Jan 1, 2010 - it also hindered BP's efforts to control the Deepwater Horizon oil spill off the Louisiana coast, with som
reınsurance GLOBAL TECHNICAL ESSENTIAL
JANUARY
FEBRUARY
MARCH
APRIL
MAY
JUNE
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
▲ 2010
Property and catastrophe Gearing up for this year’s A to Z Page 31 Run-off and claims Implementing a solvent scheme is just the start Page19 Interview Dominic Christian on co-heading Aon Benfield Page 28 Top 25 The state of the market’s biggest players laid bare Page 12
REVEALED: THE REINSURANCE POWER LIST 2010 www.reinsurancemagazine.com
www.globalre.com www.globalre.uk.com
You just need to know how to do it.
GLOBAL Re run-off solutions - tailored to your needs.
Barbados • Cologne • Kuala Lumpur • London • Madrid • Milan • New York • Paris • Toronto • Zug
|
Editorial and contents
reınsurance E-mail addresses
[email protected]
Jetskis and power lists
Editorial
As you may have noticed, we at Reinsurance have been keeping ourselves busy in what we call the quiet season, that point in the year when you all go to the beach and stop creating news. Rather than wondering what side of the yacht to place the champagne bar, we have given Reinsurance a bit of a tweak. Rest assured, all your favourite sections are still here but we have jazzed up the layouts and added a news review element alongside your regular news to help keep you up to date and informed. Let us know what you think (our contact details are in the panel on the left). We are also in the process of re-jigging our website to create a stronger, dedicated reinsurance offering, a move that in many ways can be boiled down to drawing a lot of pretty pictures and spending time with our resident IT geeks. It will be up and running in a few months: more announcements will follow. As usual, at the beginning of the warm-up to Monte Carlo (and following the customary Reinsurance team fight) we have produced our annual Power List (pp22-27). There are a few fresh faces as well as a number of familiar ones, so make sure you check out who we think is on the top of their game. One new entrant to the list was this month’s interview candidate, Dominic Christian, the new co-chief executive officer at Aon Benfield (pp28-9) Meanwhile, our top-25 reinsurers league table (pp12-5) has also seen a couple of new entrants this year, not least of which is our first life and health reinsurers league table. Have a good month.
Editor Katherine Blackler Group editor-in-chief Anthony Gould Production editor Laurence Gunn Group art editor Nicky Brown Editorial tel +44 (0) 20 7316 9691 Editorial fax +44 (020) 7316 9313 Advertisement sales Publisher Phil Harding E-mail
[email protected] Tel +44 (0)20 7316 9834 Advertising tel +44 (0)20 7316 9834 Advertising fax +44 (0)20 7316 9257 Incisive Media Group publishing director Derek Peck Marketing manager Ro Osborne Group production manager Rebecca Yegliss Customer services Tel (UK) +44 0870 240 8859 Tel (US) +1 (212) 925 6990 E-mail
[email protected] Subscription hotline Tel +44 (0)845 155 1846 E-mail
[email protected] Annual subscriptions: UK £255 Airmail Europe £275.40 (¤413.10) Airmail RoW £293.25 ($557.20). Remittances by cheque or international money order to be sent with order and made payable to Incisive Financial Publishing Ltd. Overseas cheques should be drawn in sterling. Head office Incisive RWG Ltd, Haymarket House, 28–29 Haymarket, London SW1Y 4RX Tel +44 (0)20 7484 9700 US & Canada office Incisive RWG Inc, 270 Lafayette Street, Suite 700, New York, New York 10012, US Tel +(212) 925 6990 Asia & Pacific office Incisive RWG Ltd, Unit 2708, 27th Floor, The Centre, 99 Queen’s Road, Central, Hong Kong, SAR China Tel +(852) 2545 2710 Average net circulation from 01/07/2008 to 30/06/2009: 8996 Published by Incisive Financial Publishing Limited © Incisive Media Investments Limited ISSN 0048-7171 Printer: The Grange Press, Southwick Member of the Audit Bureau of Circulations
Katherine Blackler, Editor
>>replay
In this issue
THE TOP 5 LINKS THIS WEEK
News round-up
4
News analysis
6
Rethink
10
Inside View
11
The Power List 2010
22
Who is top dog this year?
Interview
28
Tokio Marine restructures www.reinsurancemagazine.com/1720835
Dominic Christian on his new role
Buffet wins bet against French team www.reinsurancemagazine.com/1687513
Property and catastrophe
31
First hurricane of 2010 season forms www.reinsurancemagazine.com/1686839
The aftermath of Deepwater Horizon
Forecasters predict an active year
Top-25 reinsurers
People
33
Dutch insurer to sell reinsurance business www.reinsurancemagazine.com/1686970
Resumé
34
Argo poaches Roberts from Aon Benfield www.reinsurancemagazine.com/1686836/
12
The state of the big players laid bare as the world emerges from recession
Cat bonds
17
William Richard Anderson
Why 2010 could be a growth year
Insight – run-off and claims18 Solvent scheme support, follow-thesettlement claims and climate change www.reinsurancemagazine.com
July/August 2010
reinsurance 3
News
|
Hurricane Alex landfall Hurricane Alex drenched the TexasMexico border at the end of June as the powerful storm slammed into Mexico’s Gulf coast, spawning tornadoes and flooding towns but sparing US oil wells. The category two hurricane blew at up to 105mph, uprooting trees and knocking over flimsy houses; it also hindered BP’s efforts to control the Deepwater Horizon oil spill off the Louisiana coast, with some operations being temporarily suspended. Rain from the first named storm of the 2010 Atlantic season swelled the streets of the Mexican port city of Matamoros. Across the border in Brownsville, Texas, at least three tornadoes swept through the area, although no major damage was reported. Neal Bill vote still distant The controversial reinsurance bill targeting the Bermuda loophole is advancing slowly but the US Congress is unlikely to move quickly on the controversial tax legislation. Senator Richard Neal has pushed hard in recent years to close what he considers a tax loophole that favours foreign-owned insurers over domestic US firms. Lawmakers on the House Ways and Means Committee have begun debating the issue but the panel appears a long way from voting on the measure. Pricing resists pressure Major losses from the Chile earthquake and storms in Australia in the first quarter of 2010 have had little impact on global reinsurance pricing. According to Willis Re, the market has continued to soften at this renewal season, with the exception of Chilean-specific renewals that have seen rate increases of between 40%-70%. For more on renewals, see p7. Chaucer opens in Argentina Chaucer has opened a new office in Buenos Aires, Argentina, to access facultative property and related risks in Latin America on behalf of Chaucer Syndicate 1084. The new office extends the reach of Chaucer’s international operations. Uwe Fischer will be general manager of the Latin American operation, joined by Alejandro Ferrin and Guido Wolman: each used to work at Glacier Re. The Latin American office intends to service business from 1 October 2010. Chaucer agrees Norwegian deal Chaucer has formed a new energy partnership with Scand Ins. The Norwegian company, which has operated as an energy underwriting representative for Chaucer since January, has now received approval in the UK to act as an official underwriting agent. 4 reinsurance
July/August 10
QBE set to acquire Belgian reinsurer QBE has signed a share purchase agreement to acquire Belgian-based specialist reinsurer Secura for €267m (£227.3m). Secura’s 2010 gross written premium is expected to be around €200m. QBE said that the purchase price reflects minimum net tangible assets of €205m using widely accepted accounting principles in the Benelux country. The purchase price will be increased or decreased by the amount of the movement in the net tangible assets from 1 January 2010 to completion, which is scheduled for 31 August. Investment assets included in the balance sheet amount to approximately €900m. The purchase price will be funded from internal resources. Post-completion, Secura will form part of QBE’s European operations reinsurance division, which has its headquarters in London.
Frank O’Halloran, QBE’s group chief executive officer, said: “We have known Secura for many years. It has a unique client base, a long track record of profitability and an excellent team of experienced insurance professionals. “There is little duplication with our existing reinsurance business.” O’Halloran added: “The acquisition meets QBE’s objective of earnings per share accretion in the first year.”
Japan to abolish domestic asset allocation rules Japan’s Financial Services Agency plans to eliminate investment rules restricting asset allocations at life and non-life (re)insurers. The country’s law currently requires Japanese (re)insurers to keep domestic shareholdings at no more than 30% of total assets under management; the move could prompt a shift to higheryielding overseas bonds. Japanese (re)insurers are reducing their domestic shareholdings and bolstering foreign bond investments. With cumulative assets of over ¥300trn (£2.3trn; $3.4trn), life insurance firms are a significant presence in Japanese markets; experts believe that this presence risks being damaged if insurers further withdraw from local markets. The country’s regulator also plans to abolish a rule prohibiting insurers
from operating subsidiaries outside the insurance and financial fields. Since foreign insurers often own noninsurance and non-financial units, this rule has been a major impediment to Japanese insurers’ mergers and acquisitions activities overseas. With the method for calculating s o l v e n c y ma r g i n r a t i o s to b e tightened in 2011-2012, the regulator has concluded that removing the restrictions would not lead to reckless investment.
>>respond AGREE? DISAGREE? Have your say on the latest news www.reinsurancemagazine.com/category/reinsurance
Nat cat losses double average I n s u r e r s’ l o s s e s f r o m na t u r a l catastrophes, including the February earthquake in Chile, totaled $22bn in the first half of the year, more than double the average for the period since 2000, according to Munich Re. The German reinsurer said that insured losses surpassed the first-half record from 2008 and compare with $11bn reported for the same period last year. Total economic losses from natural catastrophes amounted to $70bn in the first six months of 2010. “Following a relatively benign 2009, the first six months of this year were marked by three natural catastrophes ranked as great,” said Peter Hoeppe, who heads Munich Re’s Geo Risks Research Department. The Chile earthquake, the fifth strongest worldwide for a century, resulted in insured losses of about $8bn, according to the reinsurer. A statement from Munich Re concluded: “The Haiti and Chile earthquakes in particular rank among the most devastating events ever recorded, based on a number of parameters.” European winter storm Xynthia, which swept across Portugal, Spain, France and Germany in February, is expected to cost insurers $3.4bn, the German firm said. Hoeppe added that losses from natural catastrophes caused by climate change would rise. He stated that eight of the 12 most expensive disasters in US history have occurred since 2004, with weather-related catastrophes increasing at a faster rate than geophysical events. “Global warming has already and will in the future contribute to the increase in the probability of these events,” he said. Catastrophes outside the US this year cost insurers more than twice as much as domestic disasters, Munich Re data shows; Hoeppe described the figures as “quite atypical”. Disasters in the first half of the year in the US accounted for 28% of global insured losses, compared with a 60% average since 1980. Meanwhile, Haiti and Mozambique have been listed as the most vulnerable countries on the Natural Disasters Economic Loss Index from Maplecroft. Italy, Japan, China, the US, Spain and France were also rated “high risk”. www.reinsurancemagazine.com
|
News
Tokio Marine expands internationally to grow reinsurance and commercial property books Tokio Marine has announced plans to expand its international reinsurance and large commercial property operations. It has also announced new offices for reinsurance business in Switzerland (see p6) and Australia. The move is part of an ongoing strategy by the company to increase its international presence and capital efficiency. Shin-Ichiro Okada, senior managing director at Tokio Marine Holdings said: “This expansion of our international operations is firmly in line with our established strategy. We are working towards profitable international growth on all fronts.” “With the newly reorganised international reinsurance and commercial property arms of our international business in place, we will be better
positioned than ever to offer our brokers and clients easy access to a full range of products that are consistent around the world, backed by our Standard & Poor’s AA-rated security.” Tokio Marine is bringing together its international reinsurance operations under the existing Tokio Millennium Re (TMR) brand. Headed by Tatsuhiko Hoshina, TMR will bring its Bermuda and London operations into line as a single market entity through rebranding what is currently Tokio Marine Global as Tokio Millennium Re (UK). As part of ongoing plans to diversify its geographical spread, capitalise on fast-growth regions outside Japan and enhance capital efficiency, TMR is also announcing plans to open new branches in Switzerland and Australia for the first time.
Insure
Reinsure
Tokio Marine Global’s London offices
In line with the emergence of new reinsurance hubs in Europe, Asia and Oceania, TMR is following the same strategy by establishing offices in Zurich and Sydney to handle treaty reinsurance.
In order to allow Tokio Marine’s growth strategy in large commercial property insurance, it is establishing a TMG business unit across New York and London to write the line, which will be headed by Philip Wray. In London, the TMG business unit will be a division of Lloyd’s Tokio Marine Kiln Syndicate 1880 (managed by R J Kiln), which will write large commercial property and engineering business as is currently handled by Tokio Marine Global. In New York, TMG’s business unit will be a division of Tokio Marine Management – the US manager of Tokio Marine & Nichido Fire Insurance Company (US branch) – which will write large commercial property business. All changes will take effect for business beginning on 1 January 2011.
Really Sure
It’s Good To Be Really Sure
We are an international law firm providing a broad range of legal services to the global insurance and reinsurance community. Stay ahead of the game and sign up t0 receive EAPD’s free insurance and reinsurance: • Daily Emails • Online Seminars • Quarterly Newsletters • Event Invitations. InsureReinsure.com/Info
InsureReinsure.com eapdlaw.com
©2010 Edwards Angell Palmer & Dodge LLP & Edwards Angell Palmer & Dodge UK LLP ATTORNEY ADVERTISING. The hiring of an attorney is an important decision that should not be based solely on advertisements. Prior results do not guarantee a similar outcome.
www.reinsurancemagazine.com
July/August 2010
reinsurance 5
News Analysis
|
Reinsurers pursue Swiss dreams Money is very important but it is not everything. Being content can often be of more value.
