Monte Carlo digest
Lloyd's international growth to proceed with caution - Nelson
Lloyd's will not rush into markets it does not fully understand in pursuit of market share in the faster growing (re)insurance markets of emerging economies, instead pursuing incremental growth, the Society's chairman John Nelson told The Insurance Insider.
One of the emerging themes of the Monte Carlo Rendez-Vous has been the challenge of achieving growth in the face of lacklustre economic growth in developed markets without blindly rushing into emerging markets and underwriting risks that are less well understood.
But Nelson said Lloyd's, which currently gets approximately half of its business from North America, would pursue international growth cautiously and gradually.
"This is not a revolution, this is evolution," he insisted. "You evolve so that people come into the market in a gradual way, they come in alongside existing underwriters, sometimes with turnkey help at Lloyd's, and they absorb the skills, culture and processes."
Last week, Willis Re CEO John Cavanagh told executives in attendance at The Insurance Insider's pre-Monte Carlo event that Lloyd's had let opportunities for profitable international growth pass due to its preference for preserving what it had.
And while Nelson - who replaced Lord Levene as chairman late last year - agreed that the market's growth over the past 10 or 20 years "hasn't really moved on in the way you might have expected it to," he said Lime Street's strict controls on underwriting had proved their value during a tempestuous 2011.
"2011 was a really tough year, and it was the first time the underwriting oversight that Lloyd's provides and has provided over the past few years has been stress tested," he said.
"And it came out in pretty good shape. Capital remained intact and ratings remained intact."
Rates remain biggest threat to Gulf
Weak pricing is the biggest concern for reinsurers operating in the Gulf countries, although premium volume and exposure continue to rise swiftly.
These were the salient findings of the third annual Gulf Cooperation Council (GCC) Reinsurance Barometer, produced on behalf of the Qatar Financial Centre Authority and covering Qatar, United Arab Emirates, Kuwait and Bahrain amongst others.
"There is excess capacity in the GCC reinsurance markets and margins are frequently less attractive than in other parts of the world," said Berkshire Hathaway executive Manfred Seitz.
Marc Maupoux of Axis Capital extended the same point to take in the underlying business: "A lack of discipline is a major weakness of the GCC insurance market. If it persists it could develop into a serious threat to the market's viability."
Many interviewees said that reinsurance prices are "below technical levels," with the proportion describing prices as 'very low' increasing from 8 percent to 30 percent. Despite these pricing levels, 60 percent expect a stable rating environment in the next 12-24 months.
Nevertheless, the mere 1.5 percent of GDP that is spent on insurance in the region and the circa $1tn of construction and infrastructure projects creates a significant opportunity, interviewees said.
"The GCC remains a very attractive market. It still offers a largely untapped business potential for insurers and reinsurers while the economy itself continues to grow faster than the global average," said Willis Re divisional director Atish Suri.
The barometer, which drew on interviews with 33 market participants, showed that insurance premiums are expected to grow from $14.9bn in 2011 to $16.4bn in 2012, with reinsurance premiums moving past the $5bn mark.
Beazley Group is pricing its pioneering UK retail bond at a 5.375 percent per annum coupon, reflecting strong interest in the issue.
The company says it hopes to raise between £50mn and £75mn for a form of debt that - because it is not callable - is attractive under Solvency II and rating agency capital rules.
Lloyd's finance director Luke Savage took charge of the Society's modernisation projects this week, ahead of the departure of director of market operations Sue Langley.
Both the Project Darwin team, headed by Martin Taylor, and the market development and implementation team, which includes The Exchange and is led by Rob Humphreys, now report to Savage.
Enstar has again demonstrated its voracious appetite for run-off insurance portfolios with the $181mn purchase of a book of closed-life insurance from a US subsidiary of HSBC.
The Bermudian legacy giant said last week it will acquire all the written US and Canadian life insurance policies of Delaware-based Household Insurance Group Holding Company.
In August the company revealed it had beaten its rivals to agree a purchase price of $252mn for the Seattle-based live market workers' comp carrier SeaBright Insurance.
Amlin's international development director and group executive member David Harris will be leaving the Lloyd's insurer after almost 10 years.
Groupama UK goes exclusive
Belgian insurer Ageas is in talks to acquire the UK arm of Groupama Insurance, the personal lines/commercial carrier that wrote £408mn of premium last year.
Groupama hired Deutsche Bank at the beginning of the year to advise on the sale of its UK operations, which include both an insurance business and various broking arms.
Skuld scrapes profit
Skuld has kept its combined ratio to 98 percent despite a sharp uptick in claims in the first half of the year, helping it to salvage a $2mn profit.
The protection and indemnity (P&I) club did not mention the sinking of the Costa Concordia by name but referred to a significant increase in the number of pool claims reported from the other P&I clubs.
Skuld's underwriting profit for the half-year was $3mn, indicating a loss on the insurer's investment portfolio as the volatility in global markets took their toll.
