing with possible accumulations will be a particularly important challenge for the insurance industry. In order to always remain up-to-date in assessing new technologies, Munich Re is driving forward the development of ecosystems with specialist technology firms.

Munich Re fosters innovation throughout its global organisation. We have built a structure including innovation scouts and labs and we cooperate with important players. We further enhance our data analytics abilities and tools as well as an agile IT. Based on that, we are developing new re/insurance products, new business models and new risk-related services. And we try to identify new clients and new demands, as the landscape will change dramatically over the next few years.

Clearly one of the biggest challenges facing today’s

insurance CEO is to embrace the reality that we live in an age of continual disruption. The old adage that change is a constant is being replaced by a new reality of exponential, life-changing technology advancements. Artificial intelligence, the internet of things, blockchain, biometrics, next-gen drones and robotics are but a few examples of the undeniable and fundamental ways that technology is altering the way we live and the ways our customers do business.

As such, we think 2017 will be a year in which the market begins to recognise a greater distinction between the old guard and the new guard. The old guard being

represented by carriers adopting a conventional mindset which passively waits for the next hard market and accepts the “new normal” of excess capacity,

traditional products, and a dog fight for share. We take a contrarian view where the industry becomes a more efficient user of capital, where brokers and carriers work synergistically to lower the cost of delivering the product and focus on true solutions for customers. At QBE, we want to give people the confidence to achieve their ambitions. That means we need to listen, be creative and nimble, and embrace the changing risk landscape. We think both our customers and the broader market will reward a breed of carrier, which adopts lean process, makes savvy investments in new markets and products all with the focus creating the strongest partnerships with our customers.

TORSTEN JEWORREK

RUSSELL JOHNSTON

CHAIRMAN OF THE REINSURANCE COMMITTEE, MUNICH RE

CEO, QBE NORTH AMERICA

“Customer expectations and behaviour will change regarding

product design, services and sales”

“The reality [is] that we live in an age of

continual disruption”


m 2017 RISKS

Our industry faces many challenges, of different nature,

impact potential and timing. The most obvious and short term ones are internal and should be manageable: soft to irrational pricing and technical capability to match the new risks our clients face. There are external threats as well, mainly digital disruption and the changing landscape in geopolitics.

Soft pricing and underwriting is widespread throughout the world these days, but in few places like Brazil. Underwriters that respect their fiduciary responsibility should self-regulate to avoid more pain to their results in the short term and solvency questions in the medium term. Continued lack of underwriting discipline and market share driven strategies by a few

ultimately stains our industry.As the world changes and digital

ecosystems house critical business assets, so does the need to protect those assets. Our industry has been

there for the world as commerce, fixed assets and liability exposures grew with a more developed, interconnected international business community. Cyber risks are the new frontier in protection, and our industry must respond to it as it did before.

As far as external challenges, our industry must prove its resiliency - anticipating and investing for the changes that digitalisation brings. Some of it is incremental and some of it can be disruptive. Some of it relates to product features, distribution access and the use of data for risk selection and predictive modelling. A clear set of strategies that are interlinked with our day to day business will separate the winners from the losers in our industry.

JUAN LUIS ORTEGAREGIONAL PRESIDENT, CHUBB LATIN AMERICA

“Lack of underwriting discipline and market

share driven strategies by a few ultimately

stains our industry”

This year has presented a varied series of challenges and

opportunities for reinsurers. Several potentially significant events did occur. Hurricanes Matthew and Hermine, to name two, have served as a reminder of the potential of cat exposures without causing devastating losses.

Reinsurance capital remains more than adequate to meet the demands of buyers. The competitive environment has continued to have an effect as P&C reinsurance terms have improved, with multi-year placements, staggered renewals and cascading layers of protection becoming more commonplace. New capital has, however, been flowing into the market at a reduced pace, with some rates stabilising.

Going into 2017, we may see further developments in the P&C market, driven by changes in the capital adequacy models used by

rating agencies and regulators. On the casualty side, at the farther ends of the loss distribution tail (99.0 to 99.6% probability), the credit risk associated with ceded reinsurance is viewed more favourably than the adverse development risk associated with retained reserves. This may generate increased interest in tail risk transfers.

On the property side, multi-event scenarios and one in 250 year severity may lead to carriers increasing purchased limits. These placements are attractive to ILS markets and may spur the issuance of more multi-year cat bonds and collateralised reinsurance placements.

As reinsurers and risk partners, we help clients evaluate the long-term benefits of reinsurance versus the cost of servicing debt or the dilutive impact of new equity capital. We work with cedants to support, in the most capital efficient way, the development of new products, attainment of desired financial ratings and potential geographic expansion. Reinsurance cover clearly continues to be an efficient and flexible source of capital.

And, of course, all eyes will be on the developments surrounding cyber coverage in 2017.

STEPHEN KORDUCKIPRESIDENT, BMS RISK ADVISORY


“Reinsurance capital remains more than

adequate to meet the demands of buyers”

2017 RISKS m

Disruption was a word we heard a great deal of in 2016, and it

will be used even more frequently in 2017. As a forensic accounting firm to the insurance, legal and corporate markets, RGL sees thousands of claims each year, giving us unique perspective of the cost of global risks and disruption factors.

Topping the list of disruptors is cyber and the reputational damage we have seen caused by leaked emails and private information exposed. The cost of cyber risks will become increasingly complex and companies will demand coverage extending beyond breach response to cover reputational damage and loss of business.

The same holds true with product recall. With cases like Samsung, Chipotle and Sabra, companies will focus on how product recall and contamination coverage will not only help with expenses and class

action lawsuits, but also protect their brands from reputational harm.

Complicating the environment for large global losses are potential changes to the supply chain and our global economy. The recent passage of Brexit and the new US

administration has created a general uneasiness of what will happen next for cross-border commerce and regulation.

There is potential for more natural disasters in 2017, possibly an earthquake, with tsunamis and volcanic eruptions that can often follow even more devastating. About 90% of earthquakes happen along the Ring of Fire, a horseshoe shaped region in the Pacific Ocean encompassing several large seaports and important trade routes. The question is not if it will happen, but when.

Lastly, we have recently expanded in Latin America, which is particularly vulnerable to natural disasters. We hope to see more education about what insurance products are available companies in and moving to Latin America.

This is certainly a changing picture of global risk. Fasten your seatbelt.

The objective to build regulation adequate to address the

increasing risks inherent to the insurance activity has been a goal of all supervisors.

This process has been also highly impacted by standards and concepts developed by the International Association of Insurance Supervisors – IAIS – and other entities in Europe and USA. However, regardless of the success achieved by each supervisor, from the consumer protection and from the prudential perspective, the global nature of the insurance and reinsurance activity is not yet reflected in its supervisory structure. Thus, there is a clear overlap of several insurance supervisors’ efforts in the search for the best possible regulation. The several jurisdictions have different regulatory and market

profiles but, both in the case of markets not totally developed, such as Latin America and Asia, and in developed markets such as Europe and USA, the supply of regulation has been higher than the actual demand, which should be identified by market conduct failures and

solvency problems of insurers and reinsurers. Another perverse aspect of the regulation is that, although the main objective of the supervisor should be the development of the economic environment, an important concern of them is often to protect themselves against the risk of being “guilty” of unwanted events. And, in this case, it is very difficult to prevent the degeneration of the relationship between the cost and the benefit of the regulation.

The best reaction to these unfavourable aspects of the regulatory process is the permanent investment, by the insurance market, of time and energy, with transparency and consistency, to discuss ways to update and to bring to the regulation a higher level of efficiency.

ANGELA MACPHEE

JOÃO MARCELO DOS SANTOS

CEO, RGL FORENSICS

FOUNDING PARTNER, SANTOS BEVILAQUA ADVOGADOS

“Topping the list of disruptors is cyber and reputational damage”

“There is a clear overlap of several insurance supervisors’ efforts”


m 2017 RISKS

Brexit is presenting the London insurance market with a

number of challenges. Lloyd’s is facing uncertainty about whether it will be able to continue its passporting rights throughout Europe and, with a combined ratio pushing 100% and a 41% expense ratio, the market is in a difficult position. If we cannot write business throughout Europe automatically on Lloyd’s paper, it is possible that we will consider whether we need to acquire a European platform. We would probably look at acquiring an established European insurance business to give us access to these markets rather than a start-up.

Brexit is also causing uncertainty for the UK economy. If this uncertainty triggers a contraction in business, it will have significant

ramifications for the insurance industry. In times of recession, there is always a rise in professional services insurance claims. If property deals don’t work out, there are certain to be business people pursuing negligence claims

against developers, solicitors and surveyors. And if investment returns decline significantly, there will be businesses and individuals that will sue their financial advisors. In these circumstances, people always try to recover losses through the insurance industry.

The soft market is also a concern for the industry, although there are signs that the bottom has been reached in some lines of business. However, a soft market is usually an opportunity. We have invested time and effort in developing state-of-the art-analytics, which are a powerful tool for our underwriters to help them select risk sensibly and profitably and differentiate ourselves from our competitors. As our CEO Brian Duperreault says: “Selection trumps price.”

DERMOT O’DONOHOECEO, HAMILTON AT LLOYD’S

“In times of recession, there is always a rise in professional services

insurance claims”

One of the greatest challenges that must be faced in 2017, if a

disaster is to be avoided in 2018 and 2019, is the regulatory crisis that arises out of Brexit. To put it very simply: the PRA and FCA simply do not have the resources to cope with the urgent work that will be required if a hard Brexit is to come and, without knowing if the Brexit is to be hard or soft, their workload is undiminished by uncertainty as market participants try to ready themselves for every possibility.

As of January 2016, the PRA regulated around 500 UK insurers. In addition to these, over 700 EEA authorised insurers had been passported in to the UK. One aspect of the regulatory challenge concerns these 700 insurers. That aspect alone is daunting. Some of those 700 have operations in the UK. Almost all protect UK policy holders

who require safeguarding. After a hard Brexit, those insurers will need to be authorised in the UK or extract all of their operations from the UK.

To place the size of this task in context: only three new insurers have been authorised in the past three years and it takes two to three years to complete the task of authorisation.

Yes, it is true that all of those companies will already comply with Solvency II in their home jurisdictions but it is also likely that, rather than operating as branches, solvency considerations may suggest that they incorporate new subsidiaries.

This is but one aspect. Among others, UK authorised companies will need to restructure, possibly transferring portfolios. All of this requires regulatory oversight. Brexit may mean Brexit but for the PRA and those it serves, it means a massive logistical problem, the answer to which is not immediately apparent.

CLIVE O’CONNELLPARTNER, HEAD OF INSURANCE AND REINSURANCE MCCARTHY DENNING


“Brexit may mean Brexit but for the PRA and

those it serves, it means a massive logistical

problem”

2017 RISKS m

For the first time in human history more people live in cities

than in rural areas. And this trend will continue to intensify. By 2050 the UN expects 6.3bn people or 68% of the world’s population to be living in urban areas, with the fastest pace of urbanisation occurring in high growth markets.

That’s quite a number to take in, particularly if you consider that most of the world’s major cities have developed along the sea and natural waterways such as lakes and rivers. This means, that almost all large metropolitan areas are exposed to some risk of flooding, but also other natural hazards including storms and earthquakes pose a threat. Insurance penetration of cities in

high growth markets is relatively low and city infrastructure is often not insured at all, while risk exposure faced by metropolitan areas remains pretty much underexplored.

Natural disasters, along with other shocks such as human pandemics and acts of terrorism, are likely to materialise in urban locations and affect millions of residents. Strengthening the resilience of the world’s cities is an urgent priority. The growing concentration of people, assets and infrastructure means that the loss potential in urban areas is high and rising. This, combined with the gap between economic and insured losses, is not just a risk to monitor in 2017 but a threat for much longer.

These are uncertain times. Such times lead to opportunity for

those firms that are truly focused on their clients’ needs.

The elections in the US have caused what some people have referred to as “irrational euphoria” in the equity markets. Time will tell, but we actually see the market reactions as relatively rational.

While many questions remain unanswered about the ultimate direction(s) in which a Trump administration may head, this much is relatively certain: corporate tax rates will decrease; dollars presently held in limbo offshore will be repatriated; companies domiciled elsewhere will “come home”; and overzealous regulations on the financial and energy sectors will be tapered.

Add all this together and it translates into one word: jobs! Ergo, no one should actually be surprised to see the equity markets behaving

as they presently are.Looking ahead to what we see

as systemic challenges, we include cyber risk as the world’s greatest misunderstood and volatile risk to enterprise value. The insurance

market, for its part in this complex challenge, has not risen to the challenge at hand. We need to evolve to a level where true balance sheet and income statement protection is afforded to policy holders on a comprehensive basis.

The insurance broking space is struggling to adapt to rapidly increasing client demands. The need for real time, value added input, data, and product has never been greater.

The irony is that this very need has been concurrently met with the withdrawal by most global brokers from the very client-centric service models that clients so desperately desire.

In effect, clients have been cast adrift on a boat with no oars, sails, or engines. The broking firms that can deliver real-time expertise and client focus will best be positioned to thrive in the uncertainty that lies ahead.

MOSES OJEISEKHOBA

JAMES PIERCE

REINSURANCE CEO, SWISS RE

CHAIRMAN, JLT SPECIALTY USA

“Insurance penetration of cities in high growth

markets is relatively low and city infrastructure is often not insured at all”

“The insurance broking space is struggling to adapt to rapidly increasing client

demands”


m 2017 RISKS

The re/insurance market is in the early stages of substantial

transformation. The market entered 2016 with soft market conditions, low growth and tough trading, which show no sign of receding as we move into 2017.

The challenges are unprecedented and varied – the ability to underwrite cyber-crime, emerging insurance hubs challenging established centres, increasing regulation and abundant alternative capital. In essence, the industry faces substantial challenges in 2017. As a technology partner to the insurance industry, we have witnessed companies wrestle with the changing technological landscape because of the diversity and complexity of risk.

The digital barriers to innovation such as legacy platforms, duplication and re-keying have inhibited re/insurers from offering a truly

digital customer experience. We are seeing great opportunities arising from digital commerce and new technologies. The trends of the last few years around the growth of information, the rise of mobile use and the explosion of social media have become more established. The insurance industry must seek to capitalise on these shifts. Big

Data, Internet of Things (IoT) and Artificial Intelligence give rise to a new wealth of context-specific risk information. The question is, how does the industry exploit these new technologies to improve risk assessment and claims process?

One of the enduring and critical challenges for the industry is the need to once and for all tackle market complexity, legacy environments and modernise its infrastructure. A digital transformation can have a profound impact on an insurer’s results – potentially reducing the combined ratio of P&C insurers by over 20% through the better pricing and selection of risks, better visibility into the claims process, faster claims resolution and a reduction in fraud. The insurance industry needs to develop and build new credible and integrated business models.

PHIL RATCLIFFVICE PRESIDENT AND GENERAL MANAGER FOR GLOBAL INSURANCE, CSC

“Digital transformation can have a profound impact on results”

Following the steep fall in the price of oil and other

commodities, and the economic uncertainties this has generated, there has been a marked rise in political risk which has been felt most in high growth markets, where the income base is typically lower than in mature markets. Add to this the fact that dissent can be better articulated today (and more widely than ever before through social media), the risk landscape has changed. Of course each market needs to be considered on its own merit but this will continue to be a theme for 2017.

Expropriation, overt seizures of foreign assets by host countries, has by and large dried up over the past 30 years. So now a more pernicious methodology has emerged in extracting cash from multinationals, “policy risk”. This

is where a government will either deliberately change regulations/laws to boost tax revenues or will simply fail to enforce them so leaving the invested asset at risk. The commodities crunch has thrown fuel on the flames, with resultant adverse

swings in currency in some places, and political pressures in others. The symptoms of this are being felt and make it even harder to encourage investor confidence.

Managing this enriched style of political risk demands a fresh and far more analytically vigorous approach, as well as a tight grip on credit controls. Long gone are the days when you could rely on a country’s corruption ranking as a baseline to build your risk analysis. Instead having a detailed knowledge of the government, the judiciary and an in-depth knowledge of any upcoming regulatory shifts (or worse, the lack thereof) can help underwriters stay in front of policy risks and their impact on their client’s assets. This is particularly important for emerging markets where politics are often as important as economics.

BRENDAN PLESSISHEAD OF EMERGING MARKETS, XL CATLIN


“There has been a marked rise in political risk which has been felt

most in high growth markets”

2017 RISKS m

Reinsurers’ profitability will continue to deteriorate in 2017

as underwriting margins remain pressured by weakening pricing, and low investment yields persist. Industry capitalisation remains strong, but there is no clear catalyst emerging for a shift in reinsurance rates. Market turns can be provoked by a collective underwriting response to inadequate returns on capital or through more disruptive events that sop up ineffective underwriting capacity.

The expanded presence of alternative capital sources directed toward the reinsurance market is a unique new inhibitor for a near term reinsurance pricing turn, and adds uncertainty regarding what will drive the next hardening market.

Reinsurance pricing today appears far removed from the

late 1990s, limiting the risk of imminent large reserve deficiencies. Still, a further deepening of the current soft market increases the potential for inadequate pricing

and unintended risk aggregations as underwriters struggle to retain a shrinking business. Weaker quality underwriting combined with an unexpected jump in loss costs could lead to a sharp change in underwriting profitability and reserve experience.

Reinsurers also remain susceptible to a capital shock from other sources, including mega-catastrophe events, investment market volatility, or poorly conceived acquisitions.

M&A has grown in favour as a response to limited organic growth and competitive market stress through consolidation. But acquisitions present unique risk exposures, including: valuation errors from underestimating a target’s loss reserves, as well as significant integration challenge and regulatory uncertainty.

If there is one overriding theme for insurers in the coming year

it’s disruption. Long-established business models will be under pressure because of changes in technology and consumer behavior, but opportunities abound for companies that can innovate and adapt.

In property-casualty insurance, the expanding Internet of Things (IoT) will continue to open up new horizons for both personal and commercial lines carriers. We expect insurers to increasingly capitalise on the use of sensors in vehicles, homes, and businesses to facilitate new types of coverages and risk mitigation services based on real-time information.

For life insurers, IoT may offer transformation and growth opportunities as well. More life carriers are likely to start leveraging telematics to make their products relevant in the daily lives of their

customers by providing feedback on everything from diet to exercise, and perhaps offering healthy living incentives to secure retention – from lower premiums at renewal to discounts for participating health and wellness service providers.

The revolution in mobility will also have far-reaching effects on insurers. The rise of autonomous

vehicles and ride-sharing will not only change how people and goods get around but how roadways and urban centres are designed. It will also affect longevity and the quality of people’s lives well into retirement.

Also on the tech front, look for more life and annuity writers to tap underserved markets through the use of robo advisors. Others may consider leveraging concepts from the world of behavioural economics to help develop more effective marketing and sales approaches.

There are regulatory challenges ahead for both sides of the business, too, including implementation of the Department of Labor’s fiduciary standard and new rules being developed on capital standards, market conduct, solvency, and cyber risk management.

Our advice is be proactive and flexible. Nimble will be the new normal for insurers in the years ahead.

BRIAN SCHNEIDER

GARY SHAW

SENIOR DIRECTOR, FITCH RATINGS

US INSURANCE LEADER, DELOITTE

“Industry capitalisation remains strong, but

there is no clear catalyst emerging for a shift in

reinsurance rates”

“Opportunities abound for companies that can

innovate and adapt”


m 2017 RISKS

2017 looks to be a year where it will be more of the same –

continued excess of capacity driven, in part, by the wave of capital market interest in reinsurance. Some might argue that “the hard market” is a thing of the past thanks in part or in whole to the pent up demand for re/insurance risk from this capital source.

However, is there a new risk moving into view on the horizon? As we progress towards the back end of the first quarter of the 21st century, will cyber be the systemic risk that creates a similar schism to that provided by asbestosis or the “spiral” in a bygone era? Cisco estimates that there will be more than half a billion individual household appliances linked to the internet by 2020, also known as the Internet of Things or IoT.

Until recently the IoT was viewed as a futuristic ideal, or something

that only affected larger, more global companies, but this is no longer the case. It is disruptive, it is innovative and its impact on the wider insurance industry is already being felt. Early adopters have established a compelling

proposition by demonstrating how this data can be used to grow a business, better understand customer preferences and improve risk assessment.

Yet this development is not without risks. As this dynamic starts to take hold and the shared economy becomes the norm rather than the exception, we need to find effective ways to generate products that manage the cybersecurity and privacy risks.

A recognition of this dynamic has led Capsicum Re, along with its joint venture partner Arthur J Gallagher, to heavily invest in the skills required to structure, price and distribute these risks on behalf of our customers. Although as yet not quantified, we feel sure that this class of exposure will be on the list of things that keep risk managers and CEOs awake at night in the upcoming future.

RUPERT SWALLOW CEO, CAPSICUM RE

“Some might argue that ‘the hard market’ is a

thing of the past”

2017 is set to be another positive year for the run-off sector.

Several mid-sized and small UK EL books are likely to come to the market, after deals were concluded for many larger portfolios in 2016. Because they have many decades to run – the reserves won’t settle for 15 or even 20 years – they will be asset plays by the buyers.

The trend of shifting portfolios deemed non-core into the legacy market is also set to continue in 2017, and even to gather pace. The tactic is gaining ground as companies move towards greater geographical and/or line-of-business focus. Solvency II, in its second year next year, will advance as a business incentive for such decisions. A few companies in continental Europe have shrugged off cultural resistance to run-off, which will help more non-core portfolios reach the market for

operational reasons.The US will test Rhode Island’s

amendments to its ‘Insurance Regulation 68’ in 2017. The new rules allow portfolio transfers

under a mechanism akin to a UK Part VII transfer, and could prove a game-changer for US run-off. We anticipate cautious initial experiments, followed by a flurry of activity if they prove successful.

The 2017 run-off pricing environment is less certain. Despite a generally positive 2016, deals were characterised by competition-driven pricing. Some look, to me at least, to be uneconomic. I am optimistic, but with potential new entrants like Fosun and Arch Re on the horizon, a general improvement in the market pricing of legacy portfolios will be achieved only through a tenacious effort by everyone in the business.

With interest rates set to remain stubbornly below the level where investment income will cover operational costs, improved pricing has to be one of the sector’s New Year’s resolutions.

NICK STEER CEO, COMPRE GROUP


“The trend of shifting portfolios deemed

non-core into the legacy market is set to continue

in 2017”

2017 RISKS m

DAN TRUEMANHEAD OF CYBER, NOVAE GROUP

I take a positive view of the prospects for Lloyd’s and the

insurance market this year. While there are undoubtedly challenges to be addressed, 2017 will be the year that the ethos of entrepreneurialism will demonstrate the market’s worth and prove it able to take up new opportunities, even when they present themselves as difficulties.