With Amlin, Catlin and Tokio Marine setting up Swiss reinsurance operations, Katherine Blackler investigates the attraction of the alpine country
William (Bill) Richard Adamson, managing director, Paladin Underwriting Agency Hiscox $750m funding Hiscox has secured a $750m syndicated three-year revolving credit and letter of credit facility. As co-ordinating mandated lead arranger, Lloyds TSB Corporate Markets provided $150m for a deal that also included Barclays, Commerzbank, Crédit Agricole and ING. In a statement, Lloyds TSB, which is acting as facility agent and security trustee, claimed that the funding arrangement “defies current market conditions”. Ariel Re admitted in Brazil Ariel has opened a representative office in Rio de Janeiro after its approval as an admitted reinsurer by Brazilian regulator SUSEP. The reinsurer will initially focus on surety and trade credit reinsurance in Brazil, with business underwritten by its Zurich office. The team will be managed by Thomas Rothenberger. New head at AIA AIG has named former Prudential chief executive officer Mark Tucker as head of its Asia life insurance business – AIA – and said it would seek to list the firm on the Hong Kong stock exchange. The removal of Mark Wilson as CEO follows a boardroom battle at AIG that culminated in the resignation of AIG’s chairman Harvey Golub in July. 6 reinsurance
July/August 10
In May, Amlin became the first of three reinsurers to announce that it is to establish a Swiss reinsurance arm. In a statement, the company said: “Amlin aims to establish longterm partnerships with companies operating in this sector that will provide the group with access to European reinsurance business that does not typically flow into the London and Bermuda marketplaces.” The tendency of European clients to place business within Europe was also cited as the primary driver for Tokio Marine’s new Zurich-based office, created as part of a global reorganisation of insurance and reinsurance operations.
Catlin has also applied to the Swiss Financial Market Supervisory Authority to establish Catlin Re Switzerland. Subject to regulatory approval, Catlin Re Switzerland will have capital of at least $1bn from internal resources and will initially underwrite specialty reinsurance business for which market conditions are favourable.
Local advantage
Talking to Reinsurance, Tatsuhiko Hoshina, president and chief executive officer (CEO) at Tokio Millenium Re, explained the logic behind choosing Switzerland as a reinsurance hub. He said: “European clients tend to place within Europe and with Solvency II we expect higher cedent demands, especially for natural catastrophe business. “We are currently in negotiations with individuals in Europe and will be giving full underwriting authority to our Zurich branch; we expect it will be a big operation. The branch might be as big as in Bermuda in five years, however if it takes a decade to penetrate the market then we can wait.”
Stephen Catlin
During his inter view with Reinsurance (see pp28-29) Dominic Christian, co-CEO at Aon Benfield, said that there are likely to be a variety of motives behind the reinsurer’s choice of Switzerland – of which Solvency II might be one – but that he has the feeling that the effective tax rate advantages also played a role. As part of its project, Amlin intends to re-domicile its legal carrier Amlin Bermuda from Bermuda to Zurich. The new Zurich-based company will be named Amlin AG and the existing operations of Amlin Bermuda will
become a Bermuda-based branch of Amlin AG. Catlin is also to apply to the Bermuda Monetary Authority to establish a Bermuda-based branch of Catlin Re Switzerland. The Bermuda branch will initially underwrite reinsurance of various Catlin Group subsidiaries that is currently written by Catlin Insurance Company. Catlin insisted that its existing Bermuda portfolio of open-market (re)insurance will continue to be underwritten by Catlin Bermuda. The company added that it “remains committed” to the Bermudan market and expects to grow its staff numbers on the island to above the current level of 32 as the business develops.
Bermuda assurance
Christian agrees that establishing reinsurance operations in Switzerland should not be seen as to the detriment of Bermuda. He was keen to stress that Bermuda still represents around 30% of catastrophe business and that Amlin, Catlin and Tokio Marine are likely to seek to increase their shares of continental European business rather than move their current business focus to Europe. Hoshina concluded: “Our Zurich office and other new branches are the second stage of growth for our reinsurance operations. We spent the first decade building the reputation and brand of Bermuda and we are now taking the next step by branching out. www.reinsurancemagazine.com
|
Rates decline at July renewals Prices fell for most peak lines at the 1 July 2010 renewals, with moderate pressure on property rates in regions with catastrophe activity, writes Katherine Blackler Despite significant catastrophe losses during the first half of 2010 – among them the Chilean earthquake – property rates declined by as much as 15% according to Guy Carpenter. The broker said that US property rates decreased by 10% to 15%, with pricing for the year down 12%. Quoting behaviour for 2010 was less volatile than in 2009, ranging on average between both declines and increases of 10%. Predictions of an active hurricane season have had only a slight impact on June and July renewals. Although reinsurer capital remains abundant, consideration is being given to potentially large hurricane losses, resulting in firmer pricing in regions with significant hurricane exposure. Across the energy and casualty sectors, conditions were flat or down, though the Deepwater Horizon rig disaster has the potential to pile upward pressure on rates. Chris Klein, director of Reinsurance Market Management at Guy Carpenter, said: “Despite the heavy catastrophe losses in Chile and the Deepwater Horizon rig disaster, the trend of declining rates has continued. The longer-term effect of Deepwater Horizon remains to be seen, however; we might see additional upward pressure on rates as additional information comes to light.” According to the broker, the Deepwater Horizon loss did not affect reinsurers’ quotes on international placements because accounts were underwritten separately, based on specific account losses and exposures. Guy Carpenter added that marine excess-of-loss pricing is expected to increase substantially for reinsurance buyers with energy exposures. Rises of more than 10% were seen for deepwater drilling risks similar to those at Deepwater Horizon. International casualty rates and capacity levels have remained stable during the first half of 2010, with non-accumulative general liability and motor lines continuing to be most sought. Reinsurance capacity for most www.reinsurancemagazine.com
classes of long-tail business remained plentiful. Despite the earthquakes in Haiti and Chile in the first quarter, terms and conditions in the property excess-ofloss and pro rata lines in Latin America were unchanged at the renewal. Readily available capacity and new market entrants put downward pressure on rates, though the Chilean earthquake losses had a s o m e w ha t
mitigating effect, according to Guy Carpenter. In Chile, treat y excess-of-loss and facultative risks saw rate increases in the range of 50% to 70%. Aon Benfield agreed, adding that although reinsurance rates in layers with loss activity rose more than 30% in Australia after storm activit y there, overall programme results varied significantly from client to client. Stephen Mildenhall, chief executive officer at Aon Benfield Analytics, explained: “Recordhigh reinsurer capacity continues to grow more quickly than cedent
demand, producing further downward pressure on rates in almost all market segments. In Chile, new capacity has been drawn into the market, helping to contain the pricing impact of February’s earthquake to property catastrophe.”
South America has seen many catastrophes already this year.
News Analysis
For retrocession, the Guy Carpenter report said that most markets were approaching full capacity for US wind but that some capacity was still available; terms and conditions have remained fairly stable from those seen in the early part of 2010. With the passage of health reform through Congress in the US, medical insurers are trying to understand how to manage unlimited lifetime claim maximums. For personal accident c a t a s t r o p h e, a l t h o u g h ma r ke t dynamics suggest rising rates, pricing continues to be driven down as the market remains flush with capacity, according to Guy Carpenter. Klein concluded that the direction of rates for the remainder of 2010 is not certain: “For the remainder of the year, the direction of the market is hard to forecast. Abundant capacity has depressed pricing but the depletion of reinsurers’ catastrophe loss budgets may help to stabilise the market. “Meanwhile, pressures on earnings from low investment returns, diminishing reserve releases, inflation concerns and Solvency II continues to build. One might expect to see consolidation but depressed price-to-book values are an impediment. With the hurricane season expec ted to be ac tive, the market could look very different at the 1 January 2011 renewal.” A report from Willis Re added that, barring any major loss event removing a considerable portion of the excess capital, there is unlikely to be any rating upturn in the near future. The repor t did not think that continuing sof tening of rates is necessarily a cause for concern. A combination of excess capital, stable investment returns and limited growth prospects continues to obscure the potential impact that prolonged soft pricing could have on global reinsurance in the event of a major hurricane or a similar catastrophe, said Willis Re. The broker added that there is a “growing nervousness” in the market. Peter Hearn, CEO at Willis Re, said: “There is a concern that the longer the wait for any upturn in the reinsurance market, the more abrupt it will be once it eventually arrives.” July/August 2010
reinsurance 7
News Analysis
|
US reforms herald federal sector regulator After a marathon 20-hour debate, the US Congress passed an amended version of the Dodd-Frank Bill that includes measures to create a federal insurance regulator. Katherine Blackler investigates June 2010 was an unprecedented month for financial regulation reform throughout the world. First, the UK government announced the wind-down of the Financial Services Authority (see p9), followed a week later by the longdebated US financial reforms finally making it through Congress, albeit in a slightly revised form. The Dodd-Frank Bill passed the joint Senate-House Committee on a party line vote following a 20-hour debate. It now faces final approval votes in both houses of Congress before going to US president Barack Obama for signature. The majority of the Bill takes aim at the banking sector, with measures such as the Volcker rule, which is intended to ban banks from risky entanglements in the financial markets. As part of this rule, US banks will be barred from taking big trading bets on markets; they will also be limited to investing a maximum of 3% of their capital in speculative businesses such as hedge funds or private equity funds. Treasury Secretary Tim Geithner said the Bill that had emerged was “strong” and described it as “the most sweeping set of financial reforms since those that followed the Great Depression”.
New watchdog
More significantly for reinsurers, as part of the Bill, the first federal monitor for state-policed insurers will be established. The National A ssociation of Insurance Commissioners (NAIC) supported the move to create a Federal Insurance Office (FIO) in the US. NAIC told the House Financial Services Committee that amendments to the Federal Insurance Office Act that have been included in the Bill uphold safeguards to ensure that state regulation continues to protect insurance consumers and companies. Proposed changes to the Bill include: close coordination between states and the FIO on narrow international agreements; ensuring that international agreements do not preempt state prudential regulation of US insurers; 8 reinsurance
July/August 10
because they’re required to post higher collateral than their domestic competitors. The Bill also calls for a new governmental orderly liquidation process for financial firms on the verge of collapse. Authorities would seize and liquidate, with the costs covered by sales of assets and fees to other firms if needed. The reform is to be funded by a $19bn tax on financial institutions – a risk-based capital charge on major banks and investment funds – and will be collected by the Federal Deposit Insurance Corporation. Therefore, the industry can let out a collective sigh of relief that, in its current form, the Bill has prevented the cost burden falling on (re)insurers.
Funding outcome
President Obama greets Senator Dodd
limiting the scope of agreements to recognising a level of supervision consistent with state protections; enhanced congressional involvement and consultation; and improved judicial review on preemptive determinations. The proposals include a clear retention of state authority over the business of insurance. The FIO will collect insurance data to advise the Treasury on domestic and international policy issues, as well as report to Congress every two years and create federal policies related to international insurance issues. However, Frank Nutter, president of the Reinsurance Association of America, had some reservations about the Bill, saying that the FIO might not have enough authority to address global reinsurance markets. He commented: “We are pleased with the establishment of the FIO. While it is certainly a positive step towards improving the ability of the US to deal effectively and efficiently with
foreign regulators in the matters of insurance and reinsurance, we would have preferred that it have greater authority to address global reinsurance. However, the legislation contains a study of the reinsurance market that should make clear that a strengthened federal office is a necessary feature of a sound regulatory oversight system.”
Corporate support
Plans to create the office have drawn praise from foreign (re)insurers including Swiss Re and Lloyd’s, because the provision would help the companies preempt state rules that govern reinsurers by creating a US Treasury department office to negotiate international regulations. Non-US reinsurers without state licenses say they are currently disadvantaged in the US market
>
The $19bn income, to be raised over a decade, would be held for 25 years before being used to pay down national debt. Meanwhile, US tax reforms aimed at the (re)insurance sector have continued to face opposition. A statement from opponents to the Neal Bill said that the Bill, HR 3424, would unfairly raise taxes on the domestic affiliates of foreign-owned insurance and reinsurance companies. William Berkley, of WR Berkley, currently leads a coalition that refers to this Bill as closing a loophole but the statement from opponents argued that no such loophole exists; the same US tax law currently applies across the board to all affiliates of insurance companies, foreign or otherwise. The statement said: “This Bill exists purely to drive out competition and increase profits for a handful of powerful and successful insurance companies that provide only a small percentage of catastrophe-exposed proper t y coverage across the re country.”
For more on regulation: www.reinsurancemagazine.com/category/regulation www.reinsurancemagazine.com
|
In his Mansion House speech in June, the UK’s Chancellor of the Exchequer George Osborne said that the FSA would cease to exist from 2012, with its powers to be shared among several new regulatory bodies and the majority coming under the control of the Bank of England. Current FSA chief executive officer Hector Sants will become CEO of the new regulator, the Prudential Regulatory Authority. Explaining the move, Osborne said that the new regulator would operate as a subsidiary of the Bank of England and carry out prudential regulation of all financial firms, including (re)insurance companies. An independent Financial Policy Committee at the Bank will also be established with the tools and responsibility to look across the economy at macro-economic issues that might threaten economic and financial stability; it will be responsible for taking effective action in response. A new Consumer Protection and Markets Authority (CPMA) will also be established to regulate the conduct of every authorised financial firm providing services to consumers, therefore affecting personal lines insurers but having little to no role to play with the reinsurers. The move has been greeted with mixed reactions. Mathew Rutter, financial services partner at Beachcroft, supported the changes. He said: “The existing structure has been shown to be weak on macro-prudential regulation and the FSA has shown little appetite for taking on that role. Something has to change at the top to prevent the same problems happening again.
