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EC News (19th May 2017)

  • Publish Date: Posted about 7 years ago
  • Author:by Alan Jarque

Round-up of the weekly news and developments from the global insurance market with stories from AIG, LV=, Hamilton and more. 

Duperreault named AIG CEO

Industry veteran Brian Duperreault has been appointed president and CEO of AIG with immediate effect, the carrier announced earlier this week (15 May).

Duperreault succeeds outgoing AIG CEO Peter Hancock and has concurrently resigned as chairman and CEO of Hamilton Insurance Group.

On his appointment, Duperreault said that it was a “privilege to return and lead AIG” having worked for AIG for 21 years at the beginning of his career, adding that he has “been impressed with the progress made” at the insurance giant.

AIG chairman Douglas Steenland, described Duperreault as "uniquely qualified" to lead the carrier at this current time.

"He is a hands-on leader who has consistently delivered strong bottom-line results. He has demonstrated a passion for deploying new and innovative ways to serve clients. All of this will enable Brian to help AIG achieve its full potential to be the leading insurance company", he continued.

Meaanwhile, on a call to analysts, Duperreault vowed to keep AIG whole as a single business. "I recognise the value of AIG's multi-line structure," he said. "I didn't come here to break up AIG. I came here to grow it."

The carrier will pay Hamilton $20mn in exchange for releasing Duperreault from restrictive covenants, with an additional payment of $20 million contingent upon the completion his second year as AIG CEO.

AIG has agreed to pay Duperreault a one-off cash award of $12mn as compensation for unvested Hamilton equity awards, in addition to a onetime, sign-on award of 1.5 million stock options which are set to vest over a seven-year period.

During his initial tenure with AIG from 1973 to 1994, Duperreault climbed the ranks to become chairman and chief executive of American International Underwriters, the carrier’s non-US commercial insurance business, before serving as non-executive chairman of Ace from 1994 to 2004 and the company’s president from 1994 to 1999.

Following that, he was president and CEO of Marsh and McLennan Companies, before moving on to establish Hamilton Insurance Group.

In line with the announcement, AIG also announced that it has entered into a broad memorandum of understanding with Hamilton and Two Sigma, which will in part see AIG acquire Hamilton’s US arm for around $110mn, a sum that is approximately $30mn in excess of estimated book value.

Furthermore, the firm has entered into a strategic reinsurance partnership with Hamilton Re, as well as a deal with Two Sigma Insurance Quantified to provide technology services to AIG's worldwide commercial insurance business.

WannaCry unlikely to be a major loss for insurers

Last week’s WannaCry ransomware attack is not expected to be a major event for insurers, according to reports.

The attack is estimated to have hit more than 200,000 computers in 150 countries, which included those used by the National Health Service (NHS).

While it is still too early to estimate the magnitude of insured and economic losses, it seems that it won’t be as costly as initially feared, largely due to the geographical location of the attacks with Europe and Asia the worst affected.

According to the FT, companies in these regions have been slower to purchase cyber insurance than their counterparts in the US, where more firms have bought cover in response to regulatory requirements and high-profile attacks in recent years such as Target and Anthem. However, the spread of the virus was stopped before it gripped the US.

While the cyber insurance market is likely to escape largely unscuppered, The Insurance Insider reported that there could be some fallout on kidnap and ransom (K&R) policies, with experts canvassed by the publication warning that event could trigger extortion policies and may force K&R underwriters to reconsider their position.

WannaCry is likely to be a wake-up call to companies that have not yet purchased cyber cover or have been hesitant to do so in the past, with many reports that the attack has already driven a large increase in demand for cyber insurance - a grace for insurers and brokers alike.

The global cyber insurance market is growing rapidly, with premiums currently pegged to be in the region of $3bn to $4bn according to various estimates and Allianz predicting that market could grow to as much as $20bn by 2025.

Growth is likely to be fuelled by a continued incidence of cyber-attacks, as well as greater regulatory pressures such as the EU General Data Protection Regulation which comes into force next year.