First, the appointment of a new chairman of Lloyd’s, this could be seen as creating uncertainty and possibly change but I believe once the process is concluded we will quickly see a renewed direction and impetus for the market. The focus might well be on improving profitability and expanding the market’s reach, geographically and by business line, with the innovation and entrepreneurialism upon which Lloyd’s has built its reputation, at its heart.

Secondly, the decision to leave the European Union need not be all bad for Lloyd’s. The unrivalled history of international engagement the market has built over the past

330 years, not least the experience Lloyd’s has of operating through a network of international licences and agreements, will serve the market well, perhaps in a way that exceeds the capacity of more typically structured insurers to do so.

Finally, when thinking about the entrepreneurial capabilities of the market to deliver success, it would be wrong not to touch on the very great benefits that start-up MGAs are bringing and will continue to bring during 2017, particularly in terms of new business and technologies across all sectors of the market.

Asta is focused on providing an environment where new insurance businesses can flourish, and despite the challenges 2017 may present, I’m sure it will be another successful year for insurers.

Cyber security is an issue dominating business agendas

across the globe and is set to continue throughout 2017. The growing number of incidents, increased publicity of the risks, our growing reliance on digital infrastructure and the ever changing geopolitical events have propelled this risk from being perceived as an IT issue to an executive level concern. The reality is it is now a case of ‘when’ not ‘if ’ a business will suffer a cyber breach and one of the growing concerns is the threat to an organisation’s brand and reputation.

Reputation is one of the most valuable and vulnerable assets a business has. Research by Ocean Tomo found that the intangible asset value of the S&P 500 grew to an average of 84% – a 52% growth from 1985 – which highlights the importance of protecting and insuring these assets. Reputation can be significantly damaged by

everything a company does and doesn’t do following a cyber-attack. A KPMG survey conducted among UK businesses found that 89% of those who had suffered a breach felt it impacted their reputation, with 31% reporting damage to their brand and 30% stating it led to a loss of clients. Competition is fierce and customer attrition is a serious threat for businesses, so mitigating

the reputational risk is a critical step in protecting commercial interests.

We only have to look at recent high profile hacks to see this. In the aftermath of TalkTalk’s data breach, its share price fell by a third, it was hit with a record fine of £400,000 by the Information Commissioner’s Office and it lost 100,000 customers, which goes to show the effect when consumers lack confidence in an organisation’s cyber security and its ability to safeguard data.

The volume, sophistication and nature of cyber-attacks is ever changing; firms need to understand how they will respond and how they are going to manage the impact to their reputation. Now is the time to be developing and implementing a culture of resilience, considering the company’s risk profile and understanding how to protect core assets, such as reputation, from the potentially damaging consequences of a cyber-attack.

JULIAN TIGHE CEO, ASTA

“Despite the challenges 2017 may present, I’m sure it will be another

successful year for insurers”

“The reality is it is now a case of ‘when’ not ‘if’ a business will suffer a

cyber breach”


m 2017 RISKS

With the recent discussions surrounding the Paris and

Kyoto agreements, global leaders are still struggling to find a common ground on how to deal with environmental emissions. But the issue still stands: the earth is heating up and the planet is reacting with major changes in weather.

This is having a major impact on the global livestock industry and creates substantial opportunities for insurers to provide livestock owners with cover against loss of animals as a result. On a recent journey to Latin America I came across a story in the newspaper that two million cattle died in a flooding in Bolivia. But it’s not just the obvious impacts of the apparently contradictory global warming impacts of flooding and drought.

Climate change can also impact productivity, through animal stress and reduced fodder

quality, exacerbate and speed the progression of disease epidemics. For farmers there are also increased prices for feed and energy.

Livestock security and the ability of cattle farmers to stay in business are important against a background of a global population forecast to grow from 7.2bn to 9.6bn in 2050. At the same time, growing incomes and urbanisation will bring an increasing demand for meat and milk, which are expected to increase by 73% and 58% 2050 on 2010.

The right sort of insurance cover can reduce the economic risk for livestock businesses and represents a major emerging risk and opportunity for the insurance industry to further develop the right tools to help farmers manage their risks.

ROBERT WELLSSENIOR UNDERWRITER, GLOBAL LIVESTOCK, MARKEL INTERNATIONAL

“The right sort of insurance cover can

reduce the economic risk for livestock

businesses”

It may not be a major surprise to hear that cyber will be one of

the major risks the market will be considering in 2017, but it is a risk that is evolving at a fantastic rate.

As most insurers in Europe know, there is a considerable change coming down the track with the General Data Protection Regulation coming into force this year. The GDPR harmonises the data protection laws across the EU and ensures the regulatory framework is able to cope with the implications of the Big Data era. Businesses are now going to be held to a much tighter set of rules.

The implications for businesses and insurers alike are considerable. We surveyed European businesses which revealed a mixed picture in terms of readiness for the regulations but also the real impact that cyber breached could have on their business.

Cyber has been an area of growth for insurers over recent years, but as our world becomes more connected through the internet of things and more businesses switch to intangible assets insurers will need to respond.

Back in 2015 Lloyd’s published “Business Blackout” which assessed the impact a cyber attack on the US power grid would have on the economy, services and local infrastructure. But to show how quickly the environment has changed, there was no mention of the “internet of things” for example.

Now, we take for granted the level of connectivity that will drive so much of our domestic and business lives in the future. This inevitably means the risks from cyber breaches are more widespread. The growth of ransomware, brought disruption to the San Francisco transportation network in November is an example of what businesses must now prepare for. Essentially this connectivity means there will be more potential ways in for those hackers who want to attack businesses, government and key infrastructure.

VINCENT VANDENDAELDIRECTOR, GLOBAL MARKETS, LLOYD’S


“As more businesses switch to intangible

assets insurers will need to respond”

2017 RISKS m

There has been an ongoing political and insurance industry debate over how to provide

more affordable and robust flood coverage, than currently provided by FEMA. As the 2017 FEMA expiration looms near, the question becomes all the more pressing. The scales are beginning to tilt to privatize flood versus keeping the coverage in the NFIP.

Enterprising insurance and reinsurance companies are entering the flood space in a variety of ways, by seeking to capitalize on the perceived deficiencies of the NFIP in a record-soft market. These include:

c Providing bolt-on solutions or pass-throughs;

c Adding flood onto the homeowner’s policy;

c Offering stand-alone flood protection.

Flood bolt-ons facilitating growthCurrently reinsurers are offering various pass-through options to help both insurance and reinsurance companies grow their portfolio. The reinsurance underwriter can leverage their own expertise and provide value to their clients through:

c Strategic Partnership / White Label products;

c Automatic facultative arrangements;

c Other Treaty Reinsurance arrangements.

Gaining efficiencies by combining wind and floodOne primary niche carrier has already begun offering flood coverage endorsements, therefore eliminating the need for the flood exclusion in the homeowner’s policy. The endorsement provides coverage for direct physical

loss by or from flood under a common wind/flood deductible.

There are several benefits:

Claims leakageThough flood plain maps are still evolving, protection is straightforward from a riverine flood. On the contrary, for surge-based flooding, insurance companies face the additional cost of identifying and settling wind versus water claims. A combined policy resolves the loss adjustment conundrum by reducing expenses for the insurer and providing clarity to policyholders.

During a hurricane, coastal properties often face a barrage of both strong winds, and an impending surge of water pushed on shore by the storm system. While roof damage and flooded basements are obvious, there is often ambiguity as to whether wind or water caused damage. Because of this uncertainty, a portion of the flood loss may be paid for by the primary policy, which would otherwise be excluded. This “leakage” has insurance and reinsurance companies searching for how to quantify, or price, for inflated losses due to flood.

In support of privatization is the elimination of this claims ambiguity. Companies assess a risk for wind and flood, and are able to price accordingly. Unless there are different limits available for wind versus flood,

30 Holborn


To Be or Not to Be…PrivatizedA look into some of the movements recently made to facilitate privatization of flood coverage in homeowners insurance.

To Privatize● Plenty of capital in the industry● Advances in risk modeling● Governmental limitations● NFIP is in debt

Not to Privatize● Black swan type of flood event may be better protected by NFIP● Increased requirement for homeowners to purchase flood insurance● Loss of centralized data collection to measure risk● Complexity of unwinding the NFIP

31

the benefits to adjusting these claims are: removal of causation questions and reduction in settlement time, benefiting both for insurers and their reinsurance partners.

Operational savingsAn insurer is able to realize bottom-line operational savings, while simultaneously reducing their agent partners’ expenses, who only need to interface with one underwriter and claims adjuster and manage a single policy document / language. Agents also benefit from possible lower E&O exposure by avoiding coverage gaps and having a common inception date.

Despite the noted savings, the one critical cost to this process is the operational addition in both adding to the risk management and enhancing, training, and building changes to the underwriting process. Some of this may be mitigated by a reinsurer bolt-on product, where reinsurers are providing support from both angles.

Flood mappingPost event, properties and surrounding structures may have made significant changes that affect the landscape of the flood risk – possibly not reflected in NFIP produced maps. A consumer could lower their rates by petitioning the accuracy of these flood maps. In some cases this could create a gap between

risk potential and premium charge. With a privatized approach, fair market competition may be the better vehicle to reflect the most recent state of affairs and ultimately benefit the consumer.

Getting paid for the exposureWhile LAE costs are managed, exposure from flood does increase for an insurance company. This may result in additional reinsurance protection,

further capital support, and/or additional bolt-on flood products. Despite this increase, insurance companies are explicitly getting paid (should they price it appropriately) for the risk they’re taking, rather than suffering claims leakage.

Stand-alone flood protectionThe possibility of offering a stand-alone flood protection is facilitated by industry-wide capital management and bolt-on products / services offered by reinsurers. One key benefit is to have the flood risk robustly underwritten by experts in the field, and who are responsible for managing

their overall risk to the peril.That said, the above-mentioned

industry and consumer efficiencies are not realized in this scenario. In fact, an additional layer of difficulty will be generated in this approach for the residual markets. In the case where a carrier wants to cede a wind policy to a wind pool or property residual market which would, in turn, require flood insurance from an approved carrier (i.e. NFIP and not the one

listed), there may be two losers: the insurance company for needing to retain the risk and/or the consumer in needing to rewrite their policy for protection.

Flood privatization is clearly on the forefront of the insurance industry’s mind with PCI including it in the forefront for the 2017 Agenda. What the final design is could be any combination of the above.


Holborn

“ Enterprising insurance and reinsurance companies are entering the flood space in a variety of ways, by seeking to capitalize on the perceived deficiencies of the NFIP”

By Stephanie Gould Rabinwith contribution from Dane Lemeris

2016 is likely to be seen as the year that the brakes were applied to

globalisation. Not only have the world’s high growth markets across Asia, Africa and Latin America started to slow the process of liberalisation, mature markets are also experiencing a popular backlash against trade deals. The UK’s Brexit vote has fed into nationalistic fervour all around Europe, while the election of Donald Trump in the US has put the skids under the Transatlantic Trade and Investment Partnership (TTIP) and the Trans Pacific Partnership (TPP) deals.

A report earlier this year from the World Trade Organisation (WTO) found that between mid-October 2015 and mid-May 2016, WTO Members applied 154 new trade restrictive measures, amounting to 22 new measures per month. The rate compares with an average of 15 measures per month for the same period the previous year and is the highest monthly average registered since 2011.

Reinsurance companies have more to lose from a shrinking global market than most businesses and so recent


32 Protectionism

developments are causing growing concern in the sector.

“In the bigger picture, protectionist measures on a whole economy basis are increasing. Statistics show that there’s an increasing tendency towards more trade hurdles,” says Astrid Frey, an economist in Swiss Re’s economic research and consulting team.

“For the reinsurance industry, protectionism poses an existential threat. Its whole business model hinges on the ability to pursue global diversification. So it is crucial that protectionism doesn’t take hold in the reinsurance marketplace.”

Not surprisingly, industry lobby groups such as Insurance Europe and the Global Reinsurance Forum (GRF) are speaking out more loudly on what they see as a very worrying – even self-destructive - trend for restrictive trade practices in different countries.

Lloyd’s CEO Inga Beale, who chairs the GRF, recently published a list of 28 countries which have either implemented,

or are in the process of implementing, barriers to the transfer of risks through global reinsurance markets, citing “an increasing worldwide trend, which undermines the efficiency of reinsurance markets”.

Insurance Europe is also worried about what it calls the damaging aspects of protectionism. Cristina Mihai, head of international affairs and investments at Insurance Europe, believes that there are no reasons to justify the costs and losses that protectionist measures bring to local economies and their re/insurance markets.

“In fact, protectionist measures undermine, rather than strengthen local re/insurance markets. The reinsurance business is, by definition, international. As such, geographical diversification is at the core of its nature, and is challenged whenever authorities decide to take protectionist measures,”

No entry – reinsurance protectionism on the riseGlobalisation isn’t what it used to be and protectionist barriers are going up around the world, defying the diversifying logic of reinsurance critics say.

A number of countries have been highlighted recently by industry lobby groups worried about increasing protectionist tendencies. The Global Federation of Insurance Associations (GFIA) says that while it welcomes the recent changes in India’s insurance law that allows foreign reinsurers to set up branches onshore, it is concerned that a right of first preference conferred on the state-owned reinsurer, “is not consistent with other reinsurance regulations around the world”.

Regulation 28(9) requires all ceding companies in India to obtain at least four quotes for reinsurance contracts - one from the domestic reinsurance monopoly, and three from foreign reinsurer branches. The ceding company must first offer the quote and business that it deems to be best to the domestic reinsurance monopoly, before choosing the reinsurer that first offered best terms. The effect is to give the Indian reinsurance monopoly a “first order of preference” on all reinsurance business in India.

Munich Re, Swiss Re, Hannover Re, Scor, Lloyd’s, and Reinsurance Group of America have all recently received initial licence approvals from the Indian authorities.

In a briefing on protectionism, Insurance Europe (IE) noted that in Argentina, cross-border foreign reinsurers are only allowed to provide coverage for the portion of a risk above $50m and for retrocession services.

There are also rules being considered that would increase local reinsurer’s retention to 75% for life and health, and 25% for property and casualty by 2017.

In Brazil, a number of limits on cessions to foreign affiliates are in place and are also likely to increase over the coming year, up to 75% in 2020, IE’s note said. In addition, local retention limits apply and foreign reinsurance branches are prohibited.

In 2015, the Ecuadorian regulator enforced compulsory retention of 95% for individual life, group life, personal, health and motor reinsurance.

Cristina Mihai, head of international affairs and investments at Insurance Europe, says the recent development in Africa’s CIMA countries creates significant barriers to the supply of cross-border reinsurance, and practically removes the ability of European reinsurers to write specific types of business there (see main story).

Although the China Insurance Regulatory Commission is expected to grant more reinsurance licences to foreign players within China in the years to come, it’s C-Ross rules favour the build-up of a domestic reinsurance industry, by landing insurers that buy reinsurance with offshore providers with higher capital charges (see tables).

In Indonesia, following the merger of its four state-owned reinsurers into Indonesia Re, the Indonesian insurance regulator recently announced regulation introducing compulsory local reinsurance cessions. Similarly in Vietnam, Decree 73 imposes restrictions, in certain circumstances, on the amount of risk and premium that can be transferred by insurers to reinsurers outside the country.

Reinsurance restrictions roll out across high growth markets

33


Protectionism

Mihai says.It’s widely

agreed by supporters of open market practices that discriminatory regulation applied to cross-border reinsurers fundamentally weakens the strength of any local re/insurance market by reducing access to international reinsurance capacity and risk management expertise. It counteracts the diversification of risks and goes against the alignment of global regulatory standards and best practice.

There’s also the issue of financial stability when a big catastrophe strikes, as losses can be dangerously concentrated within domestic insurers and reinsurers, forcing state intervention, rather than being globally distributed.

Are there any good reasons for restricting the access of “foreign” reinsurers in emerging markets? Peter Schmidt, XL

Catlin’s chief executive for Asia Pacific and also Latin America says no, at least not from a purely economic point of view, because countries should aim for the lowest possible price for risk transfer.

“That it not to rule out that there might be valid conflicting objectives such as alleviating pressure on the current account, obliging foreign reinsurers to invest locally in order to participate in a market or the desire to facilitate the development of national reinsurance carriers,” Schmidt says. “As comprehensive as these objectives might be, they will inevitably come at the

expense of higher costs of risk transfer which will ultimately have to be borne by domestic policyholders.”

Corneille Karekezi, CEO of Africa Re, the largest reinsurer on the continent, takes an

understandably nuanced view of protectionism. Africa Re has privileged access to at least 5% of treaty cessions from insurers and reinsurers across the 41 member countries of the African Union.

Karekezi cites retention of premiums at a national level to finance local economic projects, retention of taxes through

CONTINUED ON PAGE 34

“ Protectionist measures undermine, rather than strengthen local re/insurance markets”Cristina Mihai, Insurance Europe

Risk factors of insurers’ ceded out to offshore reinsurersSolvency adequacy ratios meet regulatory requirements at all levels

Reinsurers’ solvency adequacy ratio

Credit risk factors (%)

With Collateral 8.7

Without Collateral 58.8

Partial or all solvency adequacy ratios not meet regulatory requirments

86.7

Source: China Insurance Regulatory Commission (CIRC) / Standard & Poor’s

Risk factors of insurers’ ceded out to onshore reinsurersReinsurers' solvency adequacy ratio

Credit risk factors (%)

200% or above 0.5

150%, 200% 1.3

100%, 150% 4.7

Source: China Insurance Regulatory Commission (CIRC) / Standard & Poor’s

taxation of local insurance players and the development of local markets and expertise through access of local players to underwriting of risk all as valid reasons for market controls.

“However, in some markets, protectionism resulted in poor service (denial or delay in claims settlement) to the populations, especially where a monopoly prevailed, the entitlement attitude and complacency of local players, often demonstrated by a persistent low insurance penetration and the lack of innovation which can be seen through scarcity of innovative products and reluctance to embark in low income insurance schemes,” he concedes.

“There could be problems where care is not given to issues of capacity and the ability of local markets to absorb risk, and also with quality of service where there is a monopoly or a quasi-monopoly.”

Karekezi thinks a sense of perspective is important too, however. “But [in Africa] we have yet to see a national market collapse or [a big insurer] need bailing out in the way AIG was. Nor have we yet seen a problem with a major loss that proved to be under-insured,” he adds.

Asia-Pacific veteran Franz Josef Hahn, CEO of Hong Kong-based Peak Re, says there’s been a swing back towards protectionism in the region, partly due to an upsurge in nationalism in some countries. But he too warns against generalising around perceived protectionism and contrasts the different approaches taken by China and Indonesia as an example.

“In China, C-Ross [Solvency II-style regulatory capital] measures are a push by the


34 Protectionism

regulator to help the industry grow in a sustainable way and to define risk charges differently to how they used to be under Solvency I. This is a welcome step. A part of it does involve an extra capital charge on insurers seeking reinsurance outside China,” he says.

“It’s important to accept that China is a continent on a par with the US and it has to develop its own rules. Its measures are not linked to protectionism or nationalism: the CIRC is shaping the form of its market. Even if foreign reinsurers do feel the pinch, we have to understand the market is trying to stabilise itself,” Hahn explains, pointing out that other markets have similar regimes, to do with collateralising risk –

in the US for example.The situation in Indonesia,

with its compulsory cessions to the national reinsurer, in contrast, leans more towards protectionism. There, compulsory cessions are mandated before reinsurance can be placed on a cross-border basis and the treaty leader must be an Indonesian reinsurer.

“Indonesia does not allow foreign reinsurers to open any branch in the country so this development represents a relatively stringent step. China, on the other hand and in comparison, is more open: ‘these are our rules, we are a member of the WTO and we treat everyone the same, please come in’,” Hahn says.

For Indonesia, by pooling reinsurance and channelling it through the national reinsurer, it potentially benefits the Indonesian economy as a whole, through the tax receipts obtained, Hahn concedes. “But the big risk is under protection. The Indonesian regulator will have to build up very strongly the capabilities of the national

Indonesian reinsurer(s) as they will be exposed to concentration risk. It may also hinder the domestic insurance market in terms of innovation and growth,” he says.

In Africa, new insurance and reinsurance regulations from CIMA (Conférence Interafricaine des Marchés d’Assurances) the regional body of the insurance industry for 14 countries in Francophone Africa, has caused a stir among international reinsurers.

Its stated aim is to encourage the retention of insurance and reinsurance premium in the zone so that insurance companies can play an increasing role as institutional investors in member countries.

Not only has it mandated a five-fold rise in capital requirements over the next five years on insurers, it prevents companies from ceding more than 50% of their risks abroad. The same goes for life, health, motor and cargo primary business.

A third measure to limit the outflow of premium abroad through reinsurance obliges reinsurers to set up offices in the CIMA zone.

“In our opinion, the goal of the measures is not protectionism by countries of the CIMA zone, because international players are given the opportunity to open offices in the zone,” Karekezi says. “The purpose is to increase the funding of the economies of the countries of the CIMA zone, as well as the income that could be earned by governments from the insurance sector through tax on insurance and reinsurance premiums.”

Again, Karekezi acknowledges the risk of international reinsurers walking away from Africa and the potential loss of capacity and know-how at an important time in the region’s development. “To conclude, although we feel that the measures taken by CIMA are legitimate, the establishment and activities of international players, in our opinion, should be made easy,” he says.

It’s a similar, evolving picture

“ It’s likely that if the Trump administration did take any protectionist steps that there could be a backlash from other countries”Astrid Frey, Swiss Re

Protests against protectionism are usually aimed at emerging markets by mature markets. But with nationalist politics gaining purchase in Europe and in the US, free market flag bearers are crying foul there as well.

In an unexpected turn of events recently, US reinsurers have been warned by some national regulators against doing business in Europe with European cedants. It’s happened despite the US being granted provisional equivalence under the Article 227 of Solvency II Directive in 2015.

It appears that a number of EU member states have included provisions in their national Solvency II rules that effectively differentiate between the direct market access rights of reinsurers from equivalent jurisdictions – like Bermuda and Switzerland - and that of reinsurers from non-equivalent third countries – such as the US.

In what’s effectively a gold plating of Solvency II, Germany, Belgium, Austria and Poland have decreed that reinsurers may only conduct reinsurance business in their markets through a local branch and subject to an authorisation by the national supervisor.