Sensible choice
“The one thing that jars slightly in the new structure is putting consumer protection and market supervision together, though the alternative would have been further fragmentation. On balance, keeping them under one roof is probably the better option.” He continued: “Moving many of the functions of the FSA to a subsidiary of the Bank of England is as much about symbolism as anything else: it creates a clear pecking order. Part of the problem with the current structure is that it wasn’t clear where the buck stopped, which will be less of an issue under the new regime.” Rutter added that increasing numbers of European directives meant that the FSA would have been unlikely to remain in its current role even without this government intervention. www.reinsurancemagazine.com
News Analysis
Death knell sounds for the FSA The Chancellor of the Exchequer has announced a radical shake-up of UK financial regulation, dispensing with the current watchdog by 2012, writes Katherine Blackler
The International Underwriting Association has called on the coalition Liberal-Conservative government to ensure that there is a strong (re)insurance prudential regulator as part of the shake-up. Nick Lowe, director of government affairs at the IUA, said it should be recognised that (re)insurance is less of a systemic risk than the banking sector. He commented: “Our principal concern in relation to the new proposals is that the prudential regulator of insurance should be an integrated authority with a good understanding of general insurance, its role in the economy, its strengths and weaknesses and the importance of the London insurance and reinsurance industry in the UK and the global economy. “Only an integrated, well-informed body with competent staff experienced in insurance matters will be able to develop and implement the long-term holistic policies that are needed for sound and consistent supervision of solvency and risk management within the industry. “I f that b o d y is als o to b e incorporated into an overall single prudential regulator for financial services then there might be benefits in terms of synergy, provided that the senior management of the single prudential regulator has a deep understanding of insurance matters and is not overly dominated by banking concerns.”
He added: “With regard to regulation of systemic risk and oversight over longterm trends and the broad effects of changing practices and new products in financial services at the national and global levels, we agree that overarching structures are required to ensure that risks are identified and mitigated in a timely manner. “While insurance and reinsurance are not generators of systemic risk, they may be threatened by it; key branches of the financial services industry need to be integrated into all analyses of systemic risks to the economy.”
Largely untouched
Bruno Geiringer, a partner in the insurance group at law firm Pinsent Masons, agreed that there is a danger of the single new regulator focusing too strongly on banking, though he added that he does not believe the new regulator will make many changes to insurance regulation. Geiringer said: “Regulators always say that no one size fits all but, here, the Bank of England’s new prudential regulator would appear to be just that and there is a danger that this one-stop shop regulator will focus too much on banking. “In many respects, these changes for insurers are cosmetic because the
>
European Union Solvency II directive will set out the required system of prudential regulation for UK and EU insurers. The new UK prudential regulator will have to implement Solvency II just as the FSA has been doing. “What might be interesting is if the CPMA starts to change the conduct of business rules again and insurers are caught up in having to budget for redesigning products and systems. “For the life industry, having to cope with both Solvency II and the Retail Distribution Review coming into effect at the same time as the Bank of England change, there is a huge burden to bear for the next few years.” Geiringer added that, if the associated costs of the new regulatory regime rise too steeply for (re)insurers, we might begin to see further UK (re)insurers look abroad for new domiciles: “Insurance is a good product and works well for most people. Insurers pay substantial taxes to the exchequer. If the system of regulation for insurers in the UK is too aggressive – delivered at more cost than today and with a tax regime that is too high – the UK insurance industry will move abroad. “We might then have a very fine regulatory system but very little of the insurance industry left in the UK to regulate.” The majority of parties believe that, for now at least, business will continue as normal with little effect on the current (re)insurance industry. Rutter said: “There is no sign of any change that will directly impact firms in the short term, so firms shouldn’t let these proposals distract them. Their day-to-day relationship with the regulator and the strategy that the FSA pursues won’t be changed as a result of this, at least not for a while.” Rutter added that (re)insurers could find themselves under deeper scrutiny in the future, especially in respect to re mergers and acquisitions.
For more on regulation: www.reinsurancemagazine.com/category/regulation July/August 2010
reinsurance 9
|
On the brink
In what direction are reinsurance rates heading?
Falling
Staying the same
Our monthly roundup of reader opinion shows that rates are stable but that a natural disaster could soon change the playing field
According to 40% of our readers this month, prices remain stable, with a further 29% seeing them rising and the remaining 31% seeing them continue to fall, up 4% from May-June. One reader explained that, “barring a natural catastrophe or other marketchanging factor, there is plenty of capital and no reason to kick rates higher”. We asked readers for their views on UK chancellor George Osborne’s plans to give the Bank of England the key role in regulating the financial sector, scrapping the Financial Services Authority (FSA). Of those surveyed, 37% believed that Osborne has the balance right while 21% believe he has gone too far; 13% believe that he has not gone far enough and the remaining 29% do not have any Last month’s winner Congratulations to Robert Margetts of KPMG who was the winner of this month’s coveted bottle of bubbly. To make sure you are on the list of those polled for our next survey – and to be in with the chance of winning the champagne – please subscribe to our e-mail alerts at www.reinsurancemagazine.com.
UK operations that could be affected by the changes. The general sentiment seemed to be that readers are happy to hear that the FSA is to be disbanded. Comments such as “I am glad to see the back of the FSA” were common. For more on UK regulation, see p9.
Q1 nat cats
In the June-July renewal reports (see p7), there has been much debate about the potential effect of the claims from the natural catastrophes in the first quarter of this year on the sector. The majority of readers (53%) believe that we could see a bit of a drop in surplus capital for some reinsurers but that it will not have much of an effect on the market, apart from perhaps on mergers and acquisitions. Nearly one-quarter (24%) believed that reinsurers had a lot of surplus capital and so there will not really be any effect, while 8% have already seen a drop in capital – affecting appetites for new business – and the remaining 15% said it is still to early to tell. One reader expanded: “It is not a good start to the year but we will have to wait and
What effect will claims from Q1 nat cats have?
Too early to tell
Rising
see if the wind blows before we can determine the impact.” The 2010 hurricane season has been predicted by the majority of forecasters to be an unusually active one (see pp31-32 for more on US windstorms). We asked our readers what effect a high volume of hurricane-related claims would have on their businesses. A pessimistic 10% believe that the effect would be huge and we could even see some major players in trouble; they also noted that we could see some startups as a result. Meanwhile, 35% thought that we could see a few reinsurers struggle, though only those with near mono-line property catastrophe books.
Holding steady
Just over one-third (36%) said that an active hurricane season could have an effect on rates but that the industry is pretty well prepared – meaning that only a massive event would turn the market – while 11% believed that an active season would have no effect. The remaining 8% were unsure.
One reader said that they think the forecasters have it wrong: “Actual hurricanes will be far fewer than predicted; the forecasters are way off.” Finally, we asked our readers what effect the claims from the Deepwater Horizon Rig would have on reinsurance: only 4% believe that it could turn out to be the event that turns the reinsurance market. The majority (62%) said that it will have a large effect on offshore energy pricing but that is not a large enough event to affect other markets. A further 14% said that the spill could have a small effect on pricing, but because all the reinsurers are looking for a bit of the energy pie, rates would not rocket too high. Another 4% believe that the event will have no effect, as one respondent explained: “There will be an incompetence defence, so the reinsurers will not necessarily have to pay out.” The remaining 16% are unsure what effect the Deepwater re Horizon spill will have.
What effect will Deepwater Horizon claims have?
A drop is already affecting business appetite
Don't know
It could turn the market
No effect
Surplus capital means that there won't really be an effect
It could have a small effect on pricing but rates won't rocket too much
It will affect offshore energy pricing severely but is not large enough to affect other markets
There could be a drop though it won't be significant for the industry, except M&A
10 reinsurance
July/August 10
www.reinsurancemagazine.com
|
Inside View
On the brink of change Despite BP’s self-insured status, oil and energy (re)insurance could be about to undergo radical change in the wake of the Deepwater Horizon disaster, writes Alistair Lockhart-Smith
During the last decade, offshore energy reinsurers have been wielding increasing influence over the fortunes of the primary insurance market. The cost of reinsurance and the price of oil have been key factors in determining how much and what type of insurance both oil majors and offshore contractors have been willing and able to buy. A good example of reinsurers’ growing importance is the sharp decline in the amount of catastrophe cover bought by platform operators in the Gulf of Mexico in 2009, following the dramatic hardening of reinsurance rates in the aftermath of the 2008 Atlantic hurricane season that translated into more expensive primary insurance. As the price of oil recovered to levels achieved in 2005 and 2006, many operators chose to self-insure, a decision that in hindsight seems prudent given the benign hurricane season last year.
Some of those losses, such as West Atlas, have been significant enough to affect underwriters’ excess-of-loss reinsurance programmes. Occasionally, a major risk loss can become a marketchanging event with profound implications for both the oil industry and the energy insurance markets. The most obvious example is the Deepwater Horizon loss, currently estimated as costing offshore energy underwriters in excess of £1bn, or over one-third of the sector’s premium income for the year. Despite the fact that the combined loss of Deepwater Horizon and the resulting oil spill are likely to have a limited impact on the reinsurance market in monetary terms – principally thanks to the self-insured status of BP – the psychological effect of the disaster cannot be underestimated. Given the current estimate, Deepwater Horizon is set to be on a par with the Piper Alpha disaster, which cost the industry nearly £1.7bn. Like Piper Alpha, Deepwater Horizon is set to trigger sweeping regulatory changes with potentially
Mixed fortunes
Last year turned out to be good for the insurance industry because it was buoyed by recovering investment returns and the absence of significant catastrophe losses. Reinsurers did particularly well and 2009 appears to be one of their most profitable years for some time. Many offshore energy underwriters seemed to buck the trend, however, having been hit by a series of large risk losses including the Montara-West Atlas loss (estimated to cost $720m). The question is whether or not the present status quo in the industry is sustainable in the longer term. Can platform operators in the Gulf of Mexico afford to self-insure at a time when further strengthening of oil prices is not guaranteed with the threat of recession still hanging over the global economy? At what point will reduced premium volumes put enough pressure on insurers’ margins to warrant a change in underwriting strategy? The answer to these questions, to a large degree, depends on the attitude of the reinsurance market. Another benign hurricane season would certainly make it harder for reinsurers to maintain a firm stance; on the other hand, reinsurers’ ratings decisions are no longer a simple function of catastrophe losses. As the growing demand for oil has accelerated exploration and production activity across the world, underwriters have to cope with an everincreasing number of large risk losses. www.reinsurancemagazine.com
...the energy insurance market might become an unintended longer-term beneficiary of the political fallout from the disaster.
Alistair LockhartSmith is managing director at broker JLT Re
profound implications for platform operators and their insurers. So far, the concerted efforts of the Obama administration in the US have achieved an unprecedented level of anxiety in the oil industry and the wider business community about the future of offshore drilling: many are now questioning the leadership skills of the man who was brought to power on an expectation that he would transform the country for the better. The US moratorium on new deepwater drilling – likely to be short-lived despite being replicated by the Norwegian government
– and the proposed increase in the limit of liability for pollution-related third-party damages are examples of the challenges facing the industry in the near future. Despite the severity of the Deepwater Horizon disaster, the consequences for underwriters do not appear to be entirely negative. Any decision by the US Congress to raise the limit of liability to as much as $10bn from its present cap of $75m will force operators to buy bigger limits and generate additional income for offshore energy insurers. Somewhat ironically, the energy insurance market might become an unintended longer-term beneficiary of the political fallout from the disaster.
Rates rising
By a twist of fate, the Deepwater Horizon loss happened at the time when the majority of offshore contractors renew their insurance programmes; anecdotal evidence suggests that most of the programmes have seen rate increases at renewal as a direct result of the loss. The impact appears to be greater on the liability side, where capacity reduction is still a possibility although the overall impact may be offset by greater demand for coverage following the introduction of more onerous legislation in the US. Although the majority of offshore energy reinsurance programmes renew in January, there are early warning signs that a rate increase may be on the cards for reinsurance buyers. The layers most likely to be hit are those in the lower half of reinsurance programmes and any casualty layers. The current assumptions can change depending on a number of factors, including the severity of the next hurricane season and further risk losses such as the loss of the Aban Pearl rig in mid-May. One thing is certain: offshore energy will be one of the hot topics at Monte Carlo this year. The delicate balance between the hard reinsurance market and the fragile global economy will require an expert approach to re structuring a reinsurance programme. July/August 2010
reinsurance 11
Top-25 reinsurance groups
|
In re wetrust
As the world emerges from recession, reinsurance is in good shape: results improved in 2009 and market players have announced healthy combined ratios “Reinsurance has never been such a trusted product. We paid all claims despite the financial crisis and our ability to do so has never been in question,” said this month’s feature interviewee Dominic Christian, cochief executive officer at Aon Benfield (see interview pp28-29). Reviewing our top 25 reinsurers table this year shows that reinsurers have weathered the storm well, with some emerging in even better shape than they were before the crisis began. While this year’s table is not directly comparable to last year’s (we have split life and health reinsurance from non-life), a few reinsurers have jumped up our rankings nonetheless. One notable performer was Mapfre, which lept from 16th in our rankings to 12th following growth in net written premiums to $2.5bn from $1.7bn. The Spanish reinsurer has also improved its combined ratio to 93.5% (2008: 95.5%). This year, Munich Re pipped its European rivals to the top spot with $18.7bn of non-life net written premiums for 2009. The German heavy-hitter also saw a massive drop in combined ratio of over 30% (2008: 97.9%, 2009: 65.7%), reflecting a year with relatively few of the natural catastrophes that can hit the group’s results heavily. Combined ratios market-wide fell significantly, averaging between 70% and 80% for non-life as compared to 2008’s results, which saw several of the top-25 reinsurers reporting combined ratios of over 100%. In 2008, losses from poor hurricane seasons in the early years
12 reinsurance
July/August 10
of the 2000s continued to hit ratios, while poor investment returns for the year also made their mark on overall results. As investment returns also began to significantly improve towards the end of 2009, capital seems also to have returned to the market. Yet with the first-quarter disasters reminding us how quickly the reinsurance world can change, all eyes will be on the approaching hurricane season. This year saw two newcomers to our top25 table: Endurance and White Mountains Re took 24th and 25th spots respectively. Yet where there are winners there are losers and, this year, CCR dropped off our table, having not written enough business to make the top 25.
