Round-up of the weekly news and developments from the global insurance market with stories from Intesa, Hiscox, AmTrust and more.
Intesa abandons plans to buy Generali
Intesa Sanpaolo has cancelled plans to combine with the country’s largest insurer, Assicurazioni Generali, saying an amalgamation would not create value for its shareholders. A merger would have created an Italian financial giant with a market capitalisation of around 60 billion euros. Intesa’s decision not to join forces leaves Generali open to a takeover from an overseas investor. Political weakness in Rome and management changes at Generali fuelled talk of a buyout, with Axa, Allianz and Zurich Insurance Group reportedly interested. AXA has since confirmed it is not pursuing any major deals. Intesa announced last month it was examining a possible industrial combination with Generali after media reports pushed it to reveal its intentions. Intesa have since announced that, “The management has completed the assessment and sees no opportunities fulfilling the criteria set for the group’s growth options.” Intesa cited value creation for its shareholders and the intention to maintain one of the strongest capital bases among Italian lenders as its criteria for possible M&A options. Intesa’s shareholders had responded coolly to the idea of a merger, with its shares dropping 16% since its interest in Generali was revealed. The insurer’s stock rose 3% over the same period.
Hiscox EU headquarters will either be Luxembourg or Malta
Hiscox now has a shortlist of two for a new EU base and says Brexit is unlikely to impact the firm strategically. The insurer revealed record annual results this week, with profits soaring and its retail operations growing to represent half of the firm's business. The firm also revealed the two countries that could become its EU base post Brexit as either Malta or Luxembourg. Historically seen as a Lloyd's of London stalwart, half of Hiscox's business now comes from its retail arm, which has grown by double-digit percentages over recent years. Chief executive, Bronek Masojada said, "We're looking at Luxembourg and Malta. The European legal entity will be based in one of those two countries. This is a structural issue not a strategic issue. All we have to do is form a new insurance company. We've got two potential countries to do that in. That's going ahead full steam. I don't want to underestimate it but it's a largely mechanical process with lawyers and accountants at work."
AmTrust on negative outlook following delayed annual report
AmTrust has been put on negative outlook by Am Best following a delay in the publication of its annual report. Am Best confirmed that it has looked at the financial strength ratings and issuer credit ratings of AmTrust Group and AmTrust Title Insurance Company and decided to downgrade the company’s outlook to negative, down from the stable rating previously. The downgrade was given with a cautionary note that if the carrier's full results revealed further material changes there could be a further downgrade on the way. AmTrust postponed the filing of its annual report blaming delays in completing its consolidated financial audit and assessment of internal controls. A fourth quarter reserve charge meant that AmTrust missed its earnings forecast for the quarter causing its share price to fall.
AGCS looking to reduce global headcount by 10%
Allianz Global Corporate & Specialty (AGCS) is considering a programme of voluntary redundancies as it looks to reduce headcount by 10% globally. The move titled the “Fit For Future” programme will see AGCS reduce headcount by around 40 in each of its London, Germany, France and US offices. Staff were made aware of the changes in a meeting last week. AGCS confirmed that the company were undertaking the move to address changes in the industry in order to future-proof the business. Oliver Bäte, Allianz CEO, had previously dismissed reports that the company would look at reducing headcount saying that cutting costs was not a strategy. Bäte said that it was important for the company to look at new digital technologies to address challenges in productivity. It has been reported that the company hasn’t introduced a compulsory redundancy programme and is confident it can address the headcount objective through voluntary redundancy and early retirement. Germany, France, the UK and the US will be affected by the programme, staff in Brazil, South Africa, Japan, Hong Kong, Austria, Switzerland and Spain are unlikely to be impacted.