The attendance of reinsurance underwriters from the US at October’s Baden-Baden renewal meeting was even put in doubt when it became clear that the German regulator Bafin was taking a hard line.

The crucial wording from Bafin said that carrying on business in Germany “does not only include the execution of legal

transactions, but also the main steps leading up to signing the contract as well as the performance of the contract”.

That includes “employees of the third-country insurance undertaking visiting customers with the aim of concluding reinsurance contracts in order to offer reinsurance contracts to German insurers or to initiate such business”. They cannot be helped by a professional intermediary in Germany or a professional intermediary situated abroad but acting as intermediary in Germany.

However, if third country re/insurers are willing to jump through hoops, they can do business by correspondence (korrespondenzversicherung), Bafin said in its guidance: “This is assumed to be the case if the contracting parties make use of the usual methods of communication such as telephone, fax, e-mail or post.”

Peak Re CEO Franz Hahn says it is still unclear how the responsibility will be split between EU-level regulator Eiopa and EU member state regulators. “Who is responsible for accrediting reinsurers in the various markets? If you are accredited in an equivalent country like Switzerland, are you then automatically accredited to operate in Europe?” Hahn says. “The EU is able to put down rules on the shape of bananas but it can’t tell us what shape reinsurance rules should be!” Hong Kong based Peak Re is in the process of establishing a subsidiary in Switzerland.

Bafin’s move hasn’t gone down well in the US. Frank Nutter, who heads the

Reinsurance Association of America, said in a note that, “it looks as though US reinsurers could actually lose clients and business in the upcoming renewals season because they cannot legally underwrite in some European countries after the implementation of Solvency II… The effect is that it is prohibiting some current business relationships to continue on the basis that these companies have to place capital and have a legal presence in those countries.”

It had been hoped by many in Europe and in the US that negotiations for a covered agreement between the EU and the US regarding trans-border reinsurance would address the issue. “The agreement should seek some form of mutual recognition of the regulatory regimes so that companies doing cross-border business can do it based on the regulation in their home jurisdiction,” Nutter said.

A covered agreement is an agreement between the US and one or more foreign governments, authorities or regulatory entities, regarding prudential measures with respect to insurance or reinsurance.

US and EU representatives last met in Brussels in November to discuss matters relating to group supervision, exchange of confidential information between supervisory authorities on both sides, and reinsurance supervision, including collateral.

But with the election of Donald Trump, hopes for a covered agreement being concluded any time soon are receding fast.

Now European markets deny access to foreign reinsurers

35


Protectionism

in Latin America, according to XL Catlin’s Schmidt. “We are seeing a tendency for limiting intra group cessions and setting a minimum for local cessions. In Argentina, for example, foreign reinsurers must set up and capitalise a local branch in order to avoid restrictions imposed on cross-border trade,” he says.

“In addition, foreign reinsurers have to comply with minimum local retention and maximum intra-group retrocession requirements. Due to these practices, which we also see elsewhere, the ability for risk diversification cross-border is reduced. Potentially that weakens the domestic insurance markets in these countries.”

Schmidt thinks that protectionism can only increase in the current political climate.

“We are currently witnessing a backlash against globalisation. The multilateral system of trade liberalisation is in crisis and even regional trade agreements are facing stiff resistance. Therefore, our industry is likely to have to cope with additional protectionist measures,” he says.

Hahn agrees. “As reinsurers we now have to watch how nationalism is moving on, not only in the US, but also in Europe. Specifically in Germany and also in Belgium, we see impractical restrictions being imposed on foreign reinsurers [see box story]. By comparison, China’s ‘restrictions’ are relatively practical and transparent.”

Swiss Re’s Frey believes it’s too early to predict how President-elect Trump’s protectionist tendencies will play on

reinsurance, on the basis that he will have to work with a Republican US Congress – and Republicans are generally pro-free trade.

“It certainly seems more likely now that we won’t see TTIP or TPP materialise. Also it’s likely that if the Trump administration did take any protectionist steps that there could be a backlash from other countries, including in the reinsurance segment.

“In Latin America for example the governments generally have a pro-liberalisation stance that won’t reverse in the short term. But if we have a really protectionist administration in the US it could backfire in that region in the coming years,” Frey believes.

c By Garry Booth – [email protected]

The year 2016 shall be remembered as the year of political upheaval, as

citizens in the western world voted for measures going directly against what the media and outside observers thought they would, or should do.

From Britain to Colombia, the populist streak sweeping the globe seemed to culminate with the US election of Donald Trump as President, something that multiple polls had listed at a less than 10% chance of happening.

At the Property and Casualty Insurers Association of America (PCI) conference in Dallas earlier in 2016, everyone from brokers to reinsurers believed that Hillary Clinton would win handily and that re/insurers should be preparing for how her presidency would affect them.

Following Donald Trump’s surprise victory, David Sampson, president of PCI expressed tentative optimism at the notion of a Trump presidency.

“PCI looks forward to opportunities to work with the Trump administration and the new Congress to strengthen private competitive insurance markets for the benefit of consumers,” he said


36 US election

Trump’s election sparks speculation

in a statement released by the organisation.

“We anticipate more opportunities to push for international insurance legislation that puts guardrails on Treasury and the Fed’s negotiations abroad,” he added.

However, it is no secret that with the election of Donald Trump, the US re/insurance and financial industries as a whole are facing an unclear future that could prove either beneficial or disastrous.

While many in the market are uncertain about how Donald Trump’s presidency will affect their business, he was actually the preferred candidate by re/insurers in March 2016 according to an AM Best survey, when Ted Cruz, Marco Rubio, Ben Carson, Hillary Clinton, and Bernie Sanders were all still in the race.

Overall his campaign was run on the three promises of protectionism, reducing taxes, and deregulation, without much specific information about how he would actually go about each.

The Republican’s clean sweep of the White House, Senate and House of Representatives has given hope that the endless policy gridlock that has persisted, especially during President Barack Obama’s term, will come to an end.

However, it remains to be seen if established Republicans will be willing to work with Trump, who

many see as an outsider even within his own party.

While some of his stated policies could have overall negative economic impacts, there are several silver linings for re/insurers according to Eric Dinallo, and David Grosgold, partners at Debevoise & Plimpton.

“The single most important potential change in the next four years would be rising interest rates,” according to Dinallo.

“Insurance companies have to invest in conservative investments, that are very rate sensitive, and it has been hard to make a profit in such an environment,” he added.

This sentiment was shared by Dan North, chief economist at Euler Hermes, North America.

“The Fed is still expected to hike interest rates in December,” he said.

“The economic effects of his election will likely include an increased deficit due to stimulus measures of lower taxes and more spending, and a significant risk to growth from anti-trade policies. However the removal of uncertainty could spur consumer confidence and spending, and may give businesses the confidence to resume investment,” he added, highlighting the stability that a coherent economic policy could bring.

The possibility of higher interest rates could also be

The election of Donald Trump as the next President of the United States has left some in the industry content, and others decidedly less so.

37


US election

coupled with rollbacks of what many in the industry feel are heavy handed regulations born from the financial crisis of 2007 and 2008.

Donald Trump has already suggested a dismissal of segments or the complete totality of regulations set forth for financial institutions through the Dodd-Frank act. This would be a boon for re/insurers, especially as it applies to the Financial Stability Oversight Council (FSOC) and their designation of certain insurers as systemically important financial institutions.

However, even if Donald Trump does gradually pull back federal regulation of re/insurers, it could lead to unintended negative consequences for the industry.

“Regardless of Trump’s victory, federal agencies are historically less active in a republican administration. The saying goes, ‘if you can’t achieve something through legislation, then you shouldn’t change it though administrative activism’,” said Dinallo. “State lawmakers become much more energetic when it comes to regulation because the feds are less so, something that explains the rise of Elliot Spitzer (at the time, New York attorney general) as the ‘Sheriff of Wall Street’ in 2003.”

According to Dinallo, some re/insurers could see a rise in sales practice reviews, market conduct exams, and other state regulatory practices if federal agencies decide to back off.

A proposed tax cut for businesses from the current rate of 35% to 15% would also be positive for US companies.

In fact, such a rate would bring the US corporate tax rate below that of some nations considered “tax havens,” such as Luxembourg and Belize, possibly incentivising more companies to remain or become headquartered in the US.

“Any reduction in the corporate tax rate would be extremely welcome by the industry, and maybe reduce the prevalence of offshoring,” said Grosgold, referring to many insurers’ tendencies to set up shop in

countries with a low or non-existent corporate tax, such as Bermuda, which has become a reinsurance powerhouse.

His plans to incentivise businesses to remain in the US could prove tricky, however, in such a global, decentralised economy.

Trump’s ambitious $500bn infrastructure spending plan could also be a plus for insurers in construction markets and the like, simply on the basis that they would have more business to insure according to Grosgold.

But while a Trump presidency could have positive implications for the industry, not everyone is pleased with the election results.

For example, Swiss Re’s chief economist, Kurt Karl, has warned that a return to protectionism could have a

significant negative impact on the global economy.

The most immediate concern is the uncertainty of what a Trump presidency could mean for the overall economy.

Even his proposals that would benefit insurers are uncertain to come to fruition.

Much of his suggested legislation could also lead to a mild, or major, economic recession, which would also adversely affect the industry.

Trump has expressed willingness to pull out of certain international trade deals, and has threatened to levy tariffs on certain foreign goods, including a 45% tariff on imports from China, which would almost certainly ignite a trade war between the partners and adversely impact the overall economy.

Many of his fiscal policies would provide a short-term economic stimulus, but would also cause large budget deficits, and long-term inflationary pressures according to reports from Swiss Re and others.

According to Pictet Asset

Management, Trump’s proposals would lead to a sizeable increase in the US budget deficit.

“Based on the projections of the non-partisan Council for a Responsible Federal Budget, we estimate that the budget deficit will average around 6.1% of GDP per year over the next 10 years, up from 3.1% now,” the company said.

Some of his proposals would not even be allowed under US law, including his plan to place tariffs on Chinese goods. The President can only impose tariffs of up to 15% for 150 days unless the country is in a state of emergency, or otherwise impose any amount of tariffs on individual commodities, something that President Barack Obama did for tire imports in 2009.

The insurance markets that will be most obviously impacted by Trump’s proposals made while campaigning will be the life and health sectors, which are gearing up for the possible repeal, or at least altering of the Affordable Care Act.

Those markets are also expected to see a rally due to the defeat of Hillary Clinton, whom it feared would introduce pricing curbs.

Despite the uncertainty that Donald Trump promises to bring, the industry as a whole remains more-or-less positive and willing to work with the new Administration.

“While it is too early to fully appreciate the incoming Administration’s priorities and legislative initiatives that might impact the property/casualty industry, we anticipate we will successfully advance our policy objectives by working with both the Administration and Congress,” said Frank Nutter, president of the Reinsurance Association of America.

“ Any reduction in the corporate tax rate would be extremely welcome by the industry, and maybe reduce the prevalence of offshoring”David Grosgold, Debevoise & Plimpton

c By Michael Heusner – [email protected]

A M5.8 earthquake shattered windows across Oklahoma on

September 3 2016, forcing local businesses to close and begin a comprehensive clean-up operation. Responding to the strongest earthquake on record to have hit the state has also raised questions about how liability for damage should be apportioned.

Earthquakes have been a prominent peril in 2016, following serious tremors in Ecuador, Italy, Japan, and New Zealand. They’re also high on the agenda in America’s mid-southern state of Oklahoma. Tremors in Oklahoma have increased exponentially. But unlike other quake hotspots, Oklahoma’s recent seismic activity is being blamed on human activity.

The state is a major hub for the oil and gas industry, and disposing of waste water produced by hydraulic fracturing and other drilling is being linked with the tremors. That means waste water well operators being held responsible for induced seismicity might be expected to help pick up the cost, the argument goes. The issue was reinforced in early November, when a significant M7 quake glanced the town of Cushing – a city that also happens to be home to the largest private oil storage facility in the US.

The tremors shaking the US state are a corollary of expanded energy operations. As exploration and methods of crude oil and gas extraction increase considerably, levels of waste water produced by these energy forms have shot up. The most cost effective, convenient means of dealing with this is to inject it 3km into the ground. As it stands, the processes required to purify waste products


38 Fracking

Making models for manmade quakes

into drinking water are not commercially viable.

The process of pumping waste water products has risks associated with it, and a warning from Robert Muir-Wood, chief risk officer at Risk Management Solutions (RMS), could not be clearer: “There are situations in which these deep level waste water disposal wells are being operated near large cities, and the results of this could be catastrophic.”

His assessment carries authority, given he’s spent the last nine months leading a project assessing the cost of disposal wells in Oklahoma. Working with analytics

business Praedicat, catastrophe modelling firm RMS has produced a model that uses existing data to estimate total potential losses from the new or pre-existing disposal wells, and the results are concerning. Intended for use by insurers, businesses, governments – and well operators themselves – the model allows the projection of total potential risks costs.

A central question arising for businesses and insurers alike is: “if we are constructing a well in a certain location and induced seismicity causes significant damage, what costs may we be liable for?”

Using data collected by RMS and the detailed data kept on all fluid injection activities in Oklahoma – the location of well, depths, rate of injection – Muir-Wood and his team have sought to create a model that establishes the clearest way of allocating

responsibility. “The question we’re interested in is: what’s the scientifically fairest way of allocating responsibility?” Muir-Wood underlines.

This was achieved through the use of a Bayesian belief network: a method that enables scientists to represent random variables and test their conditional dependencies. With an increase in the frequency of quakes and a corresponding increase in litigation to determine where liability should fall, this offers a logical way of determining where costs should fall.

Exploring every possible combination of parameters allows the link between fluid

injection and earthquake generated to be tested comprehensively, and the researchers found the volume of fluid disposed increased the tendency to generate seismicity.

The amount of water being pumped into the 500m year-old Arbuckle sedimentary foundation under Oklahoma has increased from 20m barrels in 1997 to 400m barrels in 2013. Since 2008 Oklahoma has gone from having around two earthquakes a year to nearly 1,000 earthquakes in 2016, and a number of seismological studies show a clear relationship between the drilling of waste water disposal wells by the oil and gas industry and induced seismicity.

While recent work marks a step forward for the science of induced seismicity, it builds on a considerable body of evidence stretching back more than half

“ There are situations in which these deep level waste water disposal wells are being operated near large cities, and the results of this could be catastrophic”Robert Muir-Wood, RMS

39


Fracking

a century. “The links between injection wells and earthquakes have been studied since the 1960s,” highlights Muir-Wood. “I worked on similar problems in the 1980s and looked at the seismicity generated by oil and gas activity around the world. The association between earthquakes and waste water wells is different from that directly generated by oil and gas production, but it is another form of seismic activity linked with energy production,” he says.

The issue is still contentious. Energy companies maintain the weakness of links between scientific evidence and induced seismicity, seeking to stall opposition to an industry attempting to feed the state’s increasingly voracious energy appetite and continuing an expansion of output associated with increased levels of seismic activity.

Despite this, in 2014 a US district court produced a report refuting the notion that natural gas drilling activities including hydraulic fracturing are so inherently dangerous that they should be deemed ultra-hazardous activities subject to strict liability – liability that does not depend on negligence or harm.

There has not been a dramatic increase in damage caused by quakes in the state, as none of the tremors have been large enough to be catastrophic. Despite this, the conclusions Muir-Wood and his team have drawn from their new study are stark: “The principal conclusion of our study is that around the few big cities in Oklahoma, an earthquake over M6 could result in billions of dollars’ worth of damage.

A quake directly underneath Oklahoma City, in particular, would elicit widespread destruction and high losses. And the damage caused by recent tremors has also highlighted the potential social costs.

“There is significant damage in Cushing,” Oklahoma’s insurance

commissioner John Doak recently said. “Many people here are on edge. For those with earthquake insurance, we want to help with the claims process so they can recover as quickly as possible,” he added.

Visiting Cushing – the city closest to the epicentre of the November 8 quake – Doak spoke to a number of citizens who said they hadn’t bought earthquake insurance as they believed it did not cover manmade earthquakes. The commission made moves to reassure citizens and confirm that the majority of policies do in fact cover manmade earthquakes.

According to Muir-Wood, the question of whether or not the seismicity is caused by deep fluid disposal is scientifically well-established; “in numerous situations it would be pretty difficult to argue that there is not an association between the two.”

The scientist warned: “If you wanted one simple way of reducing the potential costs of such an earthquake, it would be to prevent deep disposal of waste water in the vicinity of the largest cities. Imagine a shallow M6.3 earthquake directly underneath Oklahoma City; the effects could be ruinous – comparable to the effects of the 2011 quake in Christchurch, New Zealand.”

While the politics of energy production are complex, the science has been clear. In 1990 the US Geological Survey (USGS) published the wide-ranging study, Earthquake Hazard Associated With Deep Well

Injection, one of the first wide-ranging reports to establish a clear link between tremors and the injection of fluids into the earth.

A 2013 study in the journal Geology, authored by seismologists from the University of Oklahoma, Columbia University, and the USGS also indicates an association between the 2011 Oklahoma seismicity and fluid injection.

Although the density of people, buildings and values in rural Oklahoma is low, a damaging earthquake under Edmond or Oklahoma City could cause billions of dollars’ worth of insured damage. And despite the suspension of more than 30 wells by the Oklahoma Corporation Commission – the state’s public utilities commission – the number of quakes in the state continue to increase.

Insurers will have to get to grips with the implications of who will pick up the cost, and while the debate about who is to blame for induced seismicity will continue in the courtroom, this new model from RMS will at least give a technical, impartial view of what costs companies drilling waste water wells should prepare for.

c By John Hewitt Jones – [email protected]

40 Fracking

Waste water well liability: a difficult issue for insurers to grasp

been used to dispose of waste products from commercial processes since the 1930s, and it’s these that have raised disputes about definitions of pollution and liability that may prove difficult for insurers.

In the state of Colorado alone there are over 295 wastewater wells injecting around 355,000 barrels of wastewater into the ground every day. This is not the process of drilling or splitting porous formations to access layers of oil and gas, it is just the process which oil and gas companies follow to dispose of by-products.

Insurers’ potential liability for waste water wells strikes to the heart of a round of litigation taking place in the US in which Lloyd’s underwriters Ark and Renaissance Re have been embroiled – a case that continues to roll on.

Following several years of earthquakes, the beginning of 2016 saw five lawsuits filed in

Markets are often made and changed by litigation, and

America’s environmental pollution insurance market is no exception. The US has seen a steady energy boom over the last decade; crude oil imports have declined while field production jumped from 1.9bn barrels per year in 2005 to 3.4bn barrels per year in 2015.

This spike reflects the US increase in onshore oil and gas operations and an upward shift in the proportion of energy elicited through hydraulic fracturing – fracking – as it is commonly known.

Both conventional onshore energy production methods and fracking produce enormous quantities of waste water that is difficult to get rid of, and deep wells are used to bury the liquids that would take too long or prove too expensive to clean and return into the water cycle.

Waste water wells have


Oklahoma state and federal courts against energy company New Dominion alleging that the company’s hydraulic fracturing and injection well operations had caused or contributed to an increase in earthquakes in Oklahoma.

According to court documents, tremors in Oklahoma have increased from four in 2000 to 220 in 2015. In September a M5.8 earthquake struck the town of Pawnee, resulting in more than 300 small damage claims. On November 6 another M5 quake damaged buildings in nearby Cushing, home to North America’s largest commercial oil storage hub.

Scientists have traced the rise in earthquakes to the underground wells used to dispose of waste water from fracking, although energy companies dispute the findings. A 2015 study by the US Geological Survey found Oklahoma’s industrial activities have caused an increase in

41

Whether or not the waste water should be viewed as a pollutant is a moot point.

In the Lloyd’s case, this is exactly what has caused the problem; oil company New Dominion has filed a lawsuit against Lloyd’s for breach of contract, disputing the syndicates’ decision to disclaim coverage of the injuries in the earthquake actions because they do not result from a “pollution condition”; it is not certain if the semi-saline solution injected may be considered a pollutant, and if so, whether the alleged injuries result from a pollution condition.

While the ramifications of this case for the industry at large are not entirely clear, a lot hinges on the question of whether or not the injection of waste water constitutes a pollution condition.

“Whether or not the arguments and rulings made in the Lloyd’s case have a binding effect on future fracking liability cases depends on each state’s preclusion rules,” says Matthew Grashoff, attorney at law at Brouse McDowell. “Nevertheless, even if the arguments and rulings do not have a binding effect in future cases, they can still be used to undercut arguments in those cases.”

seismic activity over the last 100 years.

New Dominion held a pollution liability policy with Lloyd’s, but the two syndicates disclaimed coverage for Oklahoma earthquake actions, stating the water injected into wells is not a pollutant, and the injuries caused by the earthquakes did not result from any “pollution conditions”. Lloyd’s subsequently filed a motion for the case to be moved from Oklahoma to New York, which was granted in September.

This case suggests a degree of confusion about what coverage environmental liability policies can provide, and the extent to which policies may be used to cover unanticipated costs. Simply put: environmental pollution policies cover just that, and are not designed for insuring earthquake risks.

It is only as the link between waste water wells and induced seismicity – the polite phrase for manmade earthquakes – has become clear that the question of clarity over pollution liability definitions has become crucial.

“Seismic events can’t be covered under an environmental pollution policy,” says Cliff Warman, environmental leader for Europe, Middle East and Africa at insurance broker Marsh. “Things like pollution and groundwater

would be covered, but the cost of remediation of groundwater issues is very difficult to quantify.”

Underwriters setting out to write environmental liability policies covering onshore energy production face a difficult dilemma when it comes to covering the waste water wells. Pollution and groundwater contamination problems would be covered by environmental policies, but issues around the seismic activity associated

with the drilling of waste water disposal wells are not clear.

Fracking just one well uses around five million gallons of water, and while the waste liquid injected below the surface consists predominantly of water, the composition of the fluid is complex. The liquid is typically made up of 99.2% water, and 0.8% of chemicals that carry out a range of technical functions; from inhibiting corrosion of machinery to preventing layers of clay substrate from soaking up too much water and impeding the disposal work.


Fracking


“ Seismic events can’t be covered under an environmental pollution policy”Cliff Warman, Marsh

42 Fracking

under consideration.Strict liability consists of

liability that does not depend on actual negligence or intent to harm, and usually related to inherently dangerous activities. For insurers this could in practice mean a considerable extension of their responsibilities.

Matthew Grasshoff suggests the key arguments for introducing strict liability could revolve around the question of whether or not the operation of waste water wells should be considered innately hazardous: “I think the idea of imposing strict liability for operation of waste water wells is really interesting.