Life and health
This year, for the first time, we have included a table of the top-five life and health reinsurers, ranked by net written premium. The European heavyweights dominated our list, with Munich Re, Swiss Re, Hannover and Scor stealing away with four of the five available spots. Topping the table with nearly $2.3bn more net written premium than its rivals was Munich Re. The firm also reported an impressive 81% combined ratio, which is no mean feat for a life book; compare this with the less healthy 100.3% reported by compatriot firm Hannover Group. The fourth – and only US-domiciled – spot on our ranking was Reinsurance Group of America (RGA), which nipped at the heels of Hannover Group with $121m less life and health net written premium reported for the year. re
www.reinsurancemagazine.com
EXOTIC FINANCIAL SERVICES PROVIDERS HAVE A CERTAIN APPEAL. OR SHOULD WE SAY “HAD”?
www.hannover-re.com
Top-25 reinsurance groups
|
2009’s top-25 reinsurance groups Ranked by net written premiums (NWP) Individual company information
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Reinsurance statistics
Insurer financial strength ratings
Non-life written premium ($m)
Combined ratio
AM Best
S&P
Moody’s
Fitch
Munich Re
18654.55
65.70%
A+
AA-
Aa3
AA- (very strong)
Swiss Re
11883.00
88.30%
A
A+
A1
Not rated
Lloyd’s
8489.99[1]
78.40%
A
A+
Not rated
A+
Hannover Group[2]
7495.04
96.60%
A
AA-
Not rated
Not rated
Allianz SE Reinsurance
5107.40
92.40%
NA
AA
NA
NA
Scor Global P&C[3]
4033.72
96.80%
A-
A
A2
A
Transatlantic Re[4]
3986.10
93.50%
A
A+
A1 (TRC only)
Not rated
PartnerRe
3949.00
81.80%
A+
AA-
Aa3
AA
Everest Re
3929.80
89.60%
A+
A+
Aa3
Not rated
General Re[5]
3091.00
90.60%
A++
AA+
Aa1
AA+
Arch
2763.11
88.10%
A
A
A2
A+
Mapfre Re
2540.34
93.50%
A+
AA
Not rated
Not rated
Korean Re[6]
2368.29
98.60%
A-
A-
Not rated
Not rated
Axis
1812.00
73%
A
A+
Not rated
Not rated
Odyssey Re
1893.80
96.70%
A
A-
Not rated
Not rated
Toa Re[7]
1547.28
92.80%
A+
A+
Not rated
Not rated
Footnotes [1]
Figure represents net earned premium not net written premium. Net written premium figures not availible. [2]All subsidiaries. [3]All non-life subsdiaries. [4]Includes Transatlantic Reinsurance Company (TRC), Trans Re Zurich Reinsurance Company (TRZ) and Putnam Reinsurance Company (Putnam). [5]Part of the Berkshire Hathaway insurance group. [6]For the fiscal year 1 April 2009-31 March 2010. [7]Fiscal year ending 31 March 2010.
14 reinsurance
July/August 10
www.reinsurancemagazine.com
|
Individual company information
17 18 19 20 21 22 23 24 25
Reinsurance statistics
Top-25 reinsurance groups
Insurer financial strength ratings
Non-life written premium ($m)
Combined ratio
AM Best
S&P
Moody’s
Fitch
XL Re[8]
1470.00
82.10%
A
A
Not rated
Not rated
Tokio Marine[9]
1428.80
Not availible
A++
AA-
Aa2
AA-
Validus[10]
1388.36
68.90%
A-
NR
A3
A-
GIC Re
1131.37
NA
A-
not rated
Not rated
Not rated
Ace Tempest Re[11]
1038.00
59.20%
A+
A+
Aa3
AA-
QBE Re
949.09
79%
A
A+
Not rated
A+
Platinum Re[12]
937.30
76.70%
BBB
BBB+
Not rated
Not rated
Endurance
865.70
75.90%
A
A
Not rated
Not rated
White Mountains Re
807.00
80%
A-
A-
A3
A-
Footnotes [8]
XL Re Ltd, XL Reinsurance America, XL Re Latin America and XL Re Europe. [9]Does not include reinsurance premiums of intra-group reinsurance or TM and Nichido Fire. [10]Includes Talbot. [11]Includes Ace Tempest Re US and Europe. [12]Approach to market conditions in 2009 based on focusing on underwriting profitability and not market share.
Top-five life and health reinsurers Company name
1 2 3 4 5
Life and health written premium ($m)
Combined ratio
AM Best
S&P
Moody’s
Fitch
12,050.43
81%
A+
AA- (very strong)
Aa3
AA- (very strong)
9874.00
85.40%
A
A+
A1
Not rated
Hannover Group
5,845.631
100.30%
A (excellent)
AA- (very strong)
Not rated
Not rated
RGA
5,725.20
NA
A+
AA-
A1
Not rated
Scor Global Life
3,856.83
NA
A-
A
A2
A
Munich Re
Swiss Re
Note: All exchange rate information correct at 31 December 2009: $1.2369570374USD = €1.00 and $1.6169805633 = £1.00 and $0.0107434280 = ¥1 www.reinsurancemagazine.com
July/August 2010
reinsurance 15
It’s a risky world. Can you rely on your reinsurer?
It seems like there’s a different major event nearly every year. You need reinsurers who are adept at managing risk across the board, who will provide consistent capacity, and whose capital strength promises an unequivocal ability to pay claims. With that in mind, we’ve provided seven questions to ask your reinsurers. The answers will help you make a clear assessment of whether they deserve your confidence and trust. In a risky world, you need to know who you can rely on.
To see these seven questions, and for more information, go to www.partnerre.com
|
Cat bonds
A ready beacon There was a flurry of catastrophe bond issuance before the Atlantic storm season kicked off. Greg Wojciechowski explains why conditions in 2010 could be the perfect storm for growth in the cat bond market Catastrophe bond markets have had a very busy first half of the year, a trend set to continue for the rest of 2010. The reputation of cat bonds took a hit following turmoil in the wake of the collapse of Lehman Brothers but we have now seen a real rebirth, with experts estimating total 2010 catastrophe bond issuance potentially reaching $5bn, up $1.5bn on 2009. Before the hurricane season started on 1 June, 10 cat bonds had closed this year, taking issuance to date to $2.35bn according to Aon Benfield Securities. This is compared to an issuance total of $1.4bn for the same period last year, which is excellent growth in anyone’s eyes. The predictions for an active hurricane season prompted an outburst in activity in the past few months as sponsors tried to issue before 1 June – the start of the Atlantic storm season – and bond sponsors have been rewarded with attractive pricing and ample capacity.
BSX cat bond listings 2010 State Farm – Merna Re II Flagstone – Montana Re Chartis – Lodestone Re
The healthy rise in cat bond activity this year has been helped by growing constraints on capacity for US wind protection and a benign wind season in 2009, which saw just nine tropical storms, making it one of the quietest in a decade. For reinsurers, the fact that spreads are back to normal makes placing risks in the capital market an attractive proposition.
Separated sense Greg Wojciechowski, president and chief executive officer at the Bermuda Stock Exchange
Investors are also looking for non-correlated risks and cat bonds are seen as an interesting option for institutional investors because they are not correlated with financial market risks and so offer diversification benefits. This surge in interest in insurance-linked securities (ILS) such as cat bonds could
Hurricanes in 2010 In May, the National Oceanic and Atmospheric Administration (NOAA) forecast 14 to 23 named storms, with eight to 14 developing into hurricanes. If these projections occur, this will be one of the most intense seasons since 2005. Between three and seven of the storms could be major hurricanes with winds of more than 110 mph, the NOAA said. www.reinsurancemagazine.com
have a positive effect on the Bermuda Stock Exchange because it can list these structures; there is also a growing push from investors to have cat bonds listed both for transparency and to know the bonds’ value. The collapse of Lehman Brothers in September 2008 had an impact on the collateral structures of four cat bonds, which were downgraded. Since then, prices on cat bonds have been recovering slowly and, according to Swiss Re, current returns are a result of price improvement for bonds that were trading at ‘distressed levels’. Investors are now looking for increased openness and transparency from these investments and listing on an exchange can provide this security; it could even lead to new institutional investors such as pensions investing in cat bonds. In October 2009, legislation approved by the Bermuda Monetary Authority came into effect to provide specific risk-based regulations for establishing special-purpose insurers; it also recognises and enables the structure of ILSs such as cat bonds. This could accelerate the convergence of capital markets in Bermuda, with the majority of ILSs created here and then a Bermudalisted vehicle used on the exchange. We think it makes sense to list cat bonds in the jurisdiction of Bermuda: many of the sponsors are here, the special-purpose insurers are here and the Bermuda Stock Exchange is here. There are now 11 structures listed on the Bermuda Stock Exchange worth almost $900m – with three cat bonds listed in the last six months – and we continue to see an upsurge in interest from sponsors re looking to list. July/August 2010
reinsurance 17
RUN-OFF AND CLAIMS
Giving you crucial in-depth analysis As part of this month’s issue, we have included one of our regular run-off and claims Insight reports. We started running the Insight series in 2009 as an additional offering for Reinsurance subscribers. In 2009, we published Insight supplements on run-off and claims as well as risk and regulation. Later this year, we will also be introducing our first catastrophe and modelling Insight. The reports are produced in print and as digital PDFs alternately so, to make sure you also receive the digital reports, please sign up to our newsletter at www.reinsurancemagazine.com In this month’s report, Daniel Schwarzmann, partner at PwC, looks at schemes of arrangement in insurance company run-offs; Daniel Saville and Tim Harmer at RPC look at how the commercial court has revisited application of followthe-settlement clauses; and Fredric Bellamy, Mark Freeze, David Nelson and Angus Rodger of Steptoe & Johnson examine the murky legal waters of climate change. We hope you enjoy the report.
Katherine Blackler, Editor >>respond
Read more on claims at www.reinsurancemagazine.com/tag/claims Read more on run-off at www.reinsurancemagazine.com/tag/run-off
|
Putting the pieces in place Having an in-depth plan to implement a solvent scheme is just one part of a complex process that also includes convincing the stakeholders and the courts that to do so is a good idea, writes Daniel Schwarzmann Our typical project plan for implementing a solvent scheme of arrangement for insurance companies in run-off – known as a solvent scheme – contains hundreds of steps. Such a plan, however, is no more than a guide because there is no standard scheme: each has its own wide-ranging considerations. Working with clients towards achieving the necessary statutory majorities voting in favour of the solvent scheme is only part of the plan; demonstrating to the policyholders, regulators and the court that the solvent scheme is fair is something that is fundamental to the development and implementation of a solvent scheme from its beginning. Using this approach, last year’s first-instance opinion of Lord Glennie relating to the Scottish Lion Insurance Company solvent scheme was not something that the plan envisaged. A fundamental point of law had been ruled upon in the opinion that, in Lord Glennie’s view, companies wishing to use the legislation provided under part 26 of the Companies Act (2006) to enter a compromise arrangement with their creditors (policyholders) had to
demonstrate a “problem requiring a solution” for which “it is in the interests of the creditors as a body that a solution should be found”.
Definition
Daniel Schwarzmann is a partner at Pricewaterhouse Coopers www.reinsurancemagazine.com
In the case of Scottish Lion, an overwhelming majority of creditors considered the commercial proposition of undiscounted cash now more attractive than recoveries over time. The solvent scheme was opposed by a small number of US-based policyholders and Lord Glennie decided that a fundamental legal debate should be undertaken in isolation on a single issue: can it ever be fair to sanction a scheme of arrangement for a solvent company where no impairment exists? In his judgment, Lord Glennie was clear: a solvent scheme “is an instance of where, subject to other considerations, creditor democracy should not carry the day”. The implications of such a view were far-reaching and an appeal was lodged immediately. In December 2009, a thorough four-day hearing took place before three judges of the Scottish court, including the lord president of the Court of Session. While there was discussion around the process, the court immediately latched onto the fairness aspects of a solvent scheme, given the conclusions reached by both Lord Glennie and by Justice Lewison in the British Aviation Insurance Company case of 2005. In January, the Inner House of the Scottish Court unanimously overruled the decision of Lord Glennie to provide absolute clarity on how Part 26 of the Companies Act should be interpreted in relation to solvent companies. The ruling sets out a number of key points. First, while the existence of a problem might be a factor in favour of granting sanction, it is not, in the view of the Inner House, “a precondition to the sanctioning of a scheme, whether solvent or otherwise”. Second, there is no basis for the view that “creditor democracy” operates only where “failure to agree would ruin it for all”. Third, it is of the very nature of the power
Run-off and claims
conferred on the court under the Companies Act “that contractual rights will be varied or extinguished” under a solvent scheme, provided the statutory majorities are properly obtained and the requisite test for granting sanction is satisfied. Finally, the establishment of a separate class of creditors with IBNR [WHAT IS IBNR?] claims provides a protection against “forcing dissentients to do that which it is unreasonable to require them to do”. In essence, the opinion of the Inner House has clarified the position that schemes can be implemented for solvent insurance companies in the right circumstances. “The argument that a solvent scheme is unreasonable, or is not ‘so far fair and reasonable as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such a member, might approve of it’ is one that should be addressed when the whole relevant factual circumstances are before the court”. As such, to consider a solvent scheme as unfair from the outset, based upon the fact that the company is and is likely to remain solvent, goes too far.