LV= confirms talks over general insurance unit

LV= has confirmed that it has received approaches from several parties regarding possible strategic transactions relating to its general insurance operations.

"Discussions are at a very early stage, no decisions have been made as to the nature of any transaction(s) and there can be no certainty that any transaction will be agreed or with whom," LV= said in an announcement on 16 May.

The move comes as tougher capital requirements and the prolonged low interest rate environment put pressure on insurers’ profitability.

“The board of LV= has previously disclosed its consideration of strategic options with a view to strengthening the group's capital position,” LV= continued.

The statement follows earlier reports that German insurance giant Allianz had approached the mutual insurer regarding a minority stake in its general insurance unit.

Sky News reported that discussions were at an early stage, with one analyst pointing to a deal valuation in excess of £1bn.

In March, the broadcaster also reported that LV= had held abortive talks with fellow mutual Royal London about a possible tie-up.

In 2016, LV=’s general insurance division fell to an £26mn operating loss versus a £72mn profit in the year prior, fuelled by a £139mn reserve charge relating to Ogden rate changes.

Brown appointed Hamilton interim CEO

Hamilton Insurance Group has named David Brown as interim group CEO following Brian Duperreault’s departure, it was announced earlier this week (15 May).

Concurrently, the carrier appointed William Freda as chairman of the board, with both appointments effective immediately.

Brown has been a Hamilton board member since the company’s inception in 2013 and also serves as chairman of the finance and governance committee, while Freda joined the board of directors in 2014 and chairs the board’s audit committee.

Prior to Hamilton, Brown served as CEO of Bermudian reinsurer Flagstone Re from its inception in 2005 and until its sale to Validus in 2012.

Meanwhile, Freda joined Hamilton after four decades at Deloitte, where he held a number of senior positions.

Speaking on Duperreault’s departure to become AIG’s new president and CEO, Freda described him as “an industry icon with a well-deserved reputation for visionary leadership”.

Nonetheless, he said that his temporary replacement Brown was “an ideal resource to lead Hamilton through this transition”.

“With a superlative management team, and a Board of Directors representing a cross section of disciplines from the insurance, finance and technology industries, we are well-prepared to continue to execute our mission of writing the future of risk,” he added.

Aviation rate reductions slowing: JLT

The aviation market appears to have stabilised following years of softening as underwriters appear to be holding a firmer position, according to London-listed broker JLT.

"From our analysis, it is evident that premium and/or rate reductions have slowed and in some cases are no longer obtainable," JLT said in its latest Plane Talking report.

"Looking ahead, with knowledge of a number of these future renewals that are in the early stages of negotiations, it would appear that for the moment at least the market is holding firm," the broker continued.

It said that the early indications of change that it witnessed at the end of 2016 appear to have had some weight. “From our experience the market has certainly hardened to some degree, although perhaps not as much as some would have hoped or feared,” the broker continued.

According to JLT, although ‘Tier A’ carriers are still most likely to receive the better renewal results, it would appear that the high double-digit rate reductions that were once considered normal for these risks are now few and far between. This in turn has filtered through to ‘Tiers B and C’ and these renewals are now also experiencing tougher pressure and subsequently less favourable outcome than they might have expected 12-24 months ago.

There were few significant aviation claims in the first four-and-a-half months of 2017. The only hull total loss came from a Turkish Airlines-operated Boeing 747 cargo plane that crashed in Bishkek, Kyrgyzstan and killd 39 people. However, as this was a cargo plane, JLT said the value of the claim is set to be "relatively low".

BHSI UK and Southern Europe moves into casualty with Leeks hire

Berkshire Hathaway Specialty Insurance (BHSI) has entered the UK and southern European casualty market with the appointment of Martin Leeks.

The carrier will write public and products liability insurance in the UK, Ireland and southern Europe, and employer’s liability insurance in the UK and Ireland.