“The key question on which this may hinge is whether or not operating waste water wells constitutes an “ultrahazardous” or “inherently dangerous” activity. Generally, an ultrahazardous activity is something so inherently dangerous that you don’t have to prove someone did it carelessly – like blowing up a stick of dynamite,” he says.

If waste water wells do constitute an ultrahazardous activity, it may have significant implications for environmental pollution contracts covering waste water wells.

Pollution policies may not be the appropriate vehicle to indemnify a company against potential induced seismicity, but the Lloyd’s case illustrates the insurance industry needs to spell this out more clearly and perhaps change its approach, potentially through new wordings, additional exclusions, or developing new products.

Arguments over the definition of what

is meant by “pollutant” could leave insurers open to existing liabilities not previously considered.

The lack of clarity over liability is further complicated by the use of third party contractors to run disposal wells. Whether or not disposal of waste is outsourced to another company, energy businesses may still be held accountable.

Grasshoff adds: “Even if companies are pushing the management of waste water wells to arm’s length, they are not necessarily avoiding liability. There are statutes designed to prevent this sort of thing; if a waste company outsources the disposal of collected trash, they could still be liable if a leak or another form of pollution occurred. It is unclear whether those statutes would apply to operation of waste water wells, however.”

How environmental pollution policies will treat waste water wells in the future is unclear. Nevertheless the New Dominion case demonstrates that, to avoid potential for future claims disputes, insurers should get to grips with the issue of waste water wells and explore the range of liabilities that induced seismicity may lead them to cover.

Strong earthquakes can decimate cities and cause catastrophic damage. In Oklahoma’s case, drilling has been linked with a rise in earthquakes. If insurers do not get their head around the relationship between disposal wells and the temblors striking North America, they could be in for a torrid time.

The dispute over the terms of this environmental pollution contract undermines the complexity of allocating responsibility for temblors that have occurred in response to the drilling of waste water wells at depth.

According to America’s Environmental Protection Agency (EPA), around 180,000 class II waste water wells operate across the US. While the majority function without cause for concern, there is no escaping the clear association that exists between their operation and seismic activity, as Robert Muir-Wood, chief risk officer at RMS, explains.

“The question of ‘can this seismicity be caused by deep fluid disposal’ is scientifically well-established; in numerous situations it would be pretty difficult to argue that there is not an association between the two,” says Muir-Wood.

Whatever stance courts take on the issue, the realisation that liability for waste water wells could stretch the claims boundaries of environmental pollution coverage, is a potential headaches for insurers.

Blake Watson, a professor at the University of Dayton School of Law, has proposed strict liability be imposed for earthquake damage caused, either directly by hydraulic fracturing or the underground injection of frack fluids; a proposal that could significantly widen the scope of claims

embraced by the policies


Damage in Cushing, Oklahoma from the magnitude 5.0 earthquake on November 7 2016


In association with

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At a recent St. John’s Women’s Leadership Breakfast, our

alumnae were motivated to follow their own career path, as well as mentor other women at all stages of the professional pipeline. In addition to the traditional meaning of “mentoring,” the term “reverse mentoring” was used. This process is a 360 degree approach to mentoring, where, not only do we invest in the next generation – but we also learn from them. While our trailblazing and experienced generation has much to share in terms of dedication, sacrifice, and perseverance, we can also learn from our younger colleagues who have grown up with social media and the encouragement to be innovative and entrepreneurial. As women continue to balance multiple societal demands and cultural misperceptions, these are qualities we can use on a daily basis in our professional lives.

There is no doubt that women have made progress – albeit slowly – in many industries. For example, just one woman led a Fortune 500 firm in 1998 and that number rose to 12 female CEOs in 2011, before doubling in just three years to 24 women in 2014. However, since then, the number of female CEOs in the Fortune 500 has stagnated – falling to 21 – only 4% of the Fortune 500 in 2016. It is clear that the C-suite positions for women remain a challenge.

One of the few success stories is Deanna M. Mulligan, president and CEO of the Guardian Life Insurance Company of America, a Fortune 300 company. As one of the largest mutual life insurance companies in the US, Guardian employs approximately 8,000 employees in the US. Under Mulligan’s leadership, Guardian achieved the highest earning in its history with over $7bn in capital. Widely recognised as a successful leader, Mulligan was appointed by the White House to the President’s Advisory Council on Financial Capability for Young Americans to help promote financial literacy as a vehicle for encouraging economic mobility – another version of mentoring and supporting those in a different pipeline.

Of course, Europe as a rule has outpaced the US in achieving parity in both the boardroom and the C-suite. Lloyd’s, whose global network covers more than 200 territories worldwide, is led by Inga Beale, who was highlighted in the December 2015/January 2016 issue of Reactions. Sharing her perspective and advice with us last year, she recommended the importance of “feeling valued” and “feeling included,” and the importance of tapping “a truly diverse talent pool.” These are wise words, and I would add that as we move toward a more inclusive hiring culture, it is important to also focus on reward, recognition,

and retention of these diverse employees. All employees deserve to be members of a supportive community that encourages them to continue with their own professional development, as well as to mentor – and to be mentored – by their colleagues.

As globalisation continues to spread and have an even greater impact on all industries, it is imperative for all business leaders – and business educators – to actively support the training and recruitment of a more diverse workforce. As you will see from the women we highlight in this issue, a more inclusive work environment is a necessity and will reap rewards beyond the bottom line.

Norean R. Sharpe, Ph.D.Dean, The Peter J. Tobin College of

Business, St. John’s University

WOMEN LEADERS


WOMEN IN INSURANCE m

For re/insurance, the digital revolution and technological

innovation continue to transform our world and will drive enormous change in the years ahead. Although change can be unsettling, for Lloyd’s I know we are well-equipped to tackle it head on; we’ve been around 328 years navigating significant challenges and underwriting human progress.

Our longevity and resilience come down to one thing – the people who invest their talent in Lloyd’s. As we grow our global presence, I want to ensure we have a diverse talent base which is more reflective of customers and new markets we are entering. This means attracting people from various backgrounds to work for us to make sure we stay agile and responsive to changing customer needs. In both the Lloyd’s and London market I have witnessed the tremendous commitment to diversity and inclusion that is

transforming the insurance sector. That commitment is more than just inspiring words. Last September global insurance leaders came together to take the London market’s diversity festival Dive In global, with 60 events across 10 countries.

Earlier in the year I joined senior

leaders across our profession in support of the Insuring Women’s Futures HeforShe campaign, which aims to give everyone the opportunity to see where they can personally make a difference in reinventing insurance for women. The Insurance Careers Movement is another initiative Lloyd’s supports, which is all about inspiring the next generation to join our world-changing industry.

While these initiatives demonstrate our commitment to promoting diversity and inclusion throughout our sector and show the progress we’re making, we still have a lot more work to do. We need to encourage the brightest minds, whoever they are and wherever they come from, to choose a career in insurance, so that as an industry we are fit for the future, ready to support the economic, demographic and technological changes coming our way.

INGA BEALE CEO, LLOYD’S OF LONDON

“Our longevity and resilience comes down

to one thing – the people who have invested their

talent in Lloyd’s”

Having worked on both sides of the Atlantic, I would say that

the importance of diversity and inclusion is perhaps well understood and many within the US industry are actively working on creating diverse and inclusive environments.

However it can occasionally feel like a ‘tick box’ exercise with people paying lip service simply because they have to. That’s why, even if the UK market still has a long way to go, I am excited about the momentum and the discussion that I can see and hear in London right now – it feels meaningful and it’s infectious.

The reason I make this point is because I believe it is all too easy to know all the theory inside out and still fail to deliver the reality. We can read the statistics

about why optimising our teams’ talents is critical. We can build training programmes. We can add diversity and inclusion as a metric for measuring leaders’ success. However, every time an individual

leader does or doesn’t listen to someone’s idea or seek out their opinion, we win or lose the battle.

So how can the UK industry best move forward? There is no easy shortcut. First and foremost, to deliver real change, we need every leader to take personal accountability for diversity and inclusion. We also need to ensure the conversation doesn’t stop at gender diversity. It would be ironic if we demotivated large swathes of other employee populations (such as LGBT, black, Asian and other minority ethnic, or disabled employees) because our focus doesn’t extend far enough to include them too.

Finally, and perhaps most of all, we need to commit to building the right culture.

EILEEN CASTOLENEVICE PRESIDENT, EUROPE AND DIRECTOR OF OPERATIONS EUROPE, EURASIA AND AFRICA AT CHUBB

“We need every leader to take personal

accountability for diversity and inclusion”


m WOMEN IN INSURANCE



INGA BEALE CEO, LLOYD’S OF LONDON

The industry is still largely a male-dominated one, even

though it differs from country to country. Some countries such as Israel seem to have a comparatively high number of women in leadership positions in the re/insurance industry, while my home country, Italy, appears to be more traditional, with women leaders being the exception.

I think that being a woman in a male-dominated industry can be a strength. There is less sense of competition, and potentially more trust at an emotional level. The discussion so far on how to increase diversity and inclusion has generally focused on gender quota in boards, but this is only part of the issue - the real problem is the lack of female representation in the executive leaderships of

companies. This is what makes the real difference.

In order to have more female CEOs, we need more women in middle and senior management.

Statistics show that a very large number of women with an academic education do not exploit the full potential of their career and stop before they achieve a management position.

There are various reasons for this, and we need to address them actively in order to foster diversity in our industry. We need to support female talent not because it is politically correct to do so – but because it makes economic sense for society.

I think there is more that the industry can do to attract young and talented women. Insurance has a social purpose that can be very attractive to those who are interested in more than simply ‘having a career’ and we need to do a better job at communicating this sense of purpose.

CLAUDIA CORDIOLI

“In order to have more female CEOs,

we need more women in middle and senior

management”

SWISS RE, HEAD OF ITALY, IBERIA & MEDITERRANEAN

CORPORATE SERVICES DIRECTOR, TALBOT

My experience stems from a time when women didn’t

necessarily have careers. In school, we were taught that we had three choices: to become a teacher, a nurse or a secretary.

I didn’t have a structured, formal education like people do today. I knew I didn’t want to be a teacher or a nurse, so I went off to become a secretary (or so I thought). I began at a small company that allowed me to try my hand at many different things and to grow with the business, and I, in turn, grew quickly.

I haven’t experienced serious discrimination or faced a glass ceiling for being a woman, but I have learned to ignore snide comments and battle on.

Luckily, all of the people I’ve worked with have placed the people in their roles solely based on merit

rather than limiting someone because of their gender or any other factors.

At Talbot, and across the Validus group overall, we are forward-

thinking. Nevertheless, I wouldn’t say we are completely satisfied with the diversity in our workforce.

We have diversity at our junior levels, but our senior levels aren’t as diverse as we’d like them to be. It’s something we are very conscious of. We’ve changed in some areas, notably by altering our recruiting methods to include wider pools of candidates.

Changes take a long time to bear fruit because of our low staff turnover rate. While it might appear we aren’t taking the steps needed to correct this, the change is working, and it’s taking place from the bottom up.

Ultimately I think the industry as a whole needs to put in place initiatives to fix this. Rather than it being a quick fix, I think it’ll be a work in progress for some time – but I’m hopeful we’ll get there.

JANE CLOUTING

“We have diversity at our junior levels, but our

senior levels aren’t as diverse as we’d like them

to be”



The focus on diversity and inclusion (D&I) in the past

few years has put a much-needed spotlight on the value of different perspectives. Simply put, they drive innovation and better solutions. To ensure we’re not limiting our options or missing out on opportunities in our increasingly complex world, the best minds are needed regardless of gender, race, ethnicity, or creed. That said, I’m heartened by the emphasis on gender diversity in re/insurance and I’m especially proud that XL Catlin has many female leader role models. Recent D&I efforts have meant new voices are now being heard, and listening to these voices is the only way to ensure that the best ideas are pushed forward.

We have come a long way in efforts to increase the number of women in senior leadership roles since I joined the industry 23 years ago. While

our industry has made progress and recent D&I initiatives are helping to accelerate the pace of change, there’s more work needed to establish an equal playing field. There are still underlying and implicit biases that can affect how or whether a woman is considered for senior roles. Helping fellow colleagues (both male and female) to recognise

and broaden their perspectives is imperative.

As women we need to do for ourselves what we consistently do for others: champion ourselves. Rather than quietly relying on hard work to drive our careers, we must take the simple step of asking for what we want and taking the necessary actions to move our careers forward.

It’s fantastic to see the number of programmes and initiatives around D&I, but we all know it goes beyond gender. Just as there’s a need to increase women in leadership ranks, there’s an equally important need for companies to push for diversity of all stripes in order to stay competitive. Companies with a stake in the global economy need people among their rank-and-file and leadership who understand and are sensitive to the implications of differing racial, ethnic, and religious viewpoints.

Gender diversity continues to advance as we enter 2017,

yet we would be remiss in not recognising the lag that still exists in executive female leadership. In the early 1990s, my career involved working with Lloyd’s of London, and during that time, the approach to gender diversity was muted. Fast forward 25 years and we would all agree the appointment of Inga Beale (2014) as the first female CEO in Lloyd’s 325-year history has shattered the proverbial glass ceiling.

Women, whether fair or not, are often presented with the choice of being CEO of their household or CEO of the boardroom; my rebuttal is that women can effectively do both. Business attitudes and societal norms are evolving and will

continue to change. Savvy employers are embracing flexible work schedules and seeking measurable results over time at a desk.

Those in our industry do their part in creating visibility and awareness around gender diversity.

But there is certainly more work to be done. Senior management teams must continue to embrace diversity as part and parcel of their organisational culture. Colleagues within these organisations must do their part with respect to mentorship and women role modelling. Equally important, highly qualified female candidates must be considered for meaningful leadership positions.

Thriving businesses embrace change and build diverse, qualified teams that reflect the customer base they serve. For an industry that places the highest value on human capital, gender diversity offers an employer an excellent opportunity to hire exceptional talent. And a message to my female colleagues: do not settle, but rather settle for more.

DAWN DINKINS

DAWN D’ONOFRIO

“Thriving businesses embrace change”

“I’m heartened by the emphasis on gender

diversity in re/insurance”

COO, REINSURANCE & REINSURANCE PLATFORM OFFICER, XL CATLIN

CUO/ EXECUTIVE VICE PRESIDENT, WKFC, CORRISK & CIVICRISK

“Holborn’s commitment to our clients’ success is paramount to our organization.

Providing thoughtful consultation, tailored analytics, and strong broking advocacy

have been the bedrock of our organization since 1920. We congratulate Stephanie

Gould Rabin for her recognition in Reactions Women’s Leadership Forum. As a

key member of our executive team and Head of Corporate Strategy, her unique

skill set and industry expertise are integral to the perpetuation of Holborn and to

our clients’ success.”

— Frank Harrison, Holborn CEO & Chairman of the Board

Holborn is an independent reinsurance brokerage firm offering advanced analytic tools, global market access & responsive account services to clients across the United States.

holborn.com

Enduring LegacyBuilding an

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As an American woman reflecting on the 2016

presidential election, I am struck by how our country came so close yet ultimately failed to shatter the highest glass ceiling. Simultaneously, I am reminded of the many female insurance professionals I have encountered in senior executive positions in Middle East and African countries such as Israel, South Africa, Turkey and Tunisia. So why have the USA and other “western” societies fallen behind in terms of advancing women into senior leadership roles, and what can we do about it?

As Everest Re’s Middle East and Africa Regional Head, I am keenly aware of gender disparity in the financial industry. So how have female insurance professionals in the above-mentioned countries successfully catapulted to the

C-Suite? One observation is that dual income families are the norm; few women exit the workforce after having children, so they are able to keep pace with their male colleagues. Perhaps truly successful diversity and inclusion efforts are somewhat contingent upon more

women remaining at work after starting a family?

At Everest we have a growing pipeline of young talented women, but how will we convince them to stay? I’m proud that Everest has recently introduced a number of initiatives that will advance this goal.

We have implemented a “Work from Home” policy as well as a “FlexTime Policy”, which offer greater flexibility to both women and men in meeting their family and personal obligations. Furthermore, we have launched various programmes to foster a more inclusive environment, such as a Women’s Networking Group, a Talent Management team, and a Mentorship Programme.

Progressive initiatives such as these should help us attract, develop and maintain talent.

I am often the only female in the room for senior level meetings.

With 85% of insurance companies with no women in top positions, it’s clear we’re not there yet; but how do we get there? Looking back on my career there are a combination of common themes that have been critical to my success.

Drive and the ability to put myself “out there” – has been critical in opening up new opportunities beyond my designated role. Additionally, on the job training to learn and deliver has also been crucial in dissolving diversity barriers.

A few years ago I performed a study of over 300 senior people in the insurance sector. I noted that both men and women sought challenging assignments

to similar degrees. Interestingly, there was a statistical difference in the assignment of men to visible

projects. The divide still exists, but the key for women is to firmly seek out those opportunities and then deliver!

The regimented structure of the actuarial profession has been really useful in helping me succeed as a woman leader. It offers role clarity as well as pay transparency and equity; the credentials required by the profession reduce uncertainty over whether or not compensation will be commensurate with peers. In addition, the prestige associated with being a credentialed actuary gave me an edge in the room.

Sponsors have also been crucial. At the cusp of each of my upward transitions, I had a sponsor, who often had a different job from my own. Their support helped confirm my credibility.

MELISSA FORD

STEPHANIE GOULD RABIN

“At Everest we have a growing pipeline of

young talented women”

“I am often the only female in the room for senior level meetings”

SENIOR VICE PRESIDENT, INTERNATIONAL DEPARTMENT, MIDDLE EAST AND AFRICA REGIONAL HEAD, EVEREST RE

SVP & HEAD OF CORPORATE STRATEGY, HOLBORN



As a senior leader in a historically male-dominated

industry, I feel the constant pressure to balance the responsibility of empowering my female colleagues and highlighting the challenges female insurance professionals face on a routine basis. I also feel an enormous sense of gratitude to work at a firm that appreciates the value that female insurance professionals bring to the company, and is committed to progress for the benefit of the entire organisation.

An enormous part of my position as a female leader in this industry is also my role as a working mother. I all too often find myself defiantly explaining to strangers, acquaintances or even close friends that I work because I love it. I also love being a role model to my two young sons.

I love that when I return from a

business trip or catch an early train, I am reinforcing the foundational perspective that – hopefully – eliminates the outdated gender roles that had become the foundation of so many of my peers. And I know that my sons will never question whether my career is as important

as their father’s because I grew up with the same foundation – watching a mother of four commit herself to a career for which she is also immensely passionate.

As much progress as we’ve made over the last few decades –even the last several years – we have more work to do. Not only to recognise the contributions from female insurance professionals through the same lens that our male counterparts are assessed but also in elevating more of our qualified peers into the leadership roles that have traditionally been unattainable. And we need to do so with unified commitment from the insurance leaders of all genders – to challenge the inherent perspectives that place a lesser value on the attributions and contributions of female professionals across all industry.

If you take the long view, women have made incredible progress

in the past 50 years. The battles of the 60s and 70s made it possible for young women in the Western world to take for granted that they can go to university and pursue a meaningful career.

It is harder to see progress in the short term, and it can feel as if we have reached a plateau. Yet even in the recent past, there have been achievements; perhaps smaller, but important nonetheless. I was recently reminded that when I started as a female associate in a large New York law firm in 1993, we were not “allowed” to wear pantsuits. I kid you not!

While the achievements were grander in the early days, the ongoing work for equality is more complex, difficult and nuanced.

What to do about the still unequal burden of child care? What to do about unconscious bias? These are tough problems that can’t be solved in a year or even ten. We need to keep hiring women in the insurance business at all levels, starting with

an “entering class” of recent college graduates that is at least half women, and women should support each other at work. Sure, “lean in” for yourself, but lend a hand to your colleagues as well.

I say this not to place yet another burden on women, but because I believe that women are more likely to notice the more subtle discrimination that still occurs. If you see that your colleague is ready for promotion but her boss relies on her to do menial work, or that she is always taking notes in meetings, or that her departure at 5 to pick up her children results in her missing important meetings that could be scheduled for earlier in the day, say something.

If you think about it, that is exactly how all the past leaps in progress were made.

SHANNON GROEBER

VICTORIA GUEST

“We need to keep hiring women in the insurance

business at all levels”

“ I all too often find myself defiantly

explaining that I work because I love it”

SENIOR VICE PRESIDENT AT JLT SPECIALTY US

GENERAL COUNSEL, HAMILTON INSURANCE GROUP



In my opinion, significant strides have been made in promoting a

more diverse workforce across our industry. But there is always more to be done if we are to attract the best talent.

Historically our principal focus for diversity has been on gender, however, I believe our workforce should reflect the clients we serve and therefore we need the broadest outlook. Greater emphasis should also be placed on attracting and retaining high calibre people of all ethnicities, from every socioeconomic and educational background, all sexual orientations and disabled and non-disabled people.

Events such as Dive In have played an important role in promoting diversity. However, for this momentum to be maintained

the onus is on businesses across the market to deliver this change. In particular, this requires examining talent development and recruitment programmes. We are battling a

perception that the insurance industry welcomes only one type of professional and that battle is often lost by the time a person completes university. Providing opportunities through mentorships, school programmes, apprenticeships and graduate schemes will enable us to recruit from a more diverse pool of applicants, promote awareness of the industry, and ensure our reach extends beyond traditional sources of recruitment.

Our responsibility does not stop at the hiring process. Every study on this topic has shown overwhelmingly that groups drawing on a variety of backgrounds and experiences arrive at better decisions.

Our industry faces a challenging future and ensuring we make the right decisions is key.

WENDY KILMINSTER

“We are battling a perception that the insurance industry

welcomes only one type of professional”

HEAD OF TRANSFORMATION, ED

ASSOCIATE, DRINKER BIDDLE, NEW YORK

Over the past year there have been progressive gains when

it comes to gender equality, women in leadership positions and diversity in the insurance industry. However, there is still more work to be done.

As a woman practicing insurance law at a firm, I see firsthand the need for greater diversity in both the legal and insurance industries. I am often asked how I balance practicing law at a firm with life at home and why I have opted to continue to work at a law firm given the demands of the industry. The answer is that I work with colleagues I respect and trust who give me the authority, confidence and freedom to manage and shape my career.

Both the legal and insurance industries can improve by being more being more accepting of work that lends itself to a desired

work-life balance. While it seems obvious, it is women who bear children, and they mainly do so in their 30s, which are critical career years. Rather than an 8-12 hour continuous work day, Monday through Friday, we need to embrace

flexible working initiatives and give professionals the freedom to tailor their own schedules, knowing that the ultimate goal is getting the job done as effectively and efficiently as possible.