Jurisdiction
The legislation exists under UK law and the decision to purchase policies from UK insurance companies subjects policyholders to the provisions of the Companies Act. In awarding costs of the appeal against the respondents, this latter point was given even further clarity: “…the possibility that their rights may be varied or extinguished by a scheme sanctioned by the court is inherent in their having taken insurance policies from, and thus becoming creditors of, a British company subject to the Companies Act.” What is also apparent is that the court’s role in sanctioning solvent schemes is far from rubber-stamping the application, with or without opposition. The Inner House has made clear that the court must take a view based upon all evidence relevant to its discretion “including the balance, if it exists, of advantage over disadvantage of the scheme and the extent, if any, to which the requisite majorities, properly ascertained, exceed the statutory thresholds”. The 2010 PricewaterhouseCoopers Survey of Discontinued Insurance in Europe illustrated the level of importance that insurers are placing on run-off business, with 90% of survey respondents now having a strategic run-off plan in place: an increase of 18% on 2007. Of those with plans in place, 64% encompass an exit strategy. There have been significant developments in solvent schemes since they were first introduced and the clarity brought by the ruling of the Inner House in Scottish Lion will come as welcome progress for those considering a solvent scheme as part re of their run-off plans. July/August 2010
reinsurance 19
Legal
|
Implications
Is close enough good enough? The commercial court has given new guidance on the application of so-called Hill v M&G follow-the-settlements clauses that are used in many reinsurance contracts. This judgment follows the decision in Equitas v R&Q, which equally demonstrated the commercial court adopting a pragmatic and commercial approach in circumstances under which a reinsured has no realistic prospect of demonstrating its liability for each and every original loss that makes up a claim to its reinsurers. The court has also reasserted that, where possible, it will uphold arbitration awards when findings appear to be reasonable and commercial. In the case of IRB Brasil Resseguros SA v CX Reinsurance Company Ltd, the reinsurer, IRB, appealed against an arbitration award in favour of its reinsured, CX Re, relating to reinsurances of CX Re’s casualty business for the years 1976 to 1983. The reinsurance contracts each incorporated a Hill v M&G-type followthe-settlements clause to ensure that all settlements by the reinsured – including compromise settlements – were unconditionally binding on reinsurers when such settlements came within the terms and conditions of both the original policies and the reinsurance. The claims arose from US liability losses in respect of silicone breast implants, HIV20 reinsurance
July/August 10
Daniel Saville and Tim Harmer investigate the ramifications of IRB Brasil Resseguros v CX Reinsurance Company
Daniel Saville is a legal director and Tim Harmer a senior associate at Reynolds Porter Chamberlain
contaminated blood products and asbestos claims. CX Re had entered into various settlements involving liabilities being broadly allocated among insurers and years of account without an exact correlation to underlying third-party claims. In the arbitration, IRB argued that the settlements involved market agreements and settlement funds that required CX Re to pay sums in respect of claimants and years of account for which it could not establish that it was actually liable within the terms of the original policies. The arbitrators concluded not only that the settlements were reasonable and business-like but that it was sufficient for CX Re to show that the total payments it had made were equivalent, on the balance of probabilities, to its share of the losses. CX Re could not be required to demonstrate that it was liable for each individual payment. The panel even allowed CX Re to recover a portion of the settlements relating to future claims on the basis that they had reached a reasonable and business-like settlement involving a final determination of all potential liabilities, including some not yet advised. IRB then appealed to the commercial court on grounds that the arbitrators had made an error of law in concluding that these settlements were within the terms of the original policies and the reinsurance.
The court expressed its reluctance to overturn an arbitration award on the basis that it expressed the law erroneously in places, if it was otherwise clear that the arbitrators had relied on the proper authorities and applied them to the facts. In this case, there was no basis to overturn the arbitration award. The judgment supports the arbitrators’ decision not to re-examine the factual basis of CX Re’s underlying settlements because the relevant facts were those as recognised by the reinsured in settling the claims. The judgment is notwithstanding that the Hill v M&G followthe-settlements clause in the reinsurance required the reinsured to demonstrate that losses fall within the terms of both the original and the reinsurance policies. The first part of this double proviso was taken to apply to questions of law but not of fact. The pragmatic approach of the court will be welcomed by reinsureds as acknowledging the context of achieving a reasonable commercial settlement where liability might not be clear. Such an approach arguably contradicts how the test in Hill v M&G has been applied in other cases and interpreted by legal commentators and will restrict reinsurers’ abilities to challenge the basis of underlying settlements. Applying Equitas v R&Q, the standard of proof to which the reinsured is required to prove that losses fall within the terms of the original policy and the reinsurance as a matter of law is the balance of probability. It now appears that a market settlement or other compromise agreement may by itself provide sufficient evidence. The fact that a settlement involves a reinsured making payments that cannot be allocated to specific claims or liabilities might not prevent it relying on the settlement to prove its loss to reinsurers. It could be sufficient to demonstrate that the overall loss paid by the reinsured is at least the value of the total quantum for which the reinsured is likely to be liable. The court’s reluctance to challenge arbitrators’ decisions to allow recovery of settlements may be argued to provide support for other reinsureds and retrocedents seeking to recover commutation settlements that include amounts for incurred-but-not-reported (IBNR) claims. Reinsureds should be wary of relying too heavily on this judgment because the arbitrator’s analysis in this instance might not have been applied if the case had been heard before a court. Nevertheless, it indicates that the commercial court is increasingly pragmatic and commercial in its approach. More significantly, the judgment might give arbitration panels more confidence to adopt such a commercial approach with less fear of re being overturned on appeal. www.reinsurancemagazine.com
|
Climate change litigation: the forecast remains unclear Scientific and political disputes regarding global warming dominate the headlines but the legal issues are also controversial. In three important climate change-related cases, US courts recently issued rulings that point in conflicting directions. As a result, it remains impossible to foresee if companies are facing a new wave of mass tort litigation based on climate change claims – a wave that in all likelihood would be accompanied by a rising tide of insurance coverage claims – or if the US courts will instead defer to the US Congress and President to resolve such issues. In three major cases, plaintiffs have sued companies allegedly responsible for emitting large amounts of carbon dioxide and other greenhouse gases. Defendants have raised the threshold issue that the US courts should not be hearing climate change cases at all: they argue that global warming raises political questions that are the preserve of the US Congress or President (such as issues relating to negotiations over international treaties); and that climate change is global and its effects too widespread for a court to be able to address it effectively in a lawsuit. The courts in these cases recently issued long-awaited rulings on this threshold issue, yet those rulings probably create as much confusion and uncertainty as is possible. The first court said yes to climate change claims proceeding while the second court said no. If these conflicting rulings were not enough to confuse matters, the third court first said yes to allowing the claims then said it would reconsider that decision, later deciding not to reconsider the matter because too many of its judges were unable to hear the case.
Emissions reduction
On 21 September, 2009, the US Court of Appeals in the Second Circuit (with headquarters in New York) reinstated a www.reinsurancemagazine.com
Conflicting judgments in the US mean that no clear decision has been reached there to determine if companies are facing a barrage of litigation for polluting the environment, writes Fredric D. Bellamy, Mark E. Freeze, David R. Nelson and Angus Rodger lawsuit against electric utility companies, State of Connecticut v American Electric Power Co., Nos. 05-5104-cv, 05-5119-cv. The plaintiffs, which are state and city governments, allege that the utilities’ coaloperated power plants are “the five largest emitters of carbon dioxide in the US”. The lawsuit asks the court to order them to reduce their emissions each year for at least ten years. The Court of Appeals ruled that the trial judge was wrong to have dismissed the case merely because it raised international political issues and that the global nature of climate change did not deprive the plaintiffs of the right to seek relief in the courts.
It remains impossible to foresee if companies are facing a new wave of mass tort litigation based on climate change claims.
Fred Bellamy, partner, Mark Freeze, counsel, and David Nelson, special counsel, are members of Steptoe & Johnson in the US. Angus Rodger is a partner in the firm’s London office.
On 30 September, 2009, a federal district court in Oakland, California did the opposite and dismissed a similar lawsuit, Native Village of Kivalina v ExxonMobil Corporation, No. C 08-1138 SBA (N.D. Cal.). The claim was brought by Alaskan natives who live on an island threatened by rising sea levels. The court ruled that the plaintiffs did not have the right nor standing to seek relief in court given the global nature of the global warming problem. The court concluded that the case raised political questions best addressed to the other branches of government. That decision is under appeal in the US Court of Appeals for the Ninth Circuit (with headquarters in San Francisco). On 22 October, 2009, the US Court of Appeals for the Fifth Circuit (with
Claims: climate change
headquarters in New Orleans) weighed in on these issues in Comer v Murphy Oil USA, No. 07-60756. Fourteen individuals sued nine oil companies, 31 coal companies and four chemical companies for contributing to global warming, allegedly intensifying the impact of Hurricane Katrina. The trial court dismissed the case but the Court of Appeals reinstated it, lining up with the Second Circuit’s conclusions in Connecticut v American Electric Power Co. On 1 March 2010, the Fifth Circuit voted to reconsider the ruling of its threejudge panel. The court later announced that too many of its judges could not participate in the case, leaving the court without a quorum, so on 28 May 2010 the court dismissed the appeal. This bizarre situation leaves the Fifth Circuit’s earlier ruling (reviving the Katrina-related global warming case) without legal effect, apparently ending the case unless the US Supreme Court accepts an appeal. In a possible sign of things to come, one of these three cases has spawned an insurance coverage ruling in Steadfast Insurance Company v The AES Corporation, No. 2008-858.
Mixed signals
One of the defendants in the Kivalina case, AES, claimed defence costs and an indemnity from its insurer, Steadfast. Steadfast sued AES in the Virginia Circuit Court for Arlington County for a declaration that there was no duty to defend or indemnify AES because the emission of greenhouse gases was intentional, not accidental. Steadfast also argued that greenhouse gases were “pollution” and excluded under the policy. The trial judge agreed that AES’s conduct was intentional and granted summary judgment in favour of the insurer. The judge did not rule on the pollution argument. In May 2010, AES filed an appeal to the Virginia appeals court. Although the signal emerging from the US courts on climate change litigation is mixed, such litigation is being allowed to proceed in some jurisdictions, raising the possibility of extremely high jury awards. There is undoubtedly potential for policyholders, particularly in the energy industry, to incur extremely high defence costs and settlements. Insurers and reinsurers should monitor the three US climate change cases discussed above and also watch for the appeals court’s ruling on insurance re coverage in the Steadfast case.
>>respond AGREE? DISAGREE? Have your say on the state of claims www.reinsurancemagazine. com/category/claims July/August 2010
reinsurance 21
Reinsurance Power List 2010
|
Who’s the daddy?
After the usual team debates, tears and tantrums, once again the Reinsurance team presents its annual Power List. We give you our opinions on who is hot and who is not in the reinsurance world and why they are a force to be reckoned with
1
MOTHER EARTH
The Chile and Haiti quakes have served to remind us all what our planet can do, not to forget the Icelandic volcano for stranding the Bermudans in London and the Londoners in Bermuda. By all accounts it’s set to be a humdinger of a hurricane season this year – nothing excites reinsurance folk quite like hurricanes.
2
THE BUYERS
Don’t mess with Mama: Mother Earth tops our power list
Left to right: Von Bomhard and Jerworrek of Munich Re
4
STEFAN LIPPE, CEO, Swiss Re
After predecessor Jacques Airgrain’s experiment with investment banking, Lippe inherited a company facing an incredibly tough time and he has certainly shown his worth by turning around the fortunes of the Swiss reinsurer. In 2008 Berkshire Hathaway performed its own little bailout when it gave Swiss Re a $2.9bn line of credit; the reinsurer’s Q1 results this year suggest that it is now almost in a position to be able to repay the debt.
They spend billions and command the attention of the leading CEOs. How could the industry exist without them?
3
NIKOLAUS VON BOMHARD, chairman of Munich Re and TORSTEN JEWORREK, reinsurance CEO
WARREN BUFFETT, CEO, Berkshire Hathaway
A living legend with a finger in every pie. At a mere $100,000 a year (according to Forbes) his salary is one of the lowest for a large company CEO in the US, but whenever he speaks, the whole financial world listens.
5 Lippe: revitalised Swiss Re
22 reinsurance
July/August 10
6DR
ROBERT BENMOSCHE, CEO,AIG
Another “comeback kid”, Benmosche inherited the insurance giant last year on the understanding that he would sell enough of the business off and turn the insurer around in order to be able to pay back a crippling $182bn US government bailout. He is well on the way to achieving that goal with the insurance giant reporting a Q1 net income of $1.5bn compared to a net loss of $4.4bn in the first quarter of 2009. However, he still has plenty of hurdles in his path especially after the collapse of the sale of the AIA unit to Prudential in June.
Last year we said that Von Bomhard’s Munich Re stood to grow substantially following the problems faced by rivals from the financial crisis and we are happy to have been proved right. Munich Re Q1 gross written premium this year rose by 12.4% to €11.7bn and also made large profits on its investment books. Jeworrek appears to be playing an ever-increasing role at the (re)insurance giant and we watch his career with interest.
7
BARACK OBAMA, US president
From health reforms to financial reforms and taxation, President Obama continues to throw his weight around in the financial sector and alternatively enamour and frustrate US and foreign (re)insurance CEOs. www.reinsurancemagazine.com
|
Reinsurance Power List 2010
Top 10 law firms 1. Lovells – Now Hogan Lovells, it has evolved, diversified and kept its position as the global reinsurance firm of choice, merging with Hogan & Hartson while niche (re)insurance law firms suffer from a lack of claims and coverage work, litigator rainmakers departing and upskilling requirements to hardcore commercial and financial techniques. 2. Edwards Angell Palmer Dodge – Still one of the biggest players in the insurance jungle. 3. Barlow Lyde and Gilbert – With a multitude of insurance and reinsurance lawyers to solve every legal problem imaginable. 4. Mayer Brown – With around 100 lawyers on the case, they’re definitely dedicated to (re)insurance. 5. Clyde & Co – One of the first (re)insurance law firms to dabble in the Middle East, Clyde & Co has now become the player of choice for the region. 6. Goldberg Segalla – Because they have been trying so hard to win over UK and Bermuda companies. 7. Crowell & Moring – The US legal eagle has been active in expanding its UK and European operations recently, finally earning itself a place on our list. 8. Beachcroft – Always featured on our list, it is hard to ignore Beachcroft’s level of industry respect. 9. Steptoe & Johnson – (Re)insurance continues to be a top priority for these international lawyers, with almost 50 attorneys in its dedicated practice area. 10. RPC – Innovative in support areas as well as astute and professional in basics.
