Round-up of the weekly news and developments from the global insurance market with stories from CNA