We also need to raise awareness and empower women. The legal and insurance industries have progressed from conscious exclusion of women to more subtle, and, perhaps, unintentional, bias. These industries need to be aware of this bias and overcome it. Our firm works with many clients who require that a certain number of women lawyers work on each of their projects. While these quotas are helpful, it is more important that women in senior leadership positions continue to set an example for those in junior-level positions so they are inspired to reach their full potential.

PARIMAH HASSOURI

“The ultimate goal is getting the job done as

effectively and efficiently as possible”

M1-10880 SRM Reactions Ad_Outlines.indd 1 8/26/16 11:18 AM



It’s often assumed that because there is not a 50/50 gender

balance in the boardroom something sinister is going on. It may previously have been the case that achieving entry in an executive position as a professional woman was akin to breaking into a fortress with a narrow gate; however, that has not been my recent experience having joined the board of Neon Underwriting as director of claims. There has been incremental change over past decades and we must continue to combat homogeneity and drive diversity of thought.

The market and the industry, have implemented a well-intentioned push to increase diversity, however this mustn’t be understood as being predominately focused on gender. The danger here is that we may end up replicating the historical homogeneity of men in the industry with another group of similarly

homogenous women. To avoid that we have to set the

context on a broader level so people understand that gender is simply one aspect of diversity and that whilst it is an obvious place for many organisations to start; for people to truly engage, we have to

explain what we mean by diversity in the first place. This is where the market and industry need to focus their energies and provide a clearer backdrop to initiatives.

The insurance industry should firstly keep campaigns simple and do not overwhelm people with theory and rhetoric. Second, it should provide teaching and training to promote diversity of thought and embed this learning culturally through repetition; this should include learning the skill of disputing and how to dispute innate unconscious bias. Third, individuals should be encouraged to define who they are as a professional early on and to identify their values.

Boards need to ensure that the people in their businesses really do understand diversity and are prepared to give the support at the highest level and create the conditions to make it happen.

Diversity has been a topic of conversation in our industry

for decades, but our efforts to make insurance more inclusive have fallen short. Having a diverse workforce is essential to compete, however ensuring a meritocratic approach that is blind to gender, sexual orientation and ethnic and socioeconomic background will propel our industry forward in this regard. The answer to diversity is not to impose gender quotas on hiring managers. If we base hiring and promoting decisions on skill, competence and performance, diversity will come naturally.

Recruitment has always played a key role in promoting diversity, and if our market becomes renowned as a meritocracy this will promote our businesses to a broader pool

of talent. If we are to see diversity across our industry, from junior underwriters to the C-suite, we must also place equal emphasis on creating a working environment that

facilitates growth and development. Competency-based promotions

motivate a workforce as they know they will be rewarded purely for skill and performance, and will ensure that the most talented professionals are not hindered from moving forward. It is also key for management to be receptive to the ideas and views of all team members, regardless of background or standing. An open door policy encourages all employees to share ideas and this leads to innovation and progression for a business.

Diversity remains an important issue for the market. Teams consisting of professionals with varying backgrounds and experiences can enrich a business through diversity of thought, creativity, skills and ideas.

SHARON LONG

LOUISE MILLER

“The answer to diversity is not to impose gender

quotas on hiring managers”

“People [should] understand that gender is simply one aspect of

diversity”

CLAIMS DIRECTOR, NEON UNDERWRITING

REINSURANCE MANAGER, ARGOGLOBAL



I have no doubt that fantastic strides have been made in raising

the profile of women in leadership. This isn’t about quotas; it’s about the championing of true talent and embracing the fact that diversity and inclusion in the workplace reaps commercial rewards.

PwC hosted a roundtable discussion on Women in Leadership in the insurance industry at this year’s Monte Carlo rendezvous and also published a report on how insurers can harness the diversity dividend. In an introduction to the report it said: “Management wants greater diversity. Clients and employees expect it. But while progress is being made, there’s still a big gulf between management’s intentions and the reality for many people working in insurance.” The foreword struck a chord with me and equally applies to the legal

profession; it really sums up how I see the industry right now, even though things are moving in the right direction.

I think it would be fair to say the need to address diversity and inclusion in the workplace is no longer underestimated. We know that to some an employer’s

policy on diversity and workforce inclusion is a decisive factor when choosing a career in the sector. However, I do believe there are still barriers to promotion and equal pay, particularly in return to work scenarios and at senior levels.

It’s no longer about individual organisations finding their own approach. Initiatives such as HeForShe, Dive In and Women of the World, in addition to the number of events taking place all over the world, make this a collective issue.

Headlines this month tell us that the gender pay gap is narrowing but more has to be done. And that’s why I think it is so important for us to see more senior female role models in the industry; the likes of Inga Beale, Amanda Blanc and Sian Fisher are certainly helping us to raise the bar.

Within Mapfre as a whole, women represent 55% of the

workforce. However, it is true that they are not sufficiently represented across managerial positions. Despite this we have certainly made considerable progress over the last number of years thanks to the efforts and leadership of our chairman and CEO, Antonio Huertas.

One of the objectives of Mapfre’s strategic plan for the next three years set by the chairman and CEO is the goal of having women account for 40% of management and leadership job positions by 2018. As of June this year the figure was 38.4%, so we are well on the way to meeting our targets.

I personally have never felt discriminated against because

of my gender in my life. We are nonetheless very conscious of the need to make greater progress in this field. This is why we have a strategic talent management programme in place, which encompasses two major initiatives

that we want to develop next year. Firstly, there is a leadership

plan for women, which will drive career development for women who currently hold technical and middle-management positions. Secondly, there is a flexibility plan that addresses work/life balance measures for both men and women, focusing on working hours and technology-driven mobility.

All these initiatives fall within our gender diversity action framework, which in turn forms part of our equality policies. We are strongly committed to becoming a better company every day, one where equal opportunities, the inclusion of individuals with disabilities of any kind and a healthy working environment are truly appreciated by everyone.

JENNETTE NEWMANHEAD OF LLOYD’S AND THE LONDON MARKET AT BLM

MEMBER OF THE BOARD OF DIRECTORS OF MAPFRE S.A AND GENERAL MANAGER, CORPORATE HUMAN RESOURCES AREA

ELENA SANZ

“I believe there are still barriers to promotion

and equal pay”

“Within Mapfre as a whole, women represent

55% of the workforce”



Financial and professional services have struggled with the task of

achieving diversity, and it remains a key issue. Despite this, rising numbers of women are entering the industry, and the market’s discussion about female leadership is becoming increasingly positive. Industry figures are more receptive to recognising and acknowledging the benefits of a diverse and inclusive workforce.

We will get there. It may take us a bit longer than other industries, but I believe that’s to do with the business model. Unlike banking, for example, with insurance it takes longer to confirm profitability. Insurers have a longer term view and consequently the whole industry moves slower. I think insurance attracts people who are patient, but who take time to adjust to new ideas

and change behaviours. I see diversity and inclusion as a

boardroom topic: a good example must be set from the top, but there must also never be a compromise over capability. A seat should be given to the best candidate, regardless of gender or nationality.

And it takes pioneers such as Inga Beale to upend tradition and pave the way for those eager to follow in her footsteps. It’s about having a particular mindset and believing that if you are good and talented, you will rise to the top.

I took a four year career break after having three children and upon re-entering the workforce I maintained a mentality of success. My advice is to be a woman - there is power in that. Don’t try to imitate male behaviours and never compromise who you are.

For me as a Dutch national it’s about striking the right balance and adapting to the situation in front of you. I found having both a male and a female mentor extremely insightful, as both give you different perspectives of what is actually happening.

The DiveIn Festival at Lloyds this year was a good platform

for raising the profile of diversity and inclusion in the Insurance industry. From demonstrating to people who may be considering a career in the industry that we are inclusive and have exciting prospects, to addressing some of the fundamentals of D&I such as gender diversity. Zurich has participated in both the 2015 and 2016 DiveIn Festivals with representation in the UK, US and Switzerland.

Lloyds is encouraging the industry to work together to drive change faster. We support this approach and are also encouraging the industry to work collaboratively. In July 2016, Zurich UK launched the first LGBT and straight allies role models guide in the insurance industry, comprising over 35 profiles from different insurers.

As part of the EDGE Certification process, which Zurich has completed in 13 entities globally, we are committed to proactively managing pay equity. We understand that ensuring fair pay is good for the organisation. Research shows that focusing on gender equality leads to greater profitability, customer outcomes and employee culture.

In the UK specifically, we have signed up to the Women in Finance charter supported by the HM Treasury and as signatories we are committing to ensuring gender diversity and inclusion.

At Zurich, we have a clear diversity and inclusion strategy with initiatives that we’re driving including the rollout of our global approach to flexible working, addressing unconscious bias, and nurturing Employee Resource Groups (ERGs). And we’re seeing positive changes. We’ve seen an increase in people working more flexibly of 20% globally, our gender balance within senior leadership is improving and we’ve recently launched our second ERG for our LGBT employees. But most importantly, the conversations we have across the organisation are more inclusive, open and honest.

HERMIEN SMEETS-FLIER

JULIE THOMAS

“A seat should be given to the best candidate,

regardless of gender or nationality”

“Research shows that focusing on gender

equality leads to greater profitability”

CHIEF FINANCIAL OFFICER, AEGIS LONDON

HEAD OF DIVERSITY & INCLUSION AT ZURICH INSURANCE

Like most people who built a career in the insurance industry,

mine was not a purposeful entry. Being a law school graduate with a few years of professional work experience under my belt, I was able to get a claims analyst job with an insurance company in New York City in 1987. It turned out to be a perfect fit for a career-minded young woman.

In the 1980s, financial services, including insurance, were male-dominated; but even back then things were changing. The landmark US Supreme Court decision in Roe v. Wade in 1973 affirmed the legality of a woman’s right to make reproduction decisions, thereby substantially impacting her ability to control her own life’s course. In that context, I firmly believed that if I continued to develop my skills, worked hard and followed my moral compass,

I would succeed and be rewarded. And for me, this is true.

Highlights of my career include being awarded a substantial promotion just before going on maternity leave with my first child; landing a senior management

position for which on paper, I had no established credentials or experience; and finally, making a recent move in the twilight of my career to join a distinguished and vibrant management group who are committed to institutionalising gender opportunity, not just paying lip service.

Have there been times when I felt that my ideas or opinions were marginalised because of my gender? Yes. Have I been told that being too assertive could be perceived as overly emotional or bossy? Yes. Perseverance and just being your best self-are key in these situations. Today, at Scor, I am in an environment where differences are valued, stereotypes are discouraged and programmes are in place to enable everyone to succeed and achieve their dreams. I intend to do my part in supporting other women to thrive in the insurance industry.

While the landscape continues to evolve, the major themes

in the market remain the same as they have in recent periods. Carriers are continuing to adjust to the participation of capital markets in our business, new entrants continue to cause shifts in what was the traditional value chain, and the balance of “art and science” continues to tilt more towards science as we embrace big data and become more sophisticated in employing data and analytics.

While the marketplace remains challenging, there are signs that corrective action is starting in some lines that require this and the pace of rate reductions is generally declining. We’re not predicting an immediate recovery but an

approaching stabilisation. At Axis, we are continuing to manage our insurance and reinsurance activities to optimise outcomes under the current marketplace conditions, emphasising service, responsiveness and claims management as our key differentiators.

We’re targeting risks that remain attractive, pushing for greater balance in our portfolio, and shrinking in those areas we’re not satisfied with the risk-adjusted returns.

As we continue to position Axis for long-term profitable growth in this market, our focus remains on getting closer to the customer, utilising analytics to improve the portfolio and accessing multiple sources of capital and distribution.

SANDRA VAN ENK

LINDA VENTRESCA

“There are signs that corrective action is

starting in some lines and the pace of rate

reductions is generally declining”

SENIOR VICE PRESIDENT, HEAD OF TREATY CLAIMS, SCOR

EVP OF CORPORATE DEVELOPMENT AND INVESTOR RELATIONS, AXIS

“In the 1980s, financial services, including

insurance, were male-dominated”



The North American re/insurance industry was, as ever, a hotbed of activity in 2016, but a series of claims and near misses garnered many of the headlines.

The year began with both insurance and reinsurance underwriters

casting a hopeful eye that 2016 would finally see some solid pricing improvements.

But, as the market found when doing its sums following the January 1 renewal, the suggestion that there would be some continued stabilisation and a pricing floor would be established was dashed.

Instead, the majority of reinsurance buyers found they were able to secure improved


58 2016 review

North America 2016: claims and confusion

terms as the vast oversupply of capital continued to make its presence felt. As reinsurance broker Guy Carpenter noted early on in the year, pricing reductions for US property catastrophe business averaged between 5% and 8% at the January 1 renewal. That followed average decreases of between 7% and 14% at 2015’s renewal.

That meant that while reinsurers were left disappointed at the continued pricing deterioration, they were at least able to take some heart from the fact that reductions granted were less extreme than in the prior year, suggesting that the market was, at least to some extent, edging closer to finally finding a floor.

Such sentiment was reinforced come the June 1 reinsurance renewals when JLT Re’s risk-

adjusted Florida property-catastrophe rate on line (ROL) index fell by just 3.1%. While it showed that rate reductions were still obtainable, the result was a vast improvement on the reduction of 8.5% witnessed at June 1, 2015 and the 17.1% drop seen at the same point in 2014.

As JLT Re explained at the time, the reinsurance broker felt there were several contributing factors to this amelioration of reinsurance pricing reductions.

Aside from the impact of the convergence of pricing levels between the traditional and insurance linked securities or alternative capital markets, JLT Re argued there were three other key developments that contributed to this trend:

Firstly, pricing for Florida business was 38% lower than 2012 levels and only 17% above the previous cyclical low of

59


2016 review

1999/2000, which implied limited scope for further profitable pricing reductions by underwriters who had seen their returns repeatedly squeezed in successive renewals.

Secondly, the reinsurance broker said there was evidence of increased underwriting discipline amid compressed margins, deteriorating results and increased catastrophe activity during the first five months of this year. That North Atlantic hurricane activity was expected to be higher due to the potential onset of a La Niña cycle also played a role in underwriters being less generous with pricing.

Finally, JLT Re said there was stable demand for reinsurance cover in 2016. The previous year’s renewal had seen a significant increase in demand as reduced placements by some state-backed insurers were offset by a greater appetite for protection in the private market.

WildfireA further hardening of the North American market – or a softening of the softening as some industry executives such as Willis Re’s global chief executive John Cavanagh referred to it – may be on the cards in 2017 in light of a series of losses that have hit reinsurers during the year.

The most notable of these arose in May when the small town of Fort McMurray in Alberta, Canada hit the headlines after a vast wildfire caused considerable destruction. After igniting on May 1, the blaze quickly tore through the small town which sits in the middle of the Athabasca oil sands.

Before the wildfire was declared to be under control on July 5, 2016, the blaze had destroyed some 2,400 homes and buildings. Out of the 88,000 people who were evacuated from Fort McMurray, there were no reported fatalities or injuries as a result of the fire, although two people were killed after an automobile collision.

Although it began in northern Alberta, the fire spread into neighbouring Saskatchewan and

eventually consumed some 1.5 million acres of land.

Claims from the wildfire rapidly increased and it quickly became apparent the event would become the costliest insured disaster in Canada’s history.

By May 5, it was clear that insured losses from the Fort McMurray blaze would be several times higher than those that were incurred following the Slave Lake fire in Alberta in 2011. Claims from that event had reached C$700m ($544m). By July 8, insured losses from the Fort McMurray fire were already C$3.58bn ($2.73bn) according to Catastrophe Indices and Quantification Inc, also known as CatIQ.

Come the end of November, Verisk’s Property Claims Services, or PCS, had put its final insurance loss figure for the Fort McMurray wildfire at C$3.98bn ($2.96bn).

Canada’s previous record loss was from flooding which hit southern Alberta in 2013 and cost insurers some $1.9bn according to a March 2014 Swiss Re Sigma report.

In the spectrum of catastrophes, reinsurers’ coverage is usually priced for hurricanes and earthquakes. As such, the Fort McMurray wildfire came as a nasty surprise for reinsurers exposed to losses.

But, while those Canadian insurers such as Alberta market leader Intact Financial Corporation and others like Co-operators General, Economical Insurance, TD Insurance, Desjardins, Alberta Motor Association Insurance Company, Northbridge, AIG Canada, Wawanesa Mutual Insurance Company, Aviva Canada and RSA can expect to see increases in the cost of their reinsurance protection when it comes to renewal, the Fort McMurray wildfire will not have much of an impact on the wider North American market.

HurricanesEight weeks after the Fort McMurray wildfire was brought under control, North American re/insurers were paying close

attention to the formation of a hurricane in the Gulf of Mexico. Hurricane Hermine was the first such storm to develop in the Gulf of Mexico since 2013. After forming in late August, Hermine reached its peak strength on September 1. A day later, it became the first hurricane to make landfall in Florida since 2005’s Hurricane Wilma.

After first hitting Florida as a Category 1 hurricane, Hermine quickly weakened although the remnants of the storm produced heavy rainfall as it made its way up the US east coast.

Risk modeller Karen Clark & Co estimated Hermine’s insured losses at $500m, the majority of which related to claims arising from damage to residential properties and cars in states such as Florida, Georgia, North Carolina and South Carolina.

Many in the market regarded Hermine as something of a lucky escape, especially as the last hurricane to make landfall in Florida – the aforementioned Wilma – formed part of the fateful and infamous 2005 North Atlantic season which brought with it both Hurricanes Katrina and Rita.

The small market loss from Hermine is not expected to have an impact on pricing when the next round of renewals rear their head.

While the market was relieved to see Hermine pass without major incident, the industry found itself holding its breath once again just a few weeks later when, on September 30, Hurricane Matthew formed to become the first Category 5 storm seen in the Atlantic in nine years.

Those fears were realised as Matthew wreaked havoc across the Caribbean, hitting Haiti as a Category 4 storm and leaving it nursing approximately $1.9bn of losses. Cuba suffered $2.6bn of losses while the Bahamas was hit to the tune of $600m.

Haiti alone suffered more than 1,500 fatalities, with the wider Caribbean facing a further 550 deaths.



60

In the US, almost 50 people were left dead by the storm, including 28 in North Carolina, Aon said.

Although the insurance industry was very concerned about the potential impact of Matthew, ultimately both Florida and the Carolinas only faced Category 1 winds, far less than the Category 3 winds that had initially been feared.

The re/insurance industry’s exposure to US-based Hurricane Matthew claims is now expected to cap out at $5bn, with wider economic losses almost double that, Aon Benfield said in November. Florida insured losses are in the region of $730m, according to the state’s Office of Insurance Regulation.

As Steve Bowen, a director and meteorologist with Aon Benfield Impact Forecasting, explained, the industry’s exposure could have been far worse.

“The system also became the costliest hurricane in the United States since Sandy in 2012,” he said. “Despite causing billions of dollars in damage, it could have been even more catastrophic. Had several slight wobbles not occurred, we are likely having an entirely different conversation when it comes to the financial impact in the state of Florida.”

In the aftermath of Hermine and Matthew, the talk at re/insurance industry gatherings such as the Monte Carlo Rendez Vous de Septembre, the Council of Insurance Agents & Brokers’ Insurance Leadership Forum, Baden Baden and the Property Casualty Insurers Association of America’s Annual Meeting was of how underwriters had been reminded of the potential losses facing them and how, finally, there was going to be concerted response from carriers to push back against giving pricing reductions.

However, there is already a degree of scepticism over whether that will actually happen.

“Hurricane Hermine was too small to have an effect,” Shawn Homand, chief underwriting officer for global property at Ironshore, said.

“Matthew really had the

potential - everyone was watching the weather reports to see what was happening and had it gone 50 or 100 miles west, it would have been gigantic. It was a reminder of how it bad it could have been… After that, a lot of people in the industry said they really had to watch themselves, but the problem is the industry has a short-term memory. If the dollars aren’t paid, the industry is still going to make the same mistakes.”

As Homand explained, pushing too hard for pricing increases leaves companies exposed to the possibility that they will be dropped from programmes because there is just so much competition in the marketplace.

The question remains exactly what would cause the market to turn. Other than a wholesale change in interest rates and

investment opportunities becoming more attractive outside the re/insurance industry, one of the few theoretical ways in which pricing would harden is if an outsized loss were to hit the market.

Exactly what magnitude that loss would have to be remains unknown. It is unlikely to be an Atlantic hurricane however, as Homand explained those losses are some of the most modelled within the industry.

“The losses with Hermine and Matthew are what we model for, but if something came up that we weren’t prepared for, then that could hit the market.”

It may be a cyber loss, Homand suggested, but it would have to be a claim where the aggregation of claims outweighs the industry’s expectations.

RegulationAt the end of March, US life insurer MetLife won a legal battle against the US Financial Stability Oversight Council (FSOC) and managed to remove its designation as a systemically

important financial institution (SIFI).

Intriguingly, US District Judge Rosemary Collyer actually ruled that MetLife’s argument that it should not be classified as a SIFI was, in fact, without merit. In her ruling, Judge Collyer explained MetLife’s argument had little substance, with the life carrier’s SIFI status instead removed over concerns relating to the FSOC’s process.

Judge Collyer’s assessment means it is unclear whether other SIFI designates Prudential and American International Group will be able to shake off their own statuses as the FSOC may now return to MetLife and undertake a more rigourous investigation.

In October, lawyers representing both MetLife and the regulator once again

faced off in court, with the latter appealing Judge Collyer’s decision.

As yet, it remains unknown when the appeal court will issue its decision on the latest round of talks, although whatever the ruling, another return to the courts seems likely.

Of course, President-elect Donald Trump has already outlined plans that could see the dismantling of some aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act, of which SIFI designation is an element.

Trump has argued that Dodd-Frank has stifled economic growth, and while the President-elect favours retaining some elements of the act, it is thought he backs proposals to remove the ability to designate certain non-bank financial institutions SIFIs. If that were to happen, then the whole process of MetLife appealing Judge Collyer’s decision becomes redundant.

2016 review


c By Christopher Munro – [email protected]

“ Matthew really had the potential - everyone was watching the weather reports to see what was happening and had it gone 50 or 100 miles west, it would have been gigantic” Shawn Homand, Ironshore


62

EMEA & Asia Pac 2016: east goes west

At this year’s Rendez-vous de Septembre industry shindig in Monte Carlo,

there was a notable absence of re/insurance merger and acquisition (M&A) activity, which had been the buzz of the previous year’s event. All seemed relatively quiet.