JAIN, ULRICH 9 AJIT 12 Berkshire WALLIN Hathaway CEO, Hannover Re The second Berkshire Hathaway man on this list, Jain has set himself up as the king of Berkshire’s insurance and reinsurance operations. He keeps himself to himself and avoids the media like the plague but when he speaks the market listens, so we love him. One has a $13m salary, the other hasn’t: guess which. Barack Obama (left) and Evan Greenberg
8 THE REGULATORS
With the US financial reforms including a proposed insurance regulator and redistribution of the powers of the FSA in the UK, all is a little uncertain on the regulation front at the moment but the regulators can certainly not be ignored on this list. The regulators continue to throw their weight around with investigations and fines widespread in the financial sector and Solvency II continues to hit the top ten headaches for European (re)insurance CEOs.
www.reinsurancemagazine.com
10
EVAN GREENBERG, CEO ofAce
11
THE CFO and THEACTUARIES
A regular fixture on our list, Greenberg is still king in Bermuda with a rumoured whopping $13m salary earned last year.
Solvency II and the financial crisis have provided opportunities for the actuarially minded from our ranks to rapidly climb the ladders to power within insurance organisations. The CFO has an increasingly important role to play within a (re)insurer and we are starting to see more actuaries reach CEO level, such as David Cash of Endurance. Plus, who else can understand all this Solvency II malarkey?
After Wilhelm Zeller retired from Hannover Re, he left some large shoes to fill but Wallin has shown himself more than able in leading acquisitions with more in the pipeline.
DUPERREAULT, 13 BRIAN CEO, Marsh Group Only part of the Marsh Group might be reinsurance focused (Guy Carpenter) but Duperreault is still one of the most respected executives in the space and is always a popular speaker at conferences and events.
14
DOMINIC CHRISTIAN, MIKE BUNGERT and ELLIOT RICHARDSON, Aon Benfield
Christian and Bungert are sharing the helm of the biggest reinsurance broking empire around. The whole idea of co-CEOs is zany for some but it seems to be working so far. Richardson continues to be considered as at the forefront of the facultative arena rounding off the Aon Benfield family nicely. July/August 2010
reinsurance 23
®
No.1 Reinsurer in Asia
Protection for any risk we may encounter The business world, where one must take the road not travelled in order to succeed. Similar to uncertainty which threatens company stability, as well as natural catastrophes which cause unexpected losses, on the road to success, there lurk many potential risks. Korean Re, the No. 1 reinsurer in Asia, will become your stable partner for success.
Korean Re, chosen as the “Emerging Market Player of the Year” in the 2009 Reinsurance Readers’ Awards
|
®
15 RICHARDWARD, CEO andTOM BOLT, franchise
performance director, Lloyd’s
Bolt had a hard act to follow when he took over from former Lloyd’s god Rolf Tolle after his market revolution but seems to have picked up the reins quickly. The WardBolt team has continued to build on the successes of Lloyd’s, keeping the market attractive for all involved.
PETER ZAFFINO and 16 CEOs, HENRY KEELING, Guy Carpenter Marsh’s reinsurance arm continues to go from strength to strength, succeeding in poaching executives from other (re)insurance
and broking operations from around the globe on a regular basis although recently the giant has been beset by “restructuring” rumours in its facultative team.
20
17
Close association with more than one politician has put Berkley in the position where he is able to influence the rules of formation of the potential US insurance regulator. His continued pro-tax reform lobbying appears to be getting through to the politicians, however unpopular that is making him with some of his fellow reinsurance executives.
MICHAEL McGAVICK, CEO, XL group
The third “comeback kid” of the Power List this year, McGavick has begun to lead XL out of a troubling period in its history. XL’s share price leapt 389% over the course of 2009 – the biggest in the S&P 500. Although XL is no longer writing life reinsurance, with its remarkable comeback, McGavick’s influence has far from faded.
The Carpenters? left to right, Peter Zaffino and Henry Keeling
Reinsurance Power List 2010
18
JOE PLUMERI, CEO,Willis
19
DAVID CASH, CEO, Endurance
Despite battling with redundancies early in the year, Willis still remains a major player in both the insurance and reinsurance broking world. As it continues to grow its reinsurance operations around the globe, Pulmeri’s influence will grow with it.
Cash by name, cash by nature – David Cash has taken over the challenge of filling Ken LeStrange’s shoes at Endurance and, as a former actuary, is finding himself popular with investors. Despite some opposition to his organic growth strategy, in the land of the acquisition he seems to be producing good results so far.
WILLIAM R BERKLEY, chairman of WR Berkley
PARK, 21JONG-WON CEO, Korean Re
A new entrant onto our Power List this year, Park has vocalised an ambition to take the Korean giant to a new global level, aiming to be the fifth-largest reinsurer in the world. He’s worked in every area possible in South Korea, including government departments, and seems to have the drive to do a lot more. Frankly, we’re a little scared.
22 RATINGS AGENCIES
Over the last two years the ratings agencies have taken a bashing from governments, regulators, investors and clients alike following the sub-prime debacle with only AM Best escaping relatively unscathed but a downgrade can still spell trouble for any reinsurer.
“The others” Randall & Quilter – For having battled Equitas, kept its market “lead” as organiser of the German, US and UK Run-Off Commutations Rendez-Vous, and challenged the Enstars and Berkshires of this world on new acquisitions. XChanging – With a few monster deals that make Xchanging a big part of the (re)insurance world, Xchanging is the largest insurance outsourcer around. RMS – Modelling giant and conference regulars. Always first out with the news to us media folks, RMS is always happy to talk. Who says we are biased? AIR Worldwide – AIR has really upped its game in getting out its loss estimates faster; it could start to take a bite out of what has until now been predominantly RMS’s pie. Lloyds TSB – So it has taken a pretty big blasting from the press, especially in the UK, over the last 18 months but Bill Cooper and his team are still some of the best in the business. Total Objects – Insurance software provider Total Objects has been selected to manage the ECF2 Market Acceptance Testing project for the London Market with XChanging placing it firmly on the Reinsurance radar. L&T Infotech – L&T Infotech is said to have played a major role in revamping Munich Re’s IT and there are rumours that the firm will be moving further into the (re)insurance space in the future. Symantec/Messagelabs – So, we’ve all got the message that we are supposed to care about these nasty little virus things that supposedly can make all our computers a liability. Symantec and its hosted Messagelabs arm now have some of the largest, and the smallest, reinsurers and brokers as clients, including Swiss Re as well as several governments and millions of other companies. Maybe it’s not Starbucks we should be worried about taking over the world? www.reinsurancemagazine.com
Jong-Won Park: multi-talented July/August 2010
reinsurance 25
®
Reinsurance Power List 2010
|
Top 10 PR/marketing 1. Haggie – Still king of the PR jungle in the Lloyd’s market. 2. Kekst & Co – This New York-based giant still dominates in the US and Bermuda. 3. FWD – It has lost a reinsurance client or two this year but gained more to make up for it. The firm benefits from having its own marketing, research and digital arms. It also recently expanded and added a few more brains to the team too. 4. Rein4ce – The new kid on the block, ex-journalist Mairi Mallon’s Rein4ce is making waves, especially in social media. One to watch, especially in Bermuda: she’s pulling in new clients at speed. 5. Financial Dynamics – Good for both PR and investor relations, FD specialises in turning around difficult situations and has some very loyal clients as a result. 6. Cubitt – Financial specialist Cubitt has a growing number of insurance and reinsurance clients. 7. Grayling – UK-based Grayling has a very healthy client list with a fair number in the insurance and reinsurance space. The company is very good at writing press releases and all the usual corporate communications stuff. 8. Kysen PR – If you are a law firm or service provider and want to persuade us reinsurance media folks that what you have to say really is interesting then Kysen will fight your corner doggedly. 9. Effective Image – A relatively new player on the block, Effective Image is begging to sneak into the reinsurance PR space with a number of service providers now on its books. 10. Lucid Communications – Run by an ex-Lloyd’s PR exec, Lucid has a healthy mix of reinsurance, insurance and legal clients on its books that warrants the final place on our list. ®
23
29
THE INVESTORS
STEPHEN CATLIN, CEO, Catlin
It is easy enough to forget the role played by the major investors as they are somewhat hidden in the background, yet a fallout with a major investor can lead to no end of problems not to mention what can happen if there are no investors to be seen for a company in our capital intensive market…
24
DAVID BROWN, CEO, Flagstone Re
Since Mark Byrne announced his intention to step down as chairman in May, Brown is finally finding himself in charge on his own after years in his charismatic business partner’s shadow.
26
30
MARTY BECKER, CEO,Alterra
With the merger of Max and Harbor Point leading the 2010 Bermuda M&A race, Becker has placed himself at the helm of a much larger Bermuda player in the form of Alterra.
25
While his company has been hit by a number of losses in the first half of this year, Catlin himself remains confident of the (re)insurance giant’s outlook and continues along the acquisition trail.
JOHN CHARMAN, CEO, Axis Capital
After partaking in the flurry of issuances in March, Charman’s Axis has an undoubtedly strong balance sheet. The company is currently beset by rumours of M&A plans following strong first-quarter results despite high levels of catastrophe claims. Watch this space. 26 reinsurance
July/August 10
Alterra’s Marty Becker, top left Stephen Catlin, centre
ED NOONAN, CEO,Validus
Validus’ takeover of IPC has not been popular with all and the Bermudan reinsurer has been hit hard by catastrophe losses in the first quarter. Despite this, Noonan still leads one of the biggest players in Bermuda.
27
COSTAS MIRANTHIS, president, Partner Re
The second actuary on our list, since the May announcement that Patrick Thiele is to retire, Miranthis has taken the helm of the Bermudan giant and has had a lot to keep him busy after the buyout of smaller rival Paris Re last year.
28
SHUZO SUMI, president, Tokio Marine Holdings
Sumi’s (re)insurance group continues growing, TMG investing $117.6m in a life insurance joint venture with Indian outfit Edelweiss Capital, creating Edelweiss Tokio Life Insurance, which is expected to begin operations in the next few months. The group is set for a rejig in January to grow further.
31
ROBERT ORLICH, CEO, Transatlantic Re
David Brown of Flagstone
Orlich has completely distanced the company from the majority of former parent AIG’s problems and Transatlantic continues to be one of the US’ biggest players.
JOSEPH 32 TARANTO, chairman and CEO, Everest Re
Taranto’s Everest was hit incredibly hard by Q1 catastrophe losses but investment gains have helped Taranto claw his place back on this list that he lost last year. www.reinsurancemagazine.com
Nick Metcalf, CEO at Liberty
33
SCOTT CARMILANI, CEO,AlliedWorld
Carmilani, who has been at the helm of Allied World since 2004, has been having a busy 2010 so far. Finally putting an end to the rumours that they would buy a Lloyd’s reinsurer, Allied World gained approval for its own syndicate 2232 which started underwriting at the end of June.
34
BARBARA MERRY, CEO, Hardy Underwriting
Once again, the only woman on the main Power List and the only female CEO in the Lloyd’s market, Merry continues to show the boys how things are done.
35
JAMESVICKERS, co-chairman of international and specialty atWillis Re
Vickers has forged himself a strong reputation as a man that knows what is going on in the market and is willing to look at things a little bit differently to get the best deal for his clients.
Barbara Merry www.reinsurancemagazine.com
US Coast Guard
®
Deepwater Horizon disaster
Our readers’ ones to watch… 1. Gary Prestia, chief underwriting officer at Flagstone Re – David Brown and Mark Byrne have always hogged Flagstone’s share of headlines but Prestia has quietly made a name for himself as one of the fastest-upcoming executives. 2. Jonathan Turner, CEO at Brit Reinsurance – Well known enough to claim a place on our main list last year, Turner is currently in charge of capacity worth hundreds of millions. Still relatively young, Turner has been tipped as one to watch by industry insiders. 3. Chris Swift, CEO at Hartford – After working his way up to Life CFO of AIG, Swift is now the CFO for all business at Hartford. He is a young, dynamic leader. Reinsurance predicts that his career has not yet peaked – we may well see his next move as a CEO of a major (re)insurance company. 4. Julie Batch, head of reinsurance at AIG – A purchaser of smart programmes and a hard negotiator on price, Batch heads up one of the largest reinsurance captives. 5. Ian Sangster – Driving Qatari insurance companies’ expansions across the Middle East, he has proven himself with the development of Q Re and his commitment to bringing best practice to the MENA region.
36
CHARLES DUPPLIN, CEO, Hiscox Bermuda A new entrant, Reinsurance gives respect to Dupplin after he gave us a hard time on a panel at our Bermuda Reinsurance Club event. Also the group’s director of mergers and acquisitions, Dupplin succeeded Rob Childs.
METCALF, CEO, 37 NICK Liberty Syndicates Liberty continues to quietly avoid the pitfalls that have plagued some of its rivals in the last couple of years, earning Metcalf his continued place on our list.
38
GUNTHER SAAKE, CEO, Novae Re
39
DEEPWATER HORIZON
Starting a reinsurer is no mean feat at any time but starting a reinsurer in the middle of a recession is a massive challenge and one that Saake has risen to. Another new entrant to the list this year, Saake is one to watch.
The loss from the explosion of BP’s well in the Gulf of Mexico and the resulting spill could be a game-changer for the energy markets, with several more (re)insurers now jostling in for their share as the prices rise.
BRYCE, 40 JIM Consultant
He may have retired from his position as head of IPC after it was taken over by Validus last year, but he still has a lot of strings to his bow, with many Bermudans continuing to seek his advice on all things re reinsurance related. July/August 2010
reinsurance 27
Banner
|
The accidental broker
Teams want leaders out there spending time with clients. Dominic Christian
28 reinsurance
July/August 10
www.reinsurancemagazine.com
|
Dominic Christian, co-chief executive officer at Aon Benfield and one of this year’s new entries to the Power List, talks to Katherine Blackler about his new role and how to get ahead in broking Just as many other reinsurance executives, Dominic Christian did not intend to stay in the insurance industry for his whole career: “I didn’t mean to do more than three to six months as a broker. I moved to London because the streets were supposedly paved with gold; I had planned to go travelling. It was also the travel aspect of the job that first attracted me and then I found out that I loved the people and the business. I still do today.” Straight away, Christian was thrown in at the deep end. He reminisces: “In the first hour of my career, I was asked to place some business at Lloyd’s: I didn’t have a clue. There is a lot more professional training now but personality is still important.” He even remembers the advice he was given by his boss on his first day: “The best advice I was ever given was when my first boss told me to wake up before anyone else. For the first two years, I took him literally and got into the office at 6.30am every morning before I realised what he meant was to be anticipatory.” After the first five years of his career with JKBuckman, Christian joined Greig Fester – which later became part of Benfield – and started working in the retrocession space. When the acquisition took place, he found himself as the boss for the first time: “In 1998, Greig was acquired by Benfield, which had a significant retro and specialty business that I was asked to lead. This was quite a statement to me in my own little world and a huge challenge due to the two highly different cultures being integrated. Greig was a very traditional broking business while Benfield was extraordinarily contemporary. In our first combined meeting, there was a Harley Davidson in the room and somehow I knew just not to ask.”
Confidence gained
When Aon acquired Benfield, Christian admits he had his doubts, his first experience of acquisition having been such a challenge. Two years on, he feels Aon Benfield is now in an extremely good position: “I was concerned if we could do a great combined job for clients and whether talented people would stay at the new joint business but, looking back, I am delighted with how it has www.reinsurancemagazine.com
played out. At day one there was a feeling of a defensive posture but now we are very coherent and confident of the quality we can bring to our clients. Of our top 150 people, around 130 to 140 have remained at the firm: that is a substantial achievement by any measure.” In April this year, Christian was promoted to co-chief executive officer alongside Mike Bungert following Andrew Appel’s move into a newly created role of chief operating officer of Aon. Many in the industry upon hearing the news had doubts as to how this unusual splitting of the job could work. Christian says he never had any such reservations: “So far, things are going great. The truth is that we don’t clash at all. I wouldn’t have taken the job if I hadn’t known we would work well together; we talk at least once every day. Mike is the most able US broker there is;
Events so far this year, while not consuming capital, might be more significant than earnings events usually prove to be. Dominic Christian he knows the market inside out and I like to think I know something about this side of the pond, so our experience and skills are complimentary.” “It is a hard job trying to sustain and advance a broking business of this size, so splitting the job allows us both to do what we do best: spending time with clients. For both of us, it is the ability to broker that takes you forward in an organisation and we don’t want to lose that because it is our biggest value to the business. Teams want leaders out there spending time with clients.”
Interview
When asked about his top priorities at Aon Benfield for the next 12 months, Christian jumped straight to analytics, which he thinks is one of the broker’s key differentiators from its rivals: “It is a changing world and analytical capability is at the heart of what we do. We think we marry analytics to transactional capability in a way that others can’t manage. “There is no doubt that, today, individuals rarely have the full skill set needed to meet client needs. In this regard, one of our key differentiators is that we have expertise across the whole risk spectrum and we can access facultative, capital markets and traditional capacity backed by the skills of nearly 500 analytics professionals worldwide. A broker’s role is now about comprehending risk, whereas in the 1980s we were just placing risk.”
Roll with the punches
Christian also notes that the catastrophes earlier this year serve as a reminder that the world of risk has changed significanty and reinsurers and brokers must change with it: “The Chile loss will probably be the largest ever loss outside the US but the country has only the 40th largest gross domestic product in the world. Economic activity in the last decade or two has increased the magnitude of risk to a level that might have surprised many, with insured values increasing dramatically during this period. “The BP disaster also reminds us how risk has changed. It is fascinating that a largely uninsured incident will probably increase both rates and market premium. Who could have imagined that?” Christian does not believe that the events in Chile and the Gulf of Mexico will necessarily change reinsurance pricing: “Events so far this year, while not consuming capital, might be more significant than earnings events usually prove to be. Yet will prices rise in nonimpacted lines? I don’t think so. “In my opinion, reinsurer capital is more than sufficient to meet the challenges of the next six months, however, events might make some of us pause for thought re over the way we approach risk.”
Employment history April 2010 – Co-chief executive officer at Aon Benfield December 2008-March 2009 – Chief executive officer at International Aon Benfield July 2005-November 2008 – Chief executive officer at Benfield September 2004-November 2008 – Chief executive officer at International Benfield Group and board director at Benfield Group May 1998-September 2004 – Global specialty leader at Benfield Greig January 1994-May 1998 – Director at Greig Fester September 1989-January 1994 – Retrocession leader at Greig Fester May 1984-September 1989 – International reinsurance broker at JK Buckenham July/August 2010
reinsurance 29
Managing longevity risk London 6th & 7th September 2010 This two day training course has been thoroughly researched with leading practitioners to bring you up to date with the latest developments in the field of longevity and mortality risk. Course highlights: – Transferring longevity risk
– The LLMA and Longevity Index
– Current trends in longevity
– Stochastic mortality modelling
– The impact of Solvency II on longevity risk
– Managing longevity risk in pension schemes – a practical perspective
– Using data to predict mortality
How to book Visit – www.incisive-training.com/longevity Call – +44 (0)870 240 8859 Email –
[email protected]
|
A is for Alex, the first hurricane of 2010’s North Atlantic season. At the time of writing, Alex had made landfall in Mexico and, although insured losses are expected to be low, it is the first Atlantic hurricane to have formed as early as June since 1995. If the forecasters are right then Alex will herald an active storm season this year. The forecasters have been wrong before: this year’s predictions are eerily similar to last, when the presence of a Pacific El Niño suppressed the formation of storms in the Atlantic. The industry will be foolish to rely on history repeating itself, though. “We support the research but our brokers are making sure our clients are ready for whatever happens to the maximum of their capabilities,” says Bryon Ehrhart, chairman of Aon Benfield Analytics. “Our clients are relying on reinsurance, not forecasts, because even the best weatherman is only right half the time.”
Guides, not rules
“We do look at the forecasts but we don’t underwrite by them. The forecasts are about how many hurricanes you might expect rather than where they will make landfall,” agrees Patrick Hartigan, head of reinsurance at Beazley. “It makes us focus on our exposures and whether or not we need to offset through buying retrocessional.” According to Hartigan, prudent risk management techniques for reinsurers include assessing how much risk the insured is taking on in the form of deductibles while also ensuring that the property of insureds has been retrofitted to withstand hurricane force winds and winddriven water. Alex did provide a timely reminder as it moved through the Gulf of Mexico, halting 25% of oil production in the region. It also required the precautionary evacuation of the replacement drilling platform and surface oil recovery vessels that were cleaning up the spill from BP’s Deepwater Horizon well. The presence of the slick on the Gulf of Mexico is another cause of uncertainty as we head deeper into this year’s storm www.reinsurancemagazine.com
Property and catastrophe
How many letters? season. The spill itself is unprecedented and what effect it may have on hurricane formation or hurricane development is a matter of speculation. In addition, an intense hurricane could bring a storm surge that carries the slick inland, while any storm has the potential to break the protective booms that are currently keeping oil off beaches and marshes. “It has started to concern some of our clients because if you have wind-driven oil blown onto your property then it is going to increase clean-up costs,” says Hartigan. Overall, the uncertainty caused by the spill is reflected by differing opinions from those in reinsurance. “There has been a level of concern but it has not stopped commerce from going ahead and there are no exclusions for this kind of event. I would expect to see a close
Tim Evershed investigates the property and catastrophe market in the early stages of the Atlantic and Pacific hurricane seasons
Our clients are relying on reinsurance, not forecasts, because even the best weatherman is only right half the time. Bryon Ehrhart study of each and every claim, assessed on its individual merits,” says Ehrhart. “The coverages are not uniform and personal lines differ greatly from commercial lines in scope and complexity but where the insurers go the reinsurers will follow.” Conversely, Robin Greville Williams, managing director of property and casualty at reinsurance broker BMS, comments: “It is not going to make that much difference to the property and catastrophe market and it won’t make much difference to reinsurers’
losses. It will make a difference to the spill and could make the clean-up more difficult, which is obviously more bad news for BP.” Questions therefore abound over (re)insurance’s preparedness for a season that has the potential to be both highly active and to harbour unforeseen consequences. Tom McKevitt, executive vice-president for reinsurance at AWAC, says: “From a financial perspective, I think the reinsurance industry is stronger than it was pre-2005. “I think most companies have tried to improve their risk management measurements and techniques. Surely some have some succeeded and made big strides while others perhaps not as much. As an industry, I believe the movement has been positive.” “It is about looking at the reinsurance market and people are a lot better capitalised than they were in 1992 or 2005. People are now talking about a $100m loss as a manageable event,” adds Hartigan.
Difficult period
The abundance of capacity has combined with reduced demand for reinsurance from cedents to cause the market to continue softening at both the 1 June and 1 July renewals. The consensus view among both brokers and underwriters is of decreases in the range of 5-15% for June while significant reductions July/August 2010
reinsurance 31
Property and catastrophe
|
were noted in Florida property catastrophe excess-of-loss renewals in July, with rate cuts as high as 25% recorded. For the rest of the US, the property and catastrophe market reinsured through London saw catastrophe prices drop 10-15% on a risk-adjusted basis in Florida.
Level-headed approach
“Rates are coming down on a risk-adjusted basis. Like for like they are down, certainly for Florida. There’s still an abundance of capacity in the market but its capacity is dependent on the right submissions at the right price,” says Greville-Williams. “Underwriters have maintained discipline despite the plentiful capacity in London, Bermuda and elsewhere.” “Our underwriting is down to our own risk appetite, which is decided by the capital available. At the moment, we believe that reinsurance rates are still healthy. They are still at a historically high level, despite softening since last year,” says Charles Dupplin, chief executive officer at Hiscox Bermuda. McKevitt adds: “The rate changes were disappointingly uniform. It appeared that changes to the individual ceding company’s book were not the driving factors in renewal pricing. “Rather, there was a predetermined acceptable range for rate decreases and whether the company deserved – from an exposure standpoint – more of a decrease or none at all. The final rate was a decrease somewhere within that predetermined range.” The Florida market remains challenging for reinsurers because not only are rates softening but the state has also seen the liquidation of several insurers since the start of last year, despite the last four years having been relatively benign in terms of hurricane losses. “Reinsurers got caught by a few Florida companies that went into run-off,” says Greville-Williams. “They will be definitely looking at ratings and A is obviously preferable to B but London is especially good at sticking with long-term relationships. “I think there’s a flight to quality and you can look at that in two ways. Firstly by looking at the health of balance sheets and the size of surplus positions and then by looking at the certain size.” Dupplin warns against the dangers of placing excess faith in long-standing relationships: “I am surprised at how some companies can be so lackadaisical and continue to rely on relationships rather than on managing the risks. I am amazed at how some companies get cover when they might not be around to make the third or fourth instalments. If it is active then it may come back to bite them.” In this environment, Dupplin says it 32 reinsurance
July/August 10
is key that reinsurers take note of insurers’ surplus capital positions, the attachment points of their cover and their overall trading records. He comments: “We model the possible loss for 2010 for a benign year and for an active year and we look at how robust a firm’s balance sheet is.” Ehrhart comments: “Reinsurers have been more careful about financial worthiness and are looking more carefully at payment terms. Some of those terms have been adjusted, though not as much as you might think.” A recent report by ratings agency Moody’s raised the spectre of downgrades for (re)insurers in the event of a big loss.
How will the industry react if the unthinkable happens: no major event? We might be less prepared for that. Tom McKevitt “I think if there is a major event then there might be some quick ‘negative outlooks’ put up by the rating agencies and some eventual downgrades would not surprise me,” agrees McKevitt. Outside the US in the international property and catastrophe market, competition remains fierce with substantial capacity chasing premium volume, again forcing reductions in rates, according to Willis Re. The rate reductions have continued against a backdrop of heavy losses so far this year, including the Chilean earthquake and Australian storms, leading some to ponder what precisely will be required to turn the market. “It is going to have to be a fairly sizeable event in order to change the market. If there is not that type of event then that will increase the pressure on prices to fall further because we are not at the bottom of the curve, if you compare it to where we have been before,” says Greville Williams. McKevitt warns: “How will the industry react if the
unthinkable happens: no major event? We might be less prepared for that.” Yet losses from the Chilean quake did prompt renewal rate increases of between 40-70% there.
Don’t forget the quake cover
Hartigan says: “While the Chilean price correction has been relatively adequate, the international market has not fully absorbed the impact of the loss, particularly because it’s taking time for the full loss to come through. “Our view is that less than 50% of the losses have been adjusted so far and, when the realisation of the full extent of the loss comes through as claims payment requests, people will then factor that into their pricing models.” “Earthquake losses are slow to develop. In the case of Northridge, we did not see the full picture for a decade,” adds Ehrhart. Ehrhart points out that it is a potential increase in demand for earthquake cover that might provide the market-turning opportunity for US property and catastrophe (re)insurers. The opportunity stems from the change in the mortgage market as the US government seeks to extract itself from the $200bn bailout of mortgage securities firms Fannie Mae and Freddie Mac. “The reason we talk about hurricane risk so much is that Fannie Mae and Freddie Mac did not require earthquake cover but as they are wound down and the private sector takes over, these circumstances might change that requirement,” he says. “In Chile, we saw earthquake cover of up to 90% for homeowners whereas in California it’s 10-12%.” re
www.reinsurancemagazine.com
|
People
recruitment moves Former Guy Carpenter managing director Adrian Stewart will join Miller to help lead the expansion of its property reinsurance book. At Guy Carpenter, Stewart was instrumental in leading and expanding its global retrocessional practice from £3.5m to £25m in 10 years. He will be joined by Nick Pomeroy and Jeremy Crowch. Pomeroy specialises in property reinsurance and was previously a senior vice-president at Guy Carpenter. Crowch is an industry loss warranty expert, accessing traditional and non-traditional markets. He will join from Evolution Markets, where he is vice-president of catastrophe derivatives. Prior to that he was at Gallagher Re and Willis, where he was a divisional director. Meanwhile, Paul Loring and Clare Brooking, both facultative reinsurance specialists, have also joined the Miller team in London. Loring and Brooking both specialise in placing facultative reinsurance, in particular worldwide property and terrorism coverage emanating from the US, Canada and Europe. Loring previously worked for Cooper Gay and Sail, both in London and Brussels. Brooking worked at Bain Hogg and Aon. Both have joined Miller from RFIB.