PartnerRe eyes buyback
PartnerRe's board has approved a new share repurchase programme that would be worth $450mn at the current stock price. Management will have the option to buy back up to six million shares under the authorisation. PartnerRe has bought back 4.3mn shares to date in 2012.
Citizens offloads 10% of business
The Florida Insurance Commissioner has approved the transfer of 150,000 insurance policies from Citizens to private companies, representing around a tenth of all in-force policies.
At 31 July Citizens had 1,449,178 policies in force. The November transfer to the private market will take the total policies removed from Citizens' books in 2012 to around 235,000.
Florida Peninsula, Homeowners Choice, Southern Fidelity and Southern Oak will take on the policies.
Just over 260,000 policies were handed back to private insurers during 2009-11.
Four more companies applied to take a total of over 180,000 policies from Citizens, but the proposal was contingent on Citizens approving a surplus notes programme.
Higgins leaves L&P for Marsh
Marsh has appointed energy market veteran Richard Higgins to the new role of global upstream and midstream leader.
Higgins joins from Jardine Lloyd Thompson (JLT) subsidiary Lloyd & Partners (L&P), where he was an account executive responsible for upstream, midstream and downstream business. Prior to joining L&P in 2010, Higgins was chairman of JLT's energy and marine division.
He was a founding member of specialist Lloyd's energy broker Agnew Higgins Pickering when JLT established it in 1998.
The legacy of Solvency II
Solvency II rules will force (re)insurers to exit unprofitable lines of business and create opportunities for the run-off sector, according to professional services firm PwC.
The increasing opportunities in the sector - including to expand out of traditional long-tail lines into shorter-tail liabilities - may also lead new sources of capital to invest, including hedge funds.
Speaking at a conference in Monte Carlo, Bryan Joseph, global actuarial leader at PwC, said: "Activities such as mergers and acquisitions, insurance business transfers and managed exits, including schemes of arrangement, are all likely to increase as the consequences of Solvency II become more apparent to the industry."
Torus gets the green light
Torus has received in-principle approval from Lloyd's to establish its own managing agent, The Insurance Insider understands.
Sources said the new managing agent is expected to be up and running in the first half of 2013.
Torus Syndicate 1301, which was acquired by Torus last year, is currently managed by Chaucer under a turnkey arrangement.
Hannover makes the grade
Hannover Re is eyeing bigger casualty lines in the US as it's A+ AM Best rating was reinstituted.
Hans-Dieter Rohlf, head of North American treaty at Hannover, said: "I don't think the spread of our involvement will increase, but I do think the size of our lines will increase."
For its casualty business at present, Hannover Re typically writes line sizes of between 5 and 40 percent on placements, with an average of around 20-25 percent. Rohlf suggested this could go up by as much as 5-10 percentage points on average.
Cooper Gay gamble pays off
Four lucky Monte Carlo delegates have a good reason to enjoy the Rendez-Vous a little more than usual after they won brand new iPads, thanks to the generosity of broker Cooper Gay. Michael Newton of Mazars, Andrew Martin of Lloyds Bank, Stephen May of Reins and Robin Spencer-Arscott of AAA Risk Solutions all won their prizes by playing the Cooper Gay-sponsored scratch card game that was distributed with the September issue of The Insurance Insider.
Towers Watson hires crisis management talent
Towers Watson has entered the crisis management market by appointing Christof Bentele and Chris Holt.
The broking house plans to expand the crisis management team to cover four main sectors: product recall, kidnap and ransom, terrorism and political risks.
Bentele, a 25-year industry veteran, has worked at Aon for 12 years, latterly as the chief broking officer of Aon Crisis Management in London. Holt also joins Towers Watson from Aon Crisis Management, where he was the consulting director.
$18bn AIG share offer
The US Treasury has launched an offering of $18bn of the common stock it holds in American International Group (AIG) at $2.50 par value per share.
The news comes only days after AIG announced the sale of up to $2bn worth of shares in its non-core life insurance operation AIA in order to free up more capital for a share buyback. AIG's board announced on 6 September that it had authorised the repurchase of up to $5bn of AIG common shares from the US government.
Reinsurers resilient in face of $150bn+ losses
The creditworthiness of P&C reinsurers remains highly stable despite the high level of cat claims in 2011, according to a new report examining the industry's credit quality since 2000.
The Aon Benfield report, "Credit Risk of Property Catastrophe Reinsurers", said less than 1 percent of reinsurers have been declared insolvent in the past 12 years. The report notes that only eight reinsurers have been declared insolvent since 2000, with the insolvent companies still managing to settle 99 percent of their outstanding obligations.
Fitch affirms The Hanover
Fitch Ratings has affirmed the 'A-' insurer financial strength rating of The Hanover Insurance Company, the principal operating subsidiary of The Hanover Insurance Group (THG). The rating agency said THG's ratings reflect its adequate operating subsidiary capitalisation and Fitch's belief that THG's operating subsidiaries will continue to generate reasonable internal capital over the intermediate term.