The talk in September was rather of a complementary mix of pressuring factors facing the sector. In no particular order, these included: over-capacity and pricing inadequacy; a series of mid-sized catastrophes eating profit margins; Brexit and the

rise of populist politics; the march of technology

and fears about disruption; and the continued spread of

alternative capital – adding to the excess

capacity situation.Then – Boom! – the landscape

was once more uprooted. Within just a few weeks, several big M&A deals exploded onto

the scene. Sompo Group was buying Endurance. The Japanese carrier paid some $6.3bn to buy John Charman’s Bermudian Endurance Specialty. Around the same time, it became clear that China’s Shenzhen Qianhai fund was buying Singaporean reinsurer ACR for a fee in the region of $1bn.

Asia Pacific dealsNor were these the only examples of Asian capital making a splash. In September, Fosun announced a $100m injection for Hong Kong reinsurer Peak Re. In October there was also news of Nine Merchants Re, a new $500m start-up reinsurer, based in Hong Kong, backed by Shenzhen-based Chinese fund First Seafront Financial.

Not all the recent deals have

been funded by Chinese or Japanese money – witness the recent $325m deal for Lloyd’s carrier Ariel Re by Bermudian re/insurer Argo Group – but the east goes west trend has been the prevailing M&A narrative of the year.

“I would agree that we have seen a lot of M&A activity with a clear trend of ‘east goes west’,” says Stephan Ruoff, CEO of Tokio Millennium Re – an organically grown reinsurer with a Japanese parent.

“It’s been an interesting phenomenon for a few years now.”

Ruoff notes that many recent acquisitions have something in common: a desire to buy niche and specialty insurance operations rather than carve them out by organic growth in an already crowded market. “The main drivers are global diversification and entering new markets – doing it by acquiring well-established brands and existing operations seems to be more beneficial in the long run than starting from scratch. This is true for the acquisitions we’ve seen,” he says.

While Asia Pacific has become a major source of investment capital, it also remains one of the most tempting regions into which to expand, due to its myriad emerging markets, diversifying catastrophe risk, and still-low insurance penetration.

“We’ve seen Singapore emerging as an important hub, but we also see now China establishing itself as the dominant market in the region,” says Ruoff. “India is also receiving a lot of interest. A number of re/insurers have applied for licences there.”

In India, Lloyd’s is one stage of regulatory approval away from setting up an onshore Indian reinsurance operation, after

A return to M&A activity once again saw Asian capital – particularly

from Japan and China – making a splash in a competitive reinsurance market under pressure from excess

capacity and low rates.

2016 review

63


2016 review

about a decade of false starts and talks which seemed at times to be going nowhere.

Several other reinsurers are at the same stage or slightly ahead in the Indian approvals race. Hannover Re, Munich Re, Scor, Swiss Re and XL Catlin are among the other players baying to enter the country’s part-liberalised reinsurance market first.

“There is a lot of drive and hope for Asia Pacific to become the next growth engine for our industry,” says Ruoff. “By the sheer demand of countries like China that might be true. Both China and India will try to keep control of the development taking place in their domestic re/insurance markets.”

Lloyd’s recently noted that its Lloyd’s China operation had reached 32 syndicates. China’s role as the primary engine of Asia Pacific growth has become clearer in 2016, through its state-backed funds’ reinsurance investments.

More broadly, the country’s One Belt One Road strategy continues. The economic plan, which involves vast international investment, is expected to drive some $35.5bn of new commercial insurance premium by 2030. Two-thirds of that will probably go to China’s own rapidly expanding insurance market, according to a Swiss Re estimate.

EMEA politicsWhile Europe, the Middle East and Africa (EMEA) has been on the receiving end of M&A activity, Europe’s 2016 has been dominated by politics. Brexit in particular has been a headache for London and Europe. The surprise vote by the UK to quit the European Union caught many in the market off guard.

“Brexit was undoubtedly the London market’s biggest issue in 2016,” says Steve Hearn, chief executive of broker Ed. “The uncertainty created is unhelpful for London, as part of a global industry. Post-referendum capital decisions have meant some new investment has not come here.

“Others have been deferred

until we understand the ramifications of the vote to leave the EU. Some insurers are talking about relocating their head offices functions outside the UK. We cannot be surprised by these developments, because Brexit is simply not good news for our industry. We need to lobby actively to ensure the people negotiating Brexit understand the implications for our industry. I don’t think they do at present,” continues Hearn.

Hard Brexit has become a buzzword in the UK, referring to the likelihood that the UK will not keep its EU single market access after Brexit – free of tariffs, the need to set up local offices or hold additional capital requirements – for the City of London, the largest financial hub in Europe.

Continental Europe accounts for a surprisingly small proportion of London market business. Lloyd’s, which represents about half the London market, underwrote £2.9bn of gross written premium in the European Economic Area in 2015, excepting UK business, representing 11% of its book. The market’s CEO Inga Beale has stressed that reinsurance and exempted marine and aviation classes can continue unaffected by Brexit, and that only 4% of Lloyd’s premium is directly impacted.

The end of 2016 leaves considerable political uncertainty in Europe in general, as the EU faces more populist political threats. “By the end of 2017 we will have seen the three largest economies in Europe – Germany, France and Italy – hold elections or referenda that may leave the political landscape unrecognisable from today’s picture,” says Russell Büsst, European CEO for insurance asset manager Conning.

“Will Europe continue down

a path of ever more right wing populist political leadership, or has the Brexit referendum and the election of Donald Trump scared the centre right voters to take a step back? The Austrian electorate appears to have rejected that particular march, voting for a Green candidate for President over the hard right rhetoric of Norbert Hofer,” Büsst adds.

Small catsWhile 2016 has not been a year in which one big catastrophe event stands out, there have been many smaller cats, each around the $10bn insured loss range, which have taken their toll on insurers and reinsurers. While rates have remained soft or steady at previous lows, a succession of small-ish disasters

– from Parisian floods to New Zealand earthquakes – have chipped away at slim profit margins, while low interest rates stopped firms from multiplying underwriting returns on the investment side as in previous years.

“There’s been a wide range in the diversity of those events, in terms of locations and types of peril,” says Robert Muir-Wood, chief research officer at Risk Management Solutions (RMS). “The Japanese earthquake in Kyushu might prove to be the largest event of the year,” he says. In comparison, the Italian earthquake in August offered an example of a serious economic loss event but a low insured loss, and a lesson in underinsurance for earthquake risk.

The succession of smaller attritional events have done little to turn reinsurance rates. “On pricing, we are in a war of attrition. We are seeing prices stoping going down in some areas already. In some areas there is continued downward


“ We have seen a lot of M&A activity with a clear trend of ‘east goes west’. It’s been an interesting phenomenon for a few years now”Stephan Ruoff, Tokio Millennium Re

pressure, but it is slowing down,” says Ruoff.

“My view is that we are at the bottom of a market, and even without a market turning event we will see the market reacting more adversely to downward price pressure. Some can sit it out longer than others thanks to reserves. But do we really need a market turning event if we keep having small to medium sized events that step by step erode the earnings? There is already a lot of pressure on most balance sheets,” he adds.

Insurtech buzzingInsurance technology was a big theme in 2016, with several initiatives and innovations creating particular buzz. While the US saw the creation of Lemonade, a peer-to-peer insurer, Europe has seen plenty of insurance technology chatter – or “insurtech” to use the industry slang.

“The most talked about market force right now is insurtech start-ups – which happen to look a lot like their dotcom predecessors of the late 1990s,” says Mark Watson, CEO of Argo Group. “With all the enthusiasm for insurtech start-ups, and most companies starting their own insurtech or digital start-up businesses, we will see how these end differently over the next year or two then the dotcom era ended. There is reason to believe this time will be different,” Watson adds.

“Market reform is another big development,” says Hearn at Ed, citing the modernisation drive led by the London Market Group (LMG) and Lloyd’s. The London market’s Target Operating Model (Tom), rolled out its electronic placing project (PPL) in 2016, and has secured funding from participating managing agents for 2017. PPL saw terrorism launch in July and financial and professional liability in November, with marine and property set to go live in early 2017.

“PPL is now underway, and is a tangible sign that our market has at last begun to modernise,” says Hearn. “We shouldn’t let that go unnoticed by our clients


64 2016 review

and business partners around the world. We must encourage London’s champions of reform to holler louder than the naysayers.”

Another Tom project, the Central Services Refresh Programme (CSRP) launched an online portal for brokers in December. “Claims functionality to be deployed in early 2017 will enable brokers to submit premiums and claims electronically using the same data and process standards as outside the London market,” Lloyd’s CEO Beale and the market’s chairman John Nelson wrote in an end of 2016 letter to the market.

“The structured data capture pilot is going well and will help drive further reductions in manual data input. And through

the Tom innovation workstream, we are evaluating the potential for blockchain and smart contracts in the market,” Lloyd’s added in the market missive.

Blockchain – distributed ledger technology touted for streamlining peer-to-peer smart contacts – was a major theme for European market technologists in 2016. In June, a pilot scheme was announced from Nephila and Allianz Risk Transfer to use blockchain technology for a swap transaction for natural catastrophe risk.

Blockchain could save personal lines motor insurers some $21bn each year globally, according to technology firm Capgemini. Reinsurance has some of the biggest blockchain applications, consultancy PwC thinks, with a potential saving of $5-10bn in costs, by simplifying reconciliation and multiple data entries, given the volume of data flowing between clients, brokers, reinsurers and outsourced service providers.

Alt cap disruptorsRuoff thinks the biggest disruptive factor for reinsurance

is already well established: alternative capital. The alt cap competition for catastrophe risk transfer has already driven many property catastrophe focused reinsurers to diversify, crowding in turn into casualty and specialty lines.

“Over the past five to ten years the main disruptive force I have seen has been third party capital ,” says Ruoff. “Around $70-80bn of capital moved into the industry, and that has had a clear effect on the insurance industry. We’ll continue seeing different types of capital coming into our industry and that’s been a real disruption.”

The past year has been a watershed for the third party capital space. The traditional catastrophe bond space has

been relatively steady. While the first quarter of 2016 saw new insurance linked securities (ILS) issuance reach a record $2.07bn, subsequent quarters fell away behind previous years. Likewise, hedge fund reinsurers have seen mixed results.

“Although market forces on ILS capital remain a challenge, we are not seeing as many hedge fund re/insurance start-ups as we expected a year ago. It turns out that finding out how to source profitable business has proven more challenging than just managing assets,” says Argo’s Watson.

Instead, it is collateralised reinsurance – private transactions, often backed by pension funds – which has seen the most growth in the alt cap space. “In the past few years a strong catastrophe bond market has evolved into a collateralised reinsurance market, and the appearance of the hedge fund reinsurance model which has been under pressure,” says Ruoff. “We will see more risk being transferred into capital markets.”

c By David Benyon – dbenyon@euromoneyplc

“ The most talked about market force right now is insurtech start-ups – which look a lot like their dotcom predecessors of the late 1990s”Mark Watson, Argo

Property catastrophe business may continue to dominate the insurance

linked securities (ILS) sector but investors are increasingly looking at other risks with some of the major market players now trying to package casualty and legacy risks for trading.

And, as some of the ILS market’s leading figures explained at the S&P Global Ratings and PwC jointly hosted 2016 Bermuda Reinsurance conference, these long-tail lines of business such as casualty and legacy risk can and will be adapted to the ILS market, although as ever with the re/insurance industry, it will not be a straightforward process.

“[A catastrophe bond], or any XoL securitisation, is very simple – you put money in a box and it collateralises a limit,” explained Michael Millette, the managing partner of Hudson Structured Capital Management.

“If that limit isn’t hit, the investor gets the box of money back with a premium. Casualty has a long tail, but casualty also has something else - it has a reserve. You have a premium up front, and that premium is going to sit around. If you have lots of casualty policies, that reserve can be put into the box along


66 Insurance linked securities

Broadening horizons

with the associated assets.”Essentially, Millette explained,

re/insurers could use their large casualty reserves as collateral on a risk transfer deal.

“[The companies involved] aren’t collateralising a limit in the style of a cat bond, they’re effectively putting capital underneath a package of assets and liabilities,” Millette added. “That package is effectively an adverse development cover, so it functions very much like a cat bond.

“Rather than treating it as a theoretical exercise – can casualty be treated the same way [as property catastrophe]? – casualty is in fact being dealt with in a similar and analogous in the legacy run-off companies.”

As Dirk Lohmann, chairman and managing partner at Secquaero Advisors, explained, these deals can be compared with a reinsurance portfolio securitisation, adding there was significant potential for growth in this market. Lohmann

suggested there was also the potential to tier deals by risk level in much the same way to standard debt securities.

It is not just the casualty market where the ILS sector can grow its business however, with various other options increasingly coming to the fore.

“We need to expand our tool box a little bit,” said Millette, adding: “The cat bond is a nice enough invention, but it’s certainly not the last one that we’re going to come up with.”

Such sentiment was shared by Lohmann who said some of the biggest opportunities for growth can be found in helping offset the costs that arise from earthquakes.

In California, take up of earthquake insurance remains very low with just mid-double digit percentage of homes in the state having such protection in place, Lohmann said. Similar issues exist in Japan where coverage may be offered, but is often highly restricted.

The insurance linked securities market is increasingly looking to the casualty and legacy sectors as it seeks to expand beyond the property catastrophe space.

“ [A catastrophe bond], or any XoL securitisation, is very simple – you put money in a box and it collateralises a limit” Michael Millette, Hudson Structured Capital Management

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Insurance linked securities

“There’s huge potential to expand coverage,” stated Lohmann.

Elsewhere, flood insurance could also make the move to the capital markets.

In September 2016, the US Federal Emergency Management Agency (FEMA) dipped its toe in the reinsurance market for the first time and purchased $1m of protection ahead of plans to establish a greater risk transfer programme in 2017.

FEMA’s first ever reinsurance programme under the National Flood Insurance Program (NFIP) came into being on September 19, 2016 and is set to run for an initial six month period, ending on March 19, 2017. The programme contains two coverage layers, the first of which sees a trio of reinsurers indemnify FEMA for $1m for flood losses that exceed $5m. Under the second layer, the same three reinsurers have agreed to indemnify FEMA for a further $1m should flood losses from a single event exceed $5.5bn. Each of the three reinsurers holds 33.3% of the total coverage secured.

As FEMA explained at the time, the small programme is the first stage in its attempt “to successfully implement a high quality reinsurance programme at the federal level starting in early January 2017”. By purchasing this small programme, NFIP’s Reinsurance Initiative Team hopes to identify and resolve any barriers or issues in advance of the implementation of this far greater placement.

FEMA’s foray into the commercial re/insurance space could pave the way for the capital markets to play a part in helping to manage the costs associated with flood.

“Flood could be moved to the capital markets in the next few years,” said Lohmann, although he added that a change in thinking regarding pricing would need to take place for that to happen. As it stands, the NFIP is some $23bn of debt owing to coverage being given on un-actuarially sound pricing.

Consequently, the pricing of flood coverage under the NFIP would need to be addressed before the risk becomes attractive to ILS investors.

Millette pointed to the example of Florida and its improved ability to withstand hurricane losses as an example of how a major exposure can be better managed, especially as the capital markets are also being utilised to offset some of the exposure in the state.

“I’m just in awe of what a great job Florida has done,” said Millette. “Part of it is they’ve had 11 years without the landfall of a major hurricane, but that happens. It happened in the 1970s and 1980s and [Florida] didn’t develop such a good system then. What they did which was smart was after Katrina, they kept everyone in

the insurance business, but then every year they chipped away it. Every year they depopulated Citizens and nipped, tucked and trimmed it, and now Florida is essentially a private system.

“As opposed to the question of whether we can just move flood insurance into the private market, if the NFIP would start buying excess layers, we would find our way to the right model. And it’s the same with TRIA [the Terrorism Risk Insurance Act]. When the government starts these programmes, they should all be premised on the notion that every year they will be tucked in a little bit because that way the private market will, slowly over time, take up the slack.”

Two other notoriously problematic areas of the re/insurance space could also ultimately make the move to the ILS market, although as Lohmann explained, getting capital markets investors to put their money into deals involving cyber or terrorism would again require some thought on how to

accurately price the risk.“[With cyber and terrorism],

it’s a question of how do you price that risk,” said Lohmann, adding: “You may have to think about the potential correlation.”

Rick Pagnani, the chief executive of Everest Re’s ILS subsidiary Mt Logan Re, said the issue of correlation is one of the biggest problems facing the cyber and terrorism insurance markets. But he said if the ILS sector can get a handle on that, then these specialist sectors would find a home in the capital markets, especially because the limits that are available would far outweigh anything the conventional re/insurance industry can offer.

“The cyber lines lend themselves so much to the capital markets,” said Pagnani. “Look at what the insurance

market can put together. I don’t know the exact number, but I can’t imagine you can cover much more than $500m of capacity, but you need billions of dollars to really make this product effective, and the only way you’re going to do that is you’re going to need third party capital and a capital markets solution.

“There are modelling agencies that are making progress there, but again, it comes down to credibility and confidence.”

Pagnani said there has been a general increase in appetite from investors to move into other lines of business and away from catastrophe risk, and not just because of correlation issues. Indeed, Pagnani said some investors wish to take on non-catastrophe lines of business from Mt Logan Re’s parent company Everest Re.

“[Our investors] want expansion as long as we don’t run afoul of correlation,” Pagnani said.



“ [With cyber and terrorism], it’s a question of how do you price that risk. You may have to think about the potential correlation”Dirk Lohmann, Secquaero Advisors

Vast latent capacity continues to impact the aviation insurance

market with airlines once again enjoying rate reductions during the busy fourth quarter renewal, although during this year’s negotiations there have been signs of some push back from underwriters keen to establish a pricing floor.

The final two months of the year see some 80% of the airline insurance market’s premium placed, with the majority of the major international flag carriers and other nationals seeking to renew their programmes in the winter months of November and December.

While October is the first month where renewals begin to pick up, November and December are the two busiest months of the year for the airline insurance market as during this period some 80% of the sector’s premium is placed.

And during November, JLT said it is increasingly evident that underwriters are taking a harder stance to renewal pricing than previously seen in 2016.

Airline underwriters took a harder stance when renewing risks during the busy month of November with an increasing level of segmentation and a greater disparity between


68 Aviation

Capacity continues to dominate airline market

pricing for clients, JLT’s latest market report highlighted.

“Capacity remains a key factor and it is clear that increased underwriting discipline/selectivity is now having a greater effect,” JLT said.

“Whilst theoretical capacity levels haven’t reduced, and we are yet to see any significant withdrawals, the reality is that the available capacity at a competitive level of pricing has become very limited,” the broker added.

Speaking to Reactions, Allianz Global Corporate & Specialty’s (AGCS) global head of aviation, Henning Haagen, said the aviation market remains tough from a capacity perspective.

“We are seeing that it’s beginning to hurt some market participants, both insurers and producers, and verticalised placements aren’t always going through comfortably anymore despite the overcapacity, and not all placements are making it home easily,” Haagen said.

In its analysis of the November renewals, JLT said the growing distinction between three different subsets of the airline insurance market has continued. This three-tier market, whereby underwriters treat those who have suffered losses in a completely different manner

to those who buy the highest and lowest limits of protection, is not the only reason for such variation in pricing dynamics however.

“Whilst we continue to observe a three-tier market, it is clear that underwriting discipline and risk selectivity are having a greater influence on results, both positively and negatively dependent on each individuals circumstances and profile,” JLT said.

Those airlines purchasing low limits of protection are still able to obtain rate reductions, JLT found during the November renewals. However, those looking to procure high limits of coverage found the going slightly tougher, with those renewing being offered flat rates. The high limits needed to fulfil these programmes means that airlines often find themselves at the behest of underwriters, and are now finding that those offering cover are taking a tougher stance when offering terms.

Loss affected airlines are being hit with both rate increases and penalties, JLT said. Capacity for these risks is, in the broker’s words, “extremely limited”. These accounts are also receiving additional scrutiny from underwriters as carriers

Capacity is still soaring in the aviation insurance market during the busy renewal season, but underwriters are increasingly pushing back.

69


Aviation

seek to reduce the loss factor in their portfolios.

Insurers are now more prepared to cut back their overall line sizes if they are unhappy with the pricing levels, regardless of any long-term relationships they may have.

“Underwriters are now also declining more risks due to pricing, regardless of any negative effect on their premium income,” according to JLT.

“These factors mean that a large portion of available market capacity now exists in a dormant state, waiting for its required criteria to be met before it returns.”

To the end of November, hull losses have amounted to $490.2m, while liability claims stand at $85.9m. There have been a total of 241 fatalities from aircraft accidents in the 11 months to the end of November 2016.

December is the busiest month in the airline insurance market’s calendar. Around 100 airlines are expected to renew in December, generating more premium than any other month and approximately 45% of the annual total.

“Early indications of these renewal results continue to support the current trend,” JLT said.

The head of aviation at QBE North America, Steven Allen, said the market in his region remains resolutely soft, with rates down between 5% and 20% during the renewal season.

With rates continuing to fall, there have been questions as to why companies continue to write this class of insurance business.

But, as Haagen at AGCS explained, aviation insurance is a specialty and separate class of business, and as such offers a variety of benefits.

“Aviation is a specialty line, and for a lot of companies it’s a diversifier as it doesn’t correlate with nat cat and other lines,” Haagen explained. “From a monoline perspective, aviation might not make sense, but from a diversifying, cross class and premium volume perspective, it still seems to make sense for a lot of players.”

While the international airlines may not make sense to some of the world’s insurers, there is still hope to found within some of the more local or regional players. And it is here in this segment of the market where QBE has enjoyed some success.

Focusing on North America’s regional aviation market, Allen said his division is able to benefit from being involved in one of the safest, if not the safest, aviation markets in the world.

This point was hammered home when an aircraft belonging to Bolivian charter airline LaMia crashed during its approach to the Colombian city of Medellin carrying 81 passengers and crew. The accident left 76 people dead including 22 members of top-flight Brazilian football team Chapecoense.

According to reports, the aircraft ran out if fuel before it was able to begin the descent to its destination. The aircraft itself did not have hull insurance in place, but a $25m liability payout is understood to be in the process of being paid.

But this event will not have a significant impact on the global aviation insurance market and will instead be regarded as another attritional loss.

“We see these tragic incidents, but in North America we haven’t seen a major incident in a decade thankfully,” said Allen, adding: “A lot of that is due to the NTSB, the insurers and the insureds collectively focusing on safety. The reduced accident rates lead to reduced premium. It’s a sort of Catch 22, but it’s a good one.”

Haagen shared similar sentiments, noting that one single loss, unless it was truly catastrophic, would not have much of a real impact on the re/insurance market.