Leeks will serve as senior vice president of casualty for UK and Southern Europe, joining from Mitsui Sumitomo at Lloyd’s where he was class underwriter from UK liabilities.

Prior to that, he was senior underwriter at Chartis and held casualty underwriting roles at Ace and Zurich.

Commenting on the hire, BHSI UK and Southern Europe president Tom Bolt said: “Under Martin’s leadership, we look forward to building out our casualty team in the region and bringing to market creative solutions with the financial strength and long-term underwriting focus of BHSI.

“Martin’s wealth of casualty underwriting expertise, coupled with our broad appetite and stable capacity, will translate to solutions that serve customers well for years to come,” he said.

Earlier this year, BHSI hired three underwriting staff for its London office including Richard Nathan who was appointed head of property lines, Patrick Brown as head of executive and professional liability and Andrew Walker as head of claims.

QBE Europe to merge underwriting divisions

QBE Europe is set to unify its underwriting divisions into a single business as of 1 July 2017.

The carrier currently has two underwriting divisions: international markets and retail.

Sam Harrison, who is currently managing director of international markets, will assume the role of managing director, insurance and will lead the combined entity.

Meanwhile, retail managing director David Hall will become global director of sales excellence, a practice that will be established to focus on delivering customer-led multi-line programmes across QBE Insurance Group’s specialty and corporate lines.

Harrison will oversee three regional business operations serving the UK, Europe and international markets respectively. He will also assume the role of interim executive director of QBE’s UK division whilst the carrier searches for a permanent replacement.

Furthermore, Peter Burton will become executive director of international markets, currently serving as director of natural resources and political. In Europe, Chris Wallace will remain as executive director of the region.

As part of the changes, a new market management function will be created, which will be headed by current director of UK and Ireland, Matthew Crane.

“We see these changes as a natural and positive evolution for our business,” remarked Richard Pryce, CEO of QBE Europe.

The carrier said that the revamped business structure will be more “Brexit friendly”, adding that a decision regarding the jurisdiction for its EU subsidiary will be announced in “due course”.

IUA and BIBA set out Ogden reform plans

The British Insurance Brokers' Association (BIBA) and the International Underwriting Association of London (IUA) have become the latest organisations to submit their responses to a government consultation on the Ogden discount rate, following calls for reform from the Lloyd's Market Association (LMA) and the Association of British Insurers (ABI) last week.

In February, the Lord Chancellor decided to change the Ogden discount rate by 3.25 points from 2.5 percent to -0.75 percent, forcing carriers to bolster reserves and consequently impacting their profitability.

Since then, Chancellor Philip Hammond has agreed to a consultation on the framework for setting future personal injury rates.

In its response, the IUA said that the UK discount rate “must better reflect investment strategies, be subject to regular review and set by a politically accountable minister”.

The trade body said that the rate should be reviewed either annually or every three years, adding that maintaining a single discount rate would be “a simple and straightforward solution” although noting that the “benefits of a dual rate model could be explored through further consultation”.

“It is clear that the methodology used and assumptions made to set the discount rate are flawed,” remarked IUA chief executive Dave Matcham.

“The current rate of minus 0.75 percent will inevitably lead to overcompensation, which is compounded by the long-term nature of many settlements. A negative real return is assumed not just for year one, but for every year for decades to come,” he continued.

The IUA also called for the discount rate to be linked to the yield on a balanced portfolio of low-risk investments, resonating feedback from the LMA, ABI and BIBA.

Currently, the Ogden rate is based on index-linked government bond rates.

The IUA that the rate should continue to be set by the Lord Chancellor, in contrast to the LMA which called for this to be done by an independent panel.

Meanwhile, BIBA executive director Graeme Trudgill said that it may be better to review the rate when there was deviation against a pre-agreed norm of a basket of low-risk mixed portfolio investments.

Like the ABI, BIBA also called for the government to seek the advice of experts and consult with representatives of claimants and defendants groups when setting the rate.