Reinsurers to feel the impact of Ogden reductions
Reinsurers are to face the biggest impact from the UK government’s sharp reduction in the rate shaved off lump-sum personal injury payments. It is also expected that underwriting profitability will come under presser with the measures. The Ogden tables make it easier to calculate future losses in personal injury and fatal accident cases. The tables take into account life expectancy and provide a range of discount rates from -2.0% to 3.0% in steps of 0.5%. The discount rate is fixed by the Lord Chancellor which was reduced this week to minus 0.75%, down from 2.5% previously. The cut is much larger than the 1 to 1.5% predicted by the market which leaves reinsurers exposed. Willis Towers Watson has anticipated that reinsurers collectively will bear the brunt of a one-off reserve charge of an estimated £5.8bn. PwC have put the total reserve impact on the insurance industry at £7bn. PwC also highlighted that many reinsurers had not adjusted their 1 January renewals to take into account a Ogden rate reduction.
Q4 underwriting profits nearly double for Berkshire Hathaway
Berkshire Hathaway posted a near doubling in its underwriting income with takings increasing from $306mn to $548mn. A slightly weaker insurance investment performance meant returns went down 13.9% on the prior year period to $889mn. The company’s annual report stated that Berkshire Hathaway Specialty Insurance grew its volume by 40% to $1.3bn for the whole of 2016. Compared to 2015, Berkshire Hathaway posted a higher underwriting profit in two of its three main insurance operations. The Berkshire Hathaway Reinsurance Group (BHRG) recorded underwriting profits of $822mn in Q4, nearly twice that recorded in the same period in 2015. BHRG’s property casualty top line shrank by 5.7% to $4.4bn with profits declining 18.8%.
JLT's speciality business sees UK revenue up 5% in 2016
JLT speciality business saw total UK revenue for 2016 up 5% to £327m on 2015; this was driven by strong sector performance. Charles Rozes, group finance director said, "Sector performance in the specialty line is namely construction, aviation which was quite strong throughout the year. In that regards we are going from strength to strength in some of those sectors." He highlighted the fine arts division which he said had a very good year and one that is quite unique in the market. Dominic Burke, group chief executive said, "The US platform widened the runway for our speciality business around the world and that is because the US still represents 50% of the global property and casualty spend in the world. Being able to deliver with a strong capability with the US platform enabled us to go and present our capability to corporates who wanted to work with JLT. This is only now starting to show real signs of transaction."
Michael Carr to lead new US cyber team for Brit
Michael Carr has been appointed as the head of Brits new cyber and technology team in the US. Carr will work out of Chicago and will write business through the Brit Global Specialty USA programme from April. Brit said that the new cyber team would help them meet an increase in demand for cyber products within the small to medium enterprise sector of the US. Carr previously served 5 years at Argo Global where he served as technology practice leader also based in Chicago. Brit group CEO Matthew Wilson commented, "As we continue to take advantage of the agility of our US underwriting platform, cyber and technology was a next logical step for profitable growth."
AIG board considers CEO change
American International Group Inc's directors are discussing whether to remove its chief executive, Peter Hancock, over a major setback in the insurance firm's turnaround plan. Fifteen directors are expected to debate on various potential actions at a board meeting in early March. The goals for AIG's two year restructuring plan include returning $25 billion to shareholders and becoming a "leaner, more profitable and focused insurer" by trimming its property and casualty business and shedding unwanted assets. AIG's fourth quarter marked a critical midpoint in the ambitious two-year strategic plan aimed at turning the company around. AIG's net loss widened to $3.04 billion, or $2.96 per share, in the fourth quarter, from $1.84 billion, or $1.50 per share, a year earlier. The company said in a statement, "AIG’s Board of Directors and management team have agreed on a clearly defined transformation plan for the company to deliver high quality, sustainable earnings. At this point every year, we actively review our past and future expected performance against our plan, and this year is no exception." The restructuring plan, unveiled early last year, followed pressure from billionaire activist investors Carl Icahn and John Paulson in 2015 to split the company in three because of AIG's poor performance that year. By slimming down, AIG could shed its designation as a non-bank systematically important financial institution.