“I don’t think that one large

loss would have much of an impact,” Haagen said. “An extreme shock loss may do, but it’s unlikely. The aviation market conditions are embedded within the overall insurance market and the low interest rate environment and it would need an uplift on that end to really see a real impact on capacity.”

While competition for existing business remains high, some firms are looking beyond the traditional aviation insurance industry to try and create some new and bespoke revenue streams on their books.

At QBE North America, 18 months ago aviation workers’ compensation made up about 40% of the firm’s book and aviation in general representing the remaining 60%. Now the book is split 30% workers’ compensation and the rest on wider aviation.

“That’s in large part large corporate aircraft, US regional carriers, airports, pleasure and business and smaller single operators, “ said Allen, adding: “I think there’s a considerable opportunity in the near term in corporate fleets or industrial aid. That’s closely followed by aerospace products manufacturers and US regional air carriers.”

Over at AGCS, Haagen and his colleagues have found a growing interest from clients in coverage for grounding and non-occurrence grounding.

“These are areas where we’re seeing client demand and they’re not being driven by the soft market,” said Haagen. “It’s responding to the needs of our clients.”

Drones or unmanned aerial systems are another potential growth sector for the market.

“It’s an area where we definitely see lots of momentum, growth and opportunity. It’s certainly one area in the next couple of years where we want to focus on. At Allianz, we offer a wide range of aviation solutions – space, airlines, general aviation, manufacturers, airports, and drones is a new add on as a segment.”


“ Aviation is a specialty line, and for a lot of companies it’s a diversifier as it doesn’t correlate with nat cat and other lines”Henning Haagen, Allianz Global Corporate & Specialty

The 6th Annual

Latin American Insurance &

Reinsurance Forum

May 4th & 5th, 2017 Ritz-Carlton Coconut Grove, Miami

The must-attend insurance and reinsurance event for the Latin American region

www.euromoneyseminars.com/LATAMRE17

Save $200

Expires on February 10th 2017JOIN US IN MIAMI

IJGlobal events are hosted in partnership with Euromoney Seminars. IJGlobal and Euromoney Seminars are part of Euromoney Institutional Investor PLC.

Hosted by

#LatAmRe17

Companies who attended the Latin American Reinsurance Forum in 2016 include:

■ A.J.Gallagher

■ AIG

■ AIR Worldwide

■ Allianz Global Corporate & Speciality

■ Americana de Reaseguros

■ Aon Benfield

■ APADEA

■ Arch Re

■ Aretep

■ ASAS

■ Aspen Insurance

■ ASSA Compañia de Seguros

■ AWAC Services

■ AXA Corporate Solutions

■ Beazley

■ BLP Legal

■ Brit Insurance

■ Carey y Cía. Ltda.

■ CGVF Advogados

■ Chubb Group

■ Clyde & Co

■ Contego Underwriting Ltd

■ Crum & Forster

■ CSI Latina Financial Inc.

■ DEG

■ DR&A Advogados

■ EIS Group

■ Engle Martin & Associates

■ eReinsure

■ ERN

■ Essor Seguros

■ Everest Re

■ Fairfax Financial Holdings

■ FASECOLDA

■ Fitch Ratings

■ Florida State University

■ Generali

■ Guy Carpenter & Co LLC

■ HDI Seguros

■ Hiscox

■ Integrity Reinsurance Broker, Inc.

■ IRB Brasil RE

■ JLT Re Colombia S.A.

■ Kennedys

■ LATAM Airlines

■ Latino Insurance

■ Liberty International Underwriters

■ LIMRA

■ Lloyd’s of London

■ Maiden Reinsurance Company

■ Markel

■ Marsh

■ Marval O’Farrell & Mairal

■ Meaden & Moore

■ MiCRO

■ Navigators Re

■ Pan American Life Insurance Group

■ Patria Re

■ Pinheiro Neto Advogados

■ QBE

■ Rainmaker Group International

■ RGL Forensics

■ RIMAC Seguros

■ RMS

■ Roberto Degl´Innocenti Consulting

■ Royal & SunAlliance Insruance Agency, Inc

■ S&P Global Ratings

■ Saxon Insurance Company

■ SCOR Reinsurance

■ Sedgwick LLP

■ SEG

■ Societe Generale

■ Suramericana

■ Sutton Reinsurance

■ Talbot Underwriting LATAM

■ Terra Brasis Re

■ TransRe

■ Unicomer Group

■ United Americas Insurance Company

■ Validus Reaseguros

■ WellAway Limited

■ Willis Towers Watson

For more information and multi-booking discounts please contact Ginny Neill at [email protected] or +44 (0) 20 7779 8217

After another successful event last year, the6th Annual Latin American Insurance andReinsurance Forum will return to Miami on May 4th & 5th, 2017 at the Ritz-Carlton, Coconut Grove.

The forum will examine the challenges andmajor developments facing insurance andreinsurance professionals in the region,and provide unrivalled networking with theindustry’s key players.

The conference offers an invaluable forum for local, regional and international players to

meet and provide thought leadership on the opportunities and solutions in this exciting and growing market.

Do not miss the opportunity to discuss key trends, meet future business partners and execute deals.

Join us this year to meet with leading insurers,reinsurers, brokers, law firms, and lossadjustors for two days of networking and expert speaker sessions.

The years following Indian independence saw a period of wide-

ranging government economic intervention and five-year plans. By the beginning of the 1990s the country was characterised by growth of the services sector as economic liberalisation swept through it.

Held up by some economists as the archetypal developing economy success story, services have led the charge in the country’s expansion. While around half of India’s labour force still work in agriculture, services account for nearly two-thirds of economic output.

However, while India is known


72 Outsourcing

Xceedance targets a new outsourcing model

for its vast outsourcing services sector, used by developed market firms keen to reduce their back office spending and business operating costs, the services provided in India have not been seen as driving much change beyond that, for example towards innovating new and potentially disruptive ideas and technologies, to turn around business models in industries such as insurance.

It’s this context that provides the backdrop for the growth of Xceedance: a business offering consultancy and back-office technology services to the insurance and reinsurance industry; and aiming to provide something different out of India.

Ex-Berkshire Hathaway India CEO Arun Balakrishnan, who now runs Xceedance, is keen to underline that the firm is more than just an outsourcing

operation; the business offers services for re/insurance companies critical in a fast-changing market, ranging from accounting services to the creation of complex data models and artificial intelligence programmes that allow businesses to price their transactions correctly.

Xceedance has expanded its business in recent years, including setting up a new London market office, targeting the City’s concentration of re/insurance firms.

Advanced analytics, infrastructure management and process engineering form the lion’s share of Xceedance’s work, according to the CEO. He provides a concrete example of how Xceedance worked with a recent Australian client.

A surge in enquiries meant brokers working with the Australian client were unable

The Indian insurance services consultancy aims to change the way the re/insurance sector thinks about its options for outsourcing, innovation and insurtech.

73


Outsourcing

to deal with the requests. In response, Xceedance designed an artificial intelligence system enabling the company to deal with the elevated demand; as Balakrishnan explains, “it basically learns the outputs. So every time an underwriter makes some changes and sends a quote to a broker it captures that and brings it into the rating and price scheme.”

Technology is a long way from replacing the job of a broker, but it is increasingly important to completed deals. Balakrishnan says: “Do we foresee people writing very large accounts automatically? No, that won’t happen.

“There’s a role for technology in different areas. If you look at the low-ticket policies, the ones that cost a few hundred dollars, which are very commoditised, they will move to technology platforms that could see straight-through processing.”

Taking a more sophisticated example, Balakrishnan explains how his business offers businesses assistance with detailed catastrophe risk modelling: “Say there is one large factory of one of the large industrial companies spread over three kilometres, traditionally what happens is it comes into the statements as one location with £5bn of value.

“How our team did it is to go to Google maps and map it out. Using KML you can export it out and you divide the whole area of the factory into grids of fair size.

“It could be 0.2 square kilometres, 0.5, whatever is reasonable. You divide the whole area into different grids, one grid which has a warehouse, is a different kind of risk to another grid that has the boilers. Another grid may be just barren.

“If you break it down into ten grids and you put it through the models, suddenly it is viewing that as 10 locations which are very close to each other but have different kinds of insured value associated with them.”

He sees this kind of bespoke, creative solution as critical to the practice of the business.

Another factor critical to the business is changing how the insurance industry thinks about talent in India. The growth in the country’s service industry has proved a boon for businesses around the world seeking to outsource operations. But this so-called labour arbitrage has resulted in some unhealthy stereotypes typical of nascent markets.

“Towards the end of the 1990s, GE set up outsourcing shops in India. Large companies started setting up call centres, things like that.

“So the first thought process was using India as an off-shoring location for the manual, basic, mundane tasks, which may not be done by very expensive resources in the US or the UK – can we have people in India do it?”

These more mundane, process-oriented jobs paid well in comparison to other sectors. A characteristic of the industry, however, was that employees were doing work that was not necessarily in proportion to their educational background.

“What was happening is that we were using skill resources – mathematics grads, statistics graduates, people with good computer science backgrounds, for very basic process-oriented work,” Balakrishanan says.

Balakrishnan says this is something Xceedance wants to change: by using India’s vast talent pool as an innovation

incubator, harnessed for the re/insurance sector. Instead of hiring Indian graduates for mundane tasks, Xceedance focuses on using their skills in a more appropriate way.

He underlines the pitch Xceedance uses to attract the best talent from India: “The pitch we have to people who want to join our company is: think about us as a foundation for insurance careers.

“You get the opportunity to work within IT, within underwriting, within cat modelling, within operations. But if you want to build serious insurance careers, we are the best foundation for that.”

He points out that before this, the only career option for young people wishing to enter the industry was the prospect of working for one of the nationalised insurance companies. “It was never a major career choice for many people,” says Balakrishanan.

Whether or not Xceedance fulfils its claim to be more than a services outsourcing business, time will tell. But if it succeeds in making the most of India’s generation of skilled engineers and technologists and finds credible ways of delivering disruptive solutions, it could carve out a valuable niche within an insurance industry grappling with technological shifts.


2016-2017 represents significant change for Xceedance as the business continues to make senior hires and expand into Europe. After opening its corporate HQ in Boston in 2015, the three year-old company recently opened in London and has intensified its focus on the European market.

May this year saw the appointment of industry veteran George Freimarck, bringing experience from Guy Carpenter and Munich Re to the business. Xceedance has continued its spree of appointments, with Rajesh Iyer bolstering its analytics consultancy team in November.

Iyer has 20 years’ technical industry experience at businesses including Nationwide, the US Automobile Association, Mu Signma and EXL, which will should help

the business with the aggressive acquisition of further tech talent.

The end of the year has brought the launch of offices in London and Krakow, led by Justin Davies and Marek Kaszczyc.

Davies takes up the role of head of region for Europe, the Middle East, and Africa, bringing managerial experience from Pitney Bowes and Xuber.

Kaszczyc has been appointed vice president, country manager for Poland in December. Kaszczyc brings experience in IT operations to the business and joins Xceedance from the role of the head of Aon’s business centre in Krakow.

The new offices in the UK and Poland will focus on strengthening the analytics and risk modelling section of the firm, and help the business juggle clients in Europe and the US.

Recent moves at Xceedance


Polling brokers and fellow underwriters, re/insurance research

consultancy Gracechurch has come out with its annual rankings of the London Market’s specialty re/insurance underwriters for 2016. The project is based on several pillars: specialist expertise; deal making skills; market reputation; client service standards; and relationships with brokers.

Broken down here by lines of business, the rankings include aviation and space, casualty, energy, marine, professional indemnity, property, reinsurance, and war and geopolitical risks. For each class of business there are two tables, one showing the top five underwriters ranked by their peers, and the second table showing the top five when ranked by London Market brokers.

Gracechurch’s project ranked nearly 800 individual underwriters, using over 6,000 verbatim responses to identify characteristics to define leading underwriters. Some of these appear below, in relation to the top-polling underwriters. Some 400 London Market brokers took part in polling, along with 175 London Market


74 Underwriter rankings

Best in classunderwriters, with the research running from January to October 2016.

In the property category, MAP’s Richard Trubshaw emerged victorious in 2016 – whether ranked by fellow underwriters or by brokers. Managing Agency Partners (MAP) is a Lloyd’s Market, independent and largely employee-owned managing general agent, which underwrites via Syndicate 2791.

On his expertise and deal making, one respondent said: “He delivers fast, decisive quoting and his knowledge of business is exemplary. He sticks to his core principles and underwrites a consistently profitable portfolio.”

On broker relationships and deal making, another responded about Trubshaw: “He has a different pricing and portfolio model not focused on off-the-shelf catastrophe models. He provides true service to the London Market. He’s flexible and willing to go against the grain.”

Third on the property class ranking by brokers, Liberty Specialty Markets’ Nigel Tatlock also garnered praise from respondents. “He’s a very sensible, fair market leader who has shown a lot of loyalty to a

London’s leading underwriters 2016 – Accident & healthRank Company Underwriter

Underwriters

1st Tokio Marine Kiln Tim Prifti

2nd= Atrium Peter Laidlaw

2nd= XL Catlin Nigel Guillaume-Smith

4th= Ark Charlie Boyd

4th= QBE Peter Wilkins

Brokers

1st Tokio Marine Kiln Tim Prifti

2nd Liberty Specialty Markets David Morris

3rd AmTrust Graham Nichols

Source: Gracechurch

London’s leading underwriters 2016 – Aviation & SpaceRank Company Underwriter

Underwriters

1st Liberty Specialty Markets Bill Halligan

2nd Chubb John Wadhams

3rd= MSF Pritchard Simon Herring

3rd= Talbot Murray Walker

5th Talbot Andrew Walker

Brokers

1st= Liberty Specialty Markets Bill Halligan

1st= AIG Andrew Trundle

3rd= MS Amlin Robert Lilley

3rd= Atrium David Wade

5th Global Aerospace Rachel Barrie

Source: Gracechurch

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Underwriter rankings

number of clients and is willing to support a book over a long-term period,” said one survey reply. “He makes the effort to interact with our clients and is happy to continue to support clients even when they’ve had tough times. He has been a very consistent, lead market for us.”

Chaucer won a clean sweep in the single category for reinsurance. When ranked by brokers, Mike Clifton, head of US casualty treaty, came out on top. When polling underwriters, his colleague Ryan Ward, a senior class underwriter focused on US casualty treaty business, was ranked in first.

“Ryan works hard to structure and lead new and tougher accounts. He presents well and challenges in client meetings, whilst still building strong relationships,” said one respondent to the Gracechurch study.

Ranked second by underwriting peers for reinsurance, Dale Underwriting’s CEO and active underwriter for Syndicate 1729 at Lloyd’s, Duncan Dale, also garnered praise from respondents. “He is very well respected, full-stop,” said one. “He leads, everyone follows. He is extremely smart. He is


London’s leading underwriters 2016 – Casualty / non marine liabilityRank Company Underwriter

Underwriters

1st Hiscox Chris Warrior

2nd Hiscox Robert Read

3rd Brit Global Speciality Simon Bird

4th Ascot Ben Galloway

5th= Apollo Matthew Newman

5th= Arch Mike Lay

Brokers

1st= Hiscox Robert Read

1st= Chaucer James Mecham

3rd= Brit Global Speciality Simon Bird

3rd= Hiscox David Burke

5th Tokio Marine Kiln Chris Jones

Source: Gracechurch

London’s leading underwriters 2016 – EnergyRank Company Underwriter

Underwriters

1st XL Catlin Stephen Hawkins

2nd= Munich Re Dominick Hoare

2nd= W R Berkley Chris Walker

4th Apollo Simon Mason

5th XL Catlin Julius Wilson

Brokers

1st Munich Re James Grainger

2nd Munich Re Dominick Hoare

3rd= Travelers Andrew Tokley

3rd= Brit Global Speciality Brian Randall

3rd= IMIU James Fryer

Source: Gracechurch

London’s leading underwriters 2016 – MarineRank Company Underwriter

Underwriters

1st Ascot Gavin Wall

2nd= Antares Michael Harding

2nd= Beazley Clive Washbourn

4th XL Catlin Graham Hawkins

5th= Apollo Howard Burnell

5th= Tokio Marine Kiln Des Keane

Brokers

1st Antares Michael Harding

2nd= XL Catlin Graham Hawkins

2nd= Ark Steve Douglas

Source: Gracechurch

London’s leading underwriters 2016 – Professional indemnity / liabilityRank Company Underwriter

Underwriters

1st Beazley Rachel Turk

2nd Navigators Richard Whitfield

3rd= Pembroke Syndicate David White

3rd= Vibe Andrew Palmer

3rd= Charterama Evert Margry

Brokers

1st Markel David Sawyer

2nd= CNA Hardy Callum English

2nd= QBE Grant Clemence

2nd= CNA Hardy Matt Sumpter

Source: Gracechurch


76 Underwriter rankings

The Gracechurch Leading Underwriters Report isn’t a vanity project: it’s a serious piece of research underpinned by over 20,000 data points. The correlation between the ranked underwriters and the likelihood of an insurer being shortlisted for new business is a near perfect statistical match, which means that the leading underwriters are objectively those who are helping insurers to win more quality business.

So, why are these underwriters selected by their peers and brokers?

c Over three years we have analysed the reasons given by brokers and underwriters when choosing leading underwriters. The analysis of over 2,500 ranked underwriters shows that the attributes of leading underwriters can be divided into five main pillars:

1. Expertise 2. Dealmaking 3. Reputation 4. Client service 5. Broker relations

c Leading underwriters are chosen first-and-foremost for their expertise. This incorporates technical capability, specialist knowledge and of course, experience. This is a killer-combination for gaining the respect of brokers and underwriters alike.

c While expertise is by some margin the most dominant attribute, the analysis shows that pure technical capability is now a hygiene factor and that leading underwriters must display an array of complementary skills to get into the rankings.

c Attributes that are growing in importance are softer skills - skills that mainly relate to developing, winning and retaining business in a competitive market:

c Deal making is all about how flexible, pragmatic and creative the underwriter is.

c Reputation is all about status and respect but also contains attributes that relate to trust, such as consistency, integrity, leadership and even ‘being honourable’.

c Client service is about being relationship-oriented, and especially about being easy-to-relate-to (i.e. not aloof), good at presenting to clients, answering questions effectively and communicating effectively about how the product works and the benefits for the client.

c Broker relationships is a new pillar in 2016 and was pulled out because Gracechurch noticed a set of distinct characteristics that specifically related to how underwriters engage with brokers. Some of these attributes are about London market service basics such as responsiveness, availability and accessibility. Others are more active, dynamic attributes that relate to quality of engagement: being supportive, building rapport and understanding brokers’ needs through being willing to discuss and consider different options. It seems that the days of the brokers coming cap-in-hand to the underwriters are over and that a key skill of the modern underwriter is the ability to build mutually beneficial commercial partnerships with brokers.

London’s leading underwriters 2016 – PropertyRank Company Underwriter

Underwriters

1st MAP Richard Trubshaw

2nd Beazley Simon Jackson

3rd= Talbot Simon Wilcock

3rd= Argenta Ian Maguire

3rd= Hiscox Paul Lawrence

Brokers

1st MAP Richard Trubshaw

2nd XL Catlin Rhys Thomas

3rd Liberty Specialty Markets Nigel Tatlock

4th ArgoGlobal Neil Russell

5th= XL Catlin Michael Davern

5th= MS Amlin Adam Wright

Source: Gracechurch

London’s leading underwriters 2016 – ReinsuranceRank Company Underwriter

Underwriters

1st Chaucer Ryan Ward

2nd Dale Duncan Dale

3rd Ascot Mark Pepper

4th= MS Amlin Bob Mellor

4th= Ascot John Pilkington

Brokers

1st Chaucer Mike Clifton

2nd Ascot Mark Pepper

3rd MS Amlin Dominic Peters

4th Chaucer Chris Baker

Source: Gracechurch

London’s leading underwriters 2016 – War & geopolitical risksRank Company Underwriter

Underwriters

1st Aegis Ben Lockwood

2nd Liberty Specialty Markets Paul Beattie

3rd MS Amlin Jason Herriott

4th= XL Catlin Daniel O’Connell

4th= Aspen Insurance Paul Sanders

Brokers

1st Talbot James Bamford

2nd Chaucer Nick Kilhams

3rd Novae Richard Lamb

4th XL Catlin Daniel O’Connell

5th Atrium Stuart Harmer

Source: Gracechurch

About the Gracechurch survey: Why do underwriters get chosen as leaders?

responsive and innovative.”For war and geopolitical risks,

Ben Lockwood of Aegis topped the listing when ranked by peer underwriters in the market. When ranked by brokers, James Bamford at Talbot Underwriting was ranked in first place.

“He is a very experienced underwriter. He quotes an awful lot of business and writes a lot of business, so is very helpful to the broking community,” said

one respondent. Another added: “He’s easy to deal with, highly knowledgeable and trustworthy.”

Just behind him in second place, when ranked by brokers, was Chaucer Syndicates’ political risks underwriter Nick Kilhams: “Commercial, broker-friendly and trustworthy,” according to one reply to the Gracechurch survey.

c By David Benyon – dbenyon@euromoneyplc

77


ReinsuranceSecurity

The Solvency II directive introduced a new requirement to reduce

the insurance industry’s over-reliance on credit ratings when making jadgement of reinsurers’ financial strength and apply their own judgement before calculating capital requirements. However, concern about rating agencies and the impact they have on financial markets is not a recent phenomenon, and pre-dates the financial crisis and subsequent regulatory reformation after 2008.

Almost a decade earlier, in the aftermath of the Enron accounting scandal and the fraudulent activities surrounding Parmalat in the early 2000s, there was significant pressure from politicians on regulators to look into the inner workings of credit rating agencies (CRAs) and how they might contribute to destabilisation of the financial system – later borne out in the crisis of 2008.

Within the EU, the European Commission had made a commitment back in 2002 to look into the role of rating agencies. However, it was not until 2004 that the Committee of European Securities Regulators (Cesr), the predecessor of the European Securities and Markets Authority (Esma), was asked by the Commission to provide

ReinsuranceSecurity: decision making and the use of ratings

technical advice on the need to regulate rating agencies within the EU. In 2003, The International Organisation of Securities Commissions (Iosco) had already concluded that there was a need to improve how rating agencies operate and how the assigned ratings are used by market participants. Consequently, it proposed to implement ‘Principles for the Activities of Credit Rating Agencies’ which came into force as a Code of Conduct Fundamentals document in 2004.