Clare Brooking
Peter Greenslade has been named as group chief financial officer at Kane. In his new role, Greenslade will be responsible for all finance functions across the group, including day-to-day finance management, client accounting and controlling the company’s fiscal strategy. Greenslade has held a number www.reinsurancemagazine.com
of senior financial positions, including directorships, for over 20 years. Most recently, he was group finance director at Axiom Consulting, an insurance outsourcer. Prior to this, Greenslade held a number of financial directorship positions including group finance director at Spectron Group (2002–2004) and group finance director at Robert Walters (2000–2002). AAIB Insurance Brokers has appointed Michael Carr as the divisional director of its Iraqi-registered company, Al Fajer Insurance and Reinsurance Brokers. He will be based at AAIB’s latest office to open in Iraq, located in the southern city of Basra. Carr has over 25 years’ experience in insurance working across a variety of operational, product management and business development roles. His UK experience crosses Zurich and Pearl before he moved to work in Saudi Arabia, Jordan and Iraq. Carr joins Jordan-based AAIB from Saudi-based company SABB Takaful, where he was the company’s chief operating officer. The Catlin Group has announced that Michael Harper has resigned from the group’s board due to the demands of his other commitments. Bruce Carnegie-Brown has been appointed as a non-executive director with effect from 1 August, 2010. RMS has made Dr Guru Rao senior vice-president of portfolio solutions product marketing. Rao has 20 years’ experience, including nearly 14 years with Aon Benfield, where he recently grew the company’s business in Asia by launching Aon Specialist Services and Aon Benfield India. At RMS, Rao will engage closely with clients to design and develop the next generation of portfolio management solutions, enabling them to make more informed risk decisions. Willis Re has named James Byng the property resource group leader for its international and specialty reinsurance business as of 1 August, 2010. He will report to Jason Howard, chief executive officer at Willis Re international and specialty. Byng will be based in London. Willis Re Tokyo’s chief Yuji Takahashi and chief operating officer
James Beedle will take Byng’s current responsibility as managing director for Willis Re’s Japanese operations. Executive director at Willis Re (London) Will Thompson will oversee Japanese business from London.
its corporate activities, including its IPO in 2003. More recently, Walsh was with the Argo Group, where he was acting as general counsel and assisting in relation to corporate projects.
Steve Miller has succeeded Harvey Golub as chairman of the board at AIG, with Golub having resigned. Miller was elected to the board on 30 June, 2009 and is also chairman of MidOcean Partners. He retired from his role as executive chairman of Delphi Corporation in 2009, having been chairman and chief executive officer there. Prior to joining Delphi, Miller served as chairman at Federal-Mogul airlines. The Bermuda Monetary Authority has appointed Brad Erickson to the newly created role of chief operating officer. He will focus on directing the operations of the support functions within the authority and assisting in strategic development of the organisation. Erickson is a chartered accountant with 22 years’ industry experience, the last fourteen of which were in senior executive positions in the UK and North America. His business experience and technical expertise, including as a chief financial officer, banker and business consultant, covers managing and leading finance departments in multinational organizations, capital markets, strategic planning practices and processes, developing and implementing per formance management systems, risk management and corporate governance. In addition to finance, Erickson has at various times throughout his career been directly responsible for IT, operations, facilities, risk management and administration functions. RSA has hired Derek Walsh as its new general counsel. In his role, he will be responsible for leading the legal, group secretarial and group regulatory risk and compliance teams. Walsh has over 15 years’ experience in the industry. He served as group general counsel at Benfield Group, where he was responsible for the global legal, company secretarial and compliance teams; he also played a leading role in
Brad Erickson
Kiln has appointed Paul Dreblow and Kenneth Leung to its team in Asia. Dreblow, formerly head of property facultative at Tokio Marine Global, has joined as underwriter director based in Singapore. Dreblow takes over from Sam Geddes who will be returning to London towards the end of 2010. Leung joins as construction underwriter in Hong Kong; he joins Kiln from Aon Hong Kong, where he was an associate director in the energy and construction division. Charles Taylor Adjusting has made James Greene director of its average adjusting business, Richards Hogg Lindley (Hellas), in Piraeus, Greece. He succeeds Geoff Bycroft, who is retiring after a career of 41 years in average adjusting. Greene originally joined Richards Hogg International in 1975 and has worked in the company’s London, Piraeus and Sydney offices. Between 1994 and 2004, he worked for a firm of P&I Club Correspondents and a Scandinavian Hull & P&I Insurer, before rejoining RHL in June 2009. Richards Hogg Lindley has also appointed Alan Phelps as an average adjuster in Piraeus. He joins from a firm of surveyors and adjusters in Jakarta. He has also worked as an adjuster and as a hull and machinery broker in re London and Piraeus. July/August 2010
reinsurance 33
Resumé
|
Serene progress William Richard Adamson, managing director at Paladin Underwriting Agency, tells Reinsurance about how it all went right in his career Nickname: A colleague in my first underwriting position called me Lurch after the clunky manservant from the Addams Family television series in the 1960s. This understandably stuck, since I was walking rather strangely at the time following an operation. Career history: When the economic bubble burst late in the 1970s, I was one of the few individuals who consciously looked for a job in insurance. Initially, I worked for FM Global for nearly a decade, first as a consultant loss prevention engineer, then in underwriting and then managing fronting agencies worldwide. In 1988, I joined a then very successful Lloyd’s non-marine LMX Syndicate 847 to develop non-spiral business. Sadly, the LMX spiral subsequently imploded in 1990, a precursor to the grossly more gargantuan recent banking contagion. Fuji Fire & Marine rescued me with an offer to run its London Market subsidiary. Fuji International was to suffer its own trauma through its historic involvement with the English & American Group (E&A) when that group’s underwriting overtook its net assets in 1993. Perversely, this had career advantages. As a principal to E&A, Fuji was one of about 20 global insurers that took over the run-off and we formed what is now PRO Insurance Solutions, of which I was to become chairman in 1993. We took about 100 staff and £600m of run-off liabilities. Perhaps more importantly, it was possible to stabilise the run-off and we recommenced claims payments within a record threemonth period. In 1994, I returned to active underwriting management with ITT London & Edinburgh 34 reinsurance
July/August 10
(L&E) on its UK commercial property account. As L&E was restructured then sold to Norwich Union, an opportunity arose as the general manager at specialist insurer Electrical Contractors’ Insurance Company (ECIC). We developed close contacts with the Association of British Insurers (ABI), from which I was then invited to become a market representative on the ABI’s General Insurance Council Members’ Forum, which I did from 2006 to 2009. A dozen years later, the hugely compelling opportunity to develop non-core business within the Montpelier Group beckoned. We incorporated Paladin in April 2009, commencing underwriting from 1 January 2010 with a team of six underwriters in three specialty units. What was the market like when you started? My position was rather nonstandard because I was with FM Global, which was already seriously non-tariff with focus on major risk-management. When I started underwriting in the early 1980s, we suffered a major softening of the market as other non-tariff competitors emulated the FM model, including AIU (latterly AIG). What is the biggest challenge you face today? Underwriting is actually pretty straightforward and the spirit of this market is real, almost tangible. It’s in the rest of the modern commercial equation where we have lost our way. We are beset with far too much bureaucracy, albeit well intentioned. Twenty years ago, the word compliance did not exist in the insurance market. We had something called regulation and a managing director would know his regulator at the Department of Trade and Industry personally. Paladin underwriters are subject to at least 11 prescribed levels of audit; the ironic corollary is that our market bureaucracy has started to prevent delivery of the very product it is supposed to guarantee. I am not sure that the client appreciates or wants these inconveniences.
Company. By this I mean both the company of like-minded individuals and also the concept of a company of individuals working together in a common endeavour. The company is there to the mutual benefit of clients, shareholders, employees and their families. Money is very important but it is not everything. Being content can often be of more value. What is the strangest piece of business you have ever been involved in? In 1988, I was visiting various fronting insurers in the Caribbean. I like a gentle stroll in the evening. At one stage, I was forcibly ordered into a police Land Rover, delivered back to my hotel and ordered to stay there for my own safety (Kingston, Jamaica on a Friday night). En route back through Miami, I was intercepted by a well-known and respected chief executive officer and asked if I would like to run his life insurance company; his police sources had advised him of my peregrinations. I was very flattered. Outside insurance, what are your other interests? I love motorbiking, military history, my family re and wine.
What is it about your job that makes you go to work in the morning? www.reinsurancemagazine.com
|
CAPTION COMPETITION CAPTION COMPETITION CAPTION COMPETITION
>> Send your answers to
[email protected]
July/August 2009 Partner Re buys Paris Re: Bermudabased reinsurer Partner Re has bought smaller rival Paris Re for $2bn to create the world’s fourth-biggest reinsurer.
Over our 41 years, we at Reinsurance have built up quite an arsenal of vaguely reinsurance-related photographic frippery that has never seen the light of printer’s ink, so we thought we would put some of it to good use with this, the introduction of our caption competition. The wittiest caption emailed to us (at
[email protected]) will win the coveted Reinsurance goodie bag and have their name and entry printed for all to see in this hallowed tome. In order to be considered for print, keep your answers clean, though satire, punnery, mangled aphorisms and plain silliness are, of course, warmly encouraged. Best of luck!
>> Recently, it seems that everyone in the reinsurance world has been relocating operations to Switzerland. Why go? Solvency II? The tax regime? We at Reinsurance think that such pragmatic, functional reasons are just not fun enough, so here is our list of reasons we suspect that companies are keeping quiet about their moves: • The Alps. Good to look at but more importantly, just the place to unwind with some skiing after a hard January renewals season. • Hornussen. A cross between baseball and golf. A bit like trying to catch golf balls flying through the air at 300kph. • Schnapps. Hic. • The cool mountain air. With the UK and eastern US in the middle of a sweltering heat
rewind 40 YEARS OF REINSURANCE
Show us your wits
>> blog re
Re-view
July 2005 Converium and Munich Re subpoenaed over MBIA contracts: Munich Re and Converium have confirmed that they have been subpoenaed by US authorities in a widening probe into contested reinsurance contracts with insurer MBIA.
wave, some glacial breezes sound good to us. • Martina Hingis and Roger Federer. None too hard on the eye and apparently pretty good at tennis too. • Alpine horns and yodeling. Much more fun than you’d think. >> With July now in full swing, the reinsurance world has gone on holiday. For those of us without a yacht or summer residence to escape to, there has still been plenty to mull over with the ongoing Deepwater Horizon saga. The reinsurance forums on LinkedIn have lit up with a great number of comments as
the industry debates what the overall effect of the disaster will be. There is a consensus that we might well see a shift in the way that captive insurers and reinsurers operate, with fully risk-retained captives becoming more unfashionable than a banker’s bonus – particularly in the energy world. There’s also a strong vein of opinion that the legal battles will run on for years, especially the class actions. All of this, naturally, means that the lawyers will be the real winners. On a slightly less oily note, Blogre has been nominated as a Top-50 Insurance Law Blog by the LexisNexis Law Community. If you are a legal eagle and enjoy our blog, please give us a vote here http://bit.ly/beDC27.
>>respond
Got any gossip? Let us know at
[email protected]
>>respond
Join the conversation online www.linkedin.com/groups?mostPopular=&gid=1942965
Follow us on Twitter for all the up to the minute gossip
August 2000 Reinsurance releases its top100 reinsurers analysis: Forget the importance of who wields the underwriting pen. A study of 1999’s top-100 reinsurance companies clearly shows that it is the quality of a reinsurer’s investment manager and the vagaries of the world’s stock markets that decide the winners and losers in reinsurance. August 1980 US court rules on Brazilian platform accident: Marine underwriters at Lloyd’s are studying reports of a $24.8m award against them in a New Orleans (USA) court after an incident last year in which a 5,000 tonne offshore platform was being towed to Brazil. July 1970 Air Canada Flight 621 catches fire after landing at Toronto International Airport: Air Canada Flight 621, a Douglas DC-8 registered CF-TIW, was flying on a Montreal–Toronto–Los Angeles route. All 109 passengers and crew were killed.
Ireland UK election 2010Oil spill
Bermuda
Coalition
http://www.twitter.com/Reinsurance_Mag Hurricane
Greek bail out
www.reinsurancemagazine.com
For more from the Reinsurance blogs, go to: www.blog-re.com July 2010
reinsurance 35
MaxCapitalGroupLtd. andHarborPointLimited havemergedtoform Alterra Capital Holdings Limited.
Max and Harbor Point have combined their talents and resources to form Alterra, a financially
Ratings
powerful, highly rated, global enterprise with enhanced scale and capital of $3 billion. With
A.M. Best: A S&P: AFitch: A Moody’s: A3
more than 500 exceptional professionals, working from offices around the world, Alterra will continue toprovidehallmarkservice,anddisciplinedandbalancedrisk-taking.www.alterracap.com
Specialty Insurance & Reinsurance