Following consultations with market participants, Cesr published its technical advice and concluded – maybe unsurprisingly – that regulation would not actually address the oligopolistic market position of the rating agencies in Europe. Instead, Cesr recommended to enforce the Iosco code of conduct, as this is regarded as an appropriate instrument to ensure the proper functioning of rating agencies. In addition, it recommended that any regulatory initiatives should be coordinated globally. The Commission concurred with this advice saying that existing directives, such as the Capital Requirements Directives (CRD), sufficiently deal with this issue and combined with the Iosco code of conduct the ‘right

regulatory balance had been struck’.

Following this, there were a number of initiatives and reports from experts groups and institutions before the financial crisis, but none went beyond recommending a more robust Iosco code of conduct or stricter monitoring. However following the steps taken in the US to regulate rating agencies in 2007, the European Commission concluded in 2008 that ‘self-regulation based on voluntary compliance with the Iosco code does not appear to offer an adequate, reliable solution to the structural deficiencies of the business.’ In addition, the Commission highlighted the need for a level playing field with the US in terms of the regulation of rating agencies.

As a consequence, the European Commission published a proposal for the regulation and supervision of CRAs. Following a consultation with the industry, this regulation came into force in November 2009.

Initially, the national regulatory bodies (in the UK the Financial Services Authority) were responsible for the authorisation of rating agencies, however, this responsibility was moved to the newly formed



78 ReinsuranceSecurity


Esma, which was part of a wider reform of the European Financial Stability System at the beginning of 2011.

Concurrent with the consultation regarding the regulation of CRAs, the European Commission also launched a consultation on how to reduce the excessive reliance on credit ratings. This followed concerns by the Financial Stability Forum (FSB) that investors have been over-reliant on credit ratings and that regulatory frameworks (such as the CRD for banks) are actively reinforcing such an over-reliance. However, progress in this area has been slow partially because of the lack of alternatives.

It took until 2014 for the European Commission to start further work on how to reduce the over-reliance, which is surprising given that the FSB had already issued ‘principles for reducing the reliance on CRA ratings’ as early as 2010. There was also significant pressure from the G20 group to accelerate the implementation of measures to reduce the over-reliance on credit ratings which led the FSB to come up with a work plan to ensure that actions are taken by its members. The CRA3 regulation in 2013 introduced the principle that financial institutions should not solely rely on CRAs and should make their own credit assessment. In addition, the regulation stipulates that all references to credit ratings should be eliminated in EU law by 2020 subject to the availability of alternatives.

In the insurance sector, the stipulation that financial institutions should reduce the reliance on credit ratings was enshrined into EU law as part of the renegotiations of the Solvency II directive (Omnibus II). In particular, Article 44 (4a) made clear that re/insurers should assess the appropriateness of external credits ratings for the purpose of technical provisions or Solvency Capital Requirements. In addition, the European Insurance and Occupational

Pensions Scheme Authority (Eiopa) was mandated to develop draft implementing standards regarding procedures for assessing external credit assessments by June 2015. The assessment of the appropriateness of credit ratings also applies to reinsurance recoverables as they are part of the counterparty credit risk calculations in the Solvency II capital requirements.

In response to CRA3, the three EU supervisory authorities, Eiopa, Esma and EBA, started discussions and consultations about how to reduce the reliance on credit ratings in practice in 2013. One of the concerns which was raised during the consultation phase by the insurance industry was while it might be appropriate to require larger insurers to

develop internal credit risk assessment models, it would be too complex and costly for smaller insurers to force them to take this route.

Insurance Europe, a body which represents national insurance associations on an EU level, conceded that there is a need to reduce over-reliance on CRA ratings, however, it would be foolish to refrain from any reference to external ratings. In addition, any ‘legislation in this area should take into account the nature, scale and complexity of insurers’ business and investments. Insurance Europe also pointed out that given the economies of scale CRAs have, it would be difficult to envisage how the assessments carried out by CRAs could be replicated by an insurance company.

As stipulated in the Solvency II directive, Eiopa launched its own consultation on draft technical standards for the assessment of external credit ratings. There was a concern that the initial draft regulation might require all insurers to carry out their

own credit assessment. However, this was watered down in the final version and insurers are now required to carry out an additional assessment of the rating, but it will be depend on the ‘nature, scale and complexity of the business’ how this is done which could also involve outsourcing.

While the main concern about the assessment of credit ratings relates to insurers’ investments, the counterparty credit risk from the transfer of risks to reinsurers should not be ignored as this is an essential part of an insurer’s risk management system. Indeed, under Solvency II the capital requirements for counterparty risk for reinsurance recoverables depend on the creditworthiness of each reinsurer. In the absence of alternatives, the capital

charges in the standard model are mainly based on the default statistics of the rating agencies which are flawed when it comes to the probability of default for insurers. This is mainly because the rating statistics of the three largest rating agencies, Standard & Poor’s, Fitch and Moody’s are mainly based on the default history of bonds and not necessarily on insurance obligations.

AM Best, the rating agency specialising in insurance ratings, has been publishing impairments studies for a number of years. AM Best’s definition of impairments goes beyond a straightforward default on obligations. The rating agency defines an impairment as the first official regulatory action taken by an insurance department, whereby the insurer’s: a) ability to conduct normal insurance operations is adversely affected; b) capital and surplus have been deemed inadequate to meet regulatory requirements; and/or c) general financial condition has triggered

“ In the insurance sector, the stipulation that financial institutions should reduce the reliance on credit ratings was enshrined into EU law as part of the renegotiations of the Solvency II directive”

regulatory concern.AM Best’s impairment

definition much more reflects the business model of insurers. They rarely default on their obligations; instead very often they stop writing business and run-off existing liabilities or sell them onto a third party which may have an overall lower level of financial strength and often no credit rating. This partially explains the different default/impairment statistics published by Standard & Poor’s and AM Best. For example, whereas Standard & Poor’s published an average 10-year default rate of 5.69% for insurers , AM Best shows a 10-year impairment rate of 8.15%.

An important issue, which is not captured even in the impairment figures, is the fact that when a reinsurer goes into run-off because financial difficulties or inadequate capitalisation, it will often try to commute its liabilities as quickly and aggressively as possible. A commutation is an agreement between an insurer and reinsurer which requires the insurer to take back the risks, which it initially ceded to a reinsurer, into its balance sheet in return for a one-off (discounted) payment. In order to speed up the run-off, reinsurers might put insurers under pressure to agree to a highly discounted commutation in return for certainty of payment now as opposed to uncertainty of payment in the future. Although commutation is an agreement between two business partners, it could be argued that if one partner is more or less forced to accept a payment cut, this amounts to a partial default which is not taken into account by the default or impairment statistics of the rating agencies.

Since the CRA 3 regulation and the regulation regarding the assessment of external credit ratings came into force, the European Commission, but also the three European supervisory authorities, Esma, Eiopa and EBA, have been looking into potential alternatives for the use of external credit ratings. The latest report published by

the European Commission in October 2016 highlighted as potential alternatives market-based measurements (such as bond spreads), internal credit-risk assessments tools, but also third-party assessments carried out by independent parties. These could be accounting based measures, such as ratio analysis or scoring by central banks. However, the report also points out that internal credit analysis or financial ratio analysis might not be suitable for every company due to the skills required and the cost involved.

A Lloyd’s of London guidance, published in July 2015 for the calculation of capital requirements under Solvency II, highlighted the new requirements for an additional assessment of credit ratings, but also made clear “this does not

mean undertakings cannot rely on external credit ratings, quite the opposite, but the key point is to ensure they are not solely relied upon […].”

ReinsuranceSecurity has long seen the need for high quality market analysis and has successfully been supplying confidential assessments of reinsurers’ creditworthiness and long term commitment to the market to their clients for a number of years. This has always been a vital supplement to the work performed by the credit ratings agencies and is now also helping companies to deal with the increasing regulatory attention being directed at the excessive reliance on credit ratings agencies.

Assessing reinsurer’s security, including the long-term commitment of the reinsurer, is a normal part of an insurer’s risk management strategy. However, smaller insurers may not have the capacity to devote sufficient resources to this function and ReinsuranceSecurity can help cedants to make an informed

decisions as to which reinsurer to choose depending on the class of business.

ReinsuranceSecurity not only uses quantitative financial analysis to assess the creditworthiness of a reinsurer, but also looks at qualitative factors to evaluate the sustainability of a reinsurer’s business model. These include strategy, strength of management and excessive premium growth. In addition, we look at how well established a re/insurer is and whether there is a likelihood that it might put a particular class of business into run-off.

The latter aspect has become more important in recent years as there is an increasing propensity by re/insurance groups to put business into run-off if it doesn’t fit their strategy or doesn’t meet profitability targets. In addition, this business is often sold to a run-off specialist which creates significant uncertainty for the reinsurance client in terms of the ability and willingness to fulfil policyholders’ obligations by the acquirer of the reinsurance portfolio.

When a reinsurance portfolio is put into run-off this very often changes the relationship between the cedant and the reinsurer as the interest between the cedant and reinsurer start diverging. Whereas the reinsurer becomes more interested in running off the portfolio as quickly (and aggressively) as possible to free up capital, the cedant’s interest is to (fully) collect reinsurance recoverables when they become due. However, this becomes more difficult when a reinsurer goes into run-off. This is exacerbated when a portfolio or the entire company is sold to a run-off specialist.

Reinsurance buyers need to be confident that the reinsurer is able and willing to pay claims when they are due and ReinsuranceSecurity can support cedants in evaluating the pros and cons when placing business with a reinsurer.

c By Michael Zboran – Senior analyst, ReinsuranceSecurity

“ Lloyd’s guidance highlighted new requirements for an additional assessment of credit ratings”

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ReinsuranceSecurity


80


People moves

Talbir Bains, CEO and chief underwriting officer of Dual group, has announced he will step down. Bains will leave the underwriting arm of hybrid broker-underwriter Hyperion at the end of January 2017.

Hamilton has named Silicon Valley veteran Mark Barrenechea as a director on the insurance group’s board. Barrenechea is currently chief executive and chief technology officer of Canadian software company OpenText.

The US Casualty Actuarial Society has elected Nancy Braithwaite to serve as its president. She will serve a one-year term. Braithwaite is an actuary and second vice president at Travelers, working in the US insurer’s excess casualty department.

Jane Carlin has been appointed to the Hanover Insurance Group’s board of directors. From 2003 to 2006 Carlin was managing director and global head of bank operational risk oversight at Credit Suisse. She has also served as a managing director and deputy general counsel at Morgan Stanley.

The US National Association of Insurance Commissioners (NAIC) has appointed Michael

Consedine as chief executive.Formerly Pennsylvania’s state

insurance commissioner, Consedine is senior vice president and global head

of government and policy affairs for financial services company Aegon.

Consedine will lead the NAIC’s Washington, DC office and work closely with NAIC members, representing their interests as an advocate and spokesperson for the association.

Brit has promoted Matthew Wilson (pictured) as the insurer’s new group CEO, replacing Mark

Cloutier in the role.Mark Cloutier will become executive

chairman of Brit, with Richard Ward stepping down to assume the role of senior independent director.

Ward, who was CEO of Lloyd’s from 2006-2013, will also continue as chairman of Brit Syndicates.

Greg Hendrick (pictured), Charles Cooper, Jonathan Gale and Rob Littlemore have all changed roles

at XL Catlin, as the London market and Bermudian carrier shakes up its reinsurance business.

Gale becomes Bermuda reinsurance chief executive, moving from his present role as XL Catlin’s London reinsurance CEO.

Littlemore has been promoted to the London reinsurance CEO role, from his current role of reinsurance underwriting director in London.

Meanwhile, Cooper, CEO of Bermuda reinsurance, will be become the

overall chief executive of XL Catlin’s reinsurance business group as of January 1 2017.

Hendrick, who currently heads XL Catlin’s global reinsurance operations and will be president for property and casualty (P&C), overseeing the re/insurer’s entire P&C operation from January 1.

Littlemore and Gale will both report to Cooper in their new roles. The appointments, subject to regulatory approval, are effective from January 2017.

Miklos Kallo has assumed the role of president at Berkley Regional Specialty. He moves into the role ahead of Paul McAuliffe’s retirement from the WR Berkley Corporation at the end of this year.

Kallo first joined WR Berkley in 1999, and since then he has served in various senior executive positions at two of the firm’s operating units – Great Divide Insurance and Nautilus Insurance.

RenaissanceRe has promoted Sean Brosnan to senior vice president and chief investment officer. The Bermudian reinsurer has also appointed Aditya Dutt as treasurer.

Brosnan joined RenRe in 2004 and previously held the position of managing director for investments of Renaissance Services of Europe.

Dutt continues in the positions of senior vice president at RenRe and president at RenRe Ventures.

Todd Fonner, chief investment officer and treasurer of RenRe, will leave the company to pursue other opportunities on March 31 2017.

Novae Group has appointed Helen Steadman as the re/insurer’s head of cargo. Steadman joins Novae from Mitsui Sumitomo, and was also previously a vice president at Marsh.

Susan Lane has left the role of co-CEO at Tokio Solution, the third-party capital structuring arm of Tokio Millennium Re, following a strategic review at the company.

The new strategy sees Tsuyoshi (Harry) Harigai become sole chief executive of Tokio Solution.

Guy Carpenter has appointed James Nash to lead a newly-created international division.

He will continue to report to president and CEO Peter Hearn, and

81 People moves

will relocate to London.The international division consists

of operations in Europe, the Middle East and Africa, Latin America and the Caribbean, and Asia Pacific.

The reinsurance broker continued its internal consolidation with the creation of a global strategic advisory organisation.

Robert Bentley, previously president and chief executive of Marsh’s US and Canada divisions, will re-join Guy Carpenter as head of the global strategic advisory organisation, based in New York.

This new segment will be comprised of its advisory, analytics, structured risk, mergers and acquisitions advisory, Lloyd’s capital, and business intelligence capabilities.

In addition, Vicky Carter has been appointed vice chairman of global strategic advisory.

She will be based in London and has more than 35 years of experience in the industry, having most recently served as vice chair of Guy Carpenter’s international operations.

Both Bentley and Carter will report to Hearn.

XL Group will have a new chief investment officer (CIO) from the beginning of next year with Andre Keller set to replace the retiring Benji Meuli.

Keller currently serves XL as head of global asset positioning and also holds the title of managing director. He, like Meuli, joined XL after it acquired his previous firm Catlin.

Prior to being handed his current role, Keller was deputy CIO at Catlin. He previously worked at National Suisse as head of asset management and deputy CIO, and held various investment roles at Swiss Re.

Meuli retires after spending close-to 13 years in the re/insurance industry. Having previously spent his career in the investment banking industry, Meuli made the move to re/insurance in April 2004 when he left Morgan Stanley and joined Swiss Re as CIO.

Willis Re’s James Kent has been promoted to the newly-created position of global deputy chief executive.

Kent, who was previously Willis Re’s co-president and president of the reinsurance broker’s North America business, will retain his role as president of Willis Re North America.

Swiss Re has hired Mike Hudzik to replace Nancy Millette Bewlay (pictured) as the head of its North American

casualty hub. Hudzik will take up the role from

the beginning of 2017, whereupon he will also join Swiss Re’s Americas management team and casualty management team.

Reactions revealed in October that Millette Bewlay was leaving her position as head of US casualty reinsurance.

Millette Bewlay first joined Swiss Re America in 2013 from CV Starr as managing director and casualty head of underwriting in the US and Canada.

Axis Capital has promoted Conrad Brooks to general counsel to succeed Richard Gieryn who is retiring from the firm. Brooks will report to Albert Benchimol, president and chief executive of Axis, effective from the beginning of 2017, and moves up from his current position as executive vice president, corporate general counsel.

Scor Global Life has reshuffled the senior management of its Asia Pacific operations in the wake of Marc Archambault’s move to PartnerRe.

Archambault joins PartnerRe as chief executive of life and health reinsurance business after 26 years with Scor, and that has prompted a series of senior management moves at his former firm.

Craig Ford has now been named as Archambault’s replacement as Asia Pacific CEO for Scor Global Life.

Ford, currently Scor Global Life’s deputy Asia-Pacific CEO as well as the CEO of Scor Global Life Australia, will be based in Singapore where he will report into Paolo De Martin, the CEO of Scor Global Life.

With Ford stepping up to CEO of Scor Global Life, Asia Pacific, Vincent Lopez has been promoted to his former position of deputy CEO. Currently global chief pricing actuary for Scor Global Life, Singapore-based Lopez will report to Ford.

At the same time, Ford’s former role as CEO of Scor Global Life Australia has gone to Dion Russell. Previously chief operating officer for Scor Global Life Australia, Russell will continue to be based in Sydney from where he will report to Ford.

Political risk and trade credit underwriter David Lineham has joined

Aegis London.He joins from XL Catlin, where he

was a senior underwriter for those lines of business.

His appointment showed the “continuing expansion of the diversified platform” of the company’s Lloyd’s Syndicate 1225, Aegis said.

Before XL Catlin, Lineham was senior vice president of Marsh’s political risk and structured credit insurance broking practice and a financial and political risk underwriter at Aspen Insurance UK.

Lineham started his career as a solicitor at Clyde & Co.

XL Catlin has named Barbara Luck president of its global excess casualty business having been promoted from her current position of chief underwriting officer of the firm’s global risk management operation.

Luck will take on her new role at the beginning of December, and comes four years after she first joined XL Group. She moved to XL from Ace USA, where she had served as executive vice president and chief underwriting officer for that company’s risk management division.

Neon has appointed Geoff Riddell as its non-executive chairman.

Riddell is also chairman of Pool Re, since joining the board of the UK’s terrorism risk public/private insurance backstop in 2015.

John Mumford, Neon’s current non-executive chairman, will step down from the board in early 2017.

Riddell takes up the role from February 2017, subject to regulatory approvals, the insurer said.

Leonora Siccardi has been promoted to the role of head of UK client services at Aon Benfield.

Previously head of claims advocacy at Aon Risk Solutions, over the last two years Siccardi has been responsible for claims strategy for Aon’s global broking centre in London.

Aegis London has named Hermien Smeets-Flier as chief financial officer (CFO). She joins the UK-based subsidiary of global mutual insurer Aegis from MS Amlin.

Smeets-Flier has been a CFO in the Netherlands and spent 14 years at consultancy KPMG before joining Amlin, where she was CFO of Syndicate 2001.


82 RISKbitz

Cryogenics plan to put old broker head on new shouldersThe insurance industry is widely believed to be heading for a talent crunch. However, a leading London market broker has come up with a solution that could literally preserve the best qualities possessed by today’s brokers for posterity.

Mega Broker’s Steve Grabber has pledged to have his head put into cryogenic suspension so that when the talent shortage in the industry reaches a critical level in the future he could be brought back to life.

The freezing of both human sperm and eggs, and sometimes blood, is already fairly commonplace. But this is believed to be the first time an otherwise healthy broker has arranged for his head to undergo cryogenic suspension after death for the benefit of the insurance industry.

“I think of myself as being like a pioneer or an astronaut going out on a mission from which I might never return,” Grabber told RISKbitz. “But I can see how talent like mine is not being replaced fast enough and I’m willing to risk it.”

Grabber has opted to have just his head frozen on the basis that it would be possible to build a new body if the brain and DNA survive the big freeze. “It occurred to me that after a lifetime of expenses paid entertaining some new innards wouldn’t go amiss,” he said. “Also, they can arrange for some new hair for old Grabber as well.”

The cryogenic deal is funded by a

life insurance policy that pays out on Grabber’s death. The proceeds will pay for his head to be kept frozen into infinity. “There will come a time when commissions and fee income have dried up,” Grabber said. “Someone will say ‘I think it’s time to get old Grabber’s head out of the fridge. He’ll know what to do to get the claret I mean premium flowing again’.”

Mocha Re dives into InsurTech venturesMocha Re has joined the growing list of reinsurance companies pouring funds into InsurTech. During 2016, several reinsurers announced investments in digital solutions such as large datapots, super analystics and nodular client interfaces.

Mocha Re’s CEO Sir Norbert ‘Nobby’ Johnson admits that Mocha Re was late to the InsurTech party but adds he intends to make up for lost time fast. “I asked one of our chaps to look into these disruptor johnnies pdq and get back to me with some ideas,” Sir Nob told RISKbitz. “As a result I’ve been writing cheques left, right and centre spending money we haven’t got on a lot

of pie in the sky internet of thingummy bobs.”

Among the new ventures is Wriskwatch, a smartwatch that alerts risk managers when it’s time to renew their insurance. The waterproof digital “watch” also doubles as a calculator so that policyholders can work out by how much their premium has gone down again.

Mocha Re has also entered into a partnership with Black Labs, a start-up with a suite of digital solutions aimed directly at insurers themselves. The first roll-out, BReX-IT, is a constantly updated app that allows London market insurers to find out which markets they can no longer access after the UK’s decision to leave the EU.

Black Labs is also working on Black Chain, a distributed digital public ledger bot that no-one has access to unless they know the magic word [Are you sure about this? Ed].

“To be perfectly honest I don’t think any of us actually understands what’s going on: it’s simply that we need to be seen to be doing something about bots rather than just sitting on them,” Sir Nob laughed.


A satirical view on the risk and insurance industry

Trump’s plans to transform the US insurance industry

Weeks after the shock US election result that saw Donald J Trump sweep to victory in the race to the White House, details are beginning to emerge about what the insurance and reinsurance industry can expect from the new administration.

Following a briefing with Trump’s right wing (surely hand? Ed) spokesperson Nigella Farrago, RISKbitz can reveal some of the key changes that the insurance industry can expect to see.

Healthcare: Trump is likely to replace Obamacare with his own Trumpacare model. Privately he has told aides that he wants to build a network of private hospitals modelled on Trump Tower and staffed by beautiful young nurses in revealing uniforms designed by his daughter Ivanka. “If that doesn’t make the nation feel better I don’t know what will,” he is alleged to have said.

Regulation: Trump intends to bulldoze the Federal Insurance Office and instead strengthen the powers of state regulators by arming them with assault rifles. Shoot

first and ask questions later will be the byword for NAIC members in 2017.

Bermuda: Despite warnings that such a project will be difficult to achieve, Trump says he will build a wall around Bermuda to stop reinsurance premiums getting in – and he will make Bermuda reinsurers pay for building it. Privately Trump has admitted that he might scale back the plan to planting a privet hedge (Is that a pun? Ed)

Immigration: There will be a complete ban on foreign reinsurers – especially Europeans – entering the US market until Trump can figure out what the hell is going on. Trump is believed to be especially mad at a country called Eiopa which he says is exporting a dangerous ideology.

Climate: As well as scrapping the Paris agreement on emissions, Trump is expected to force insurers to install open coal fires for heating their offices.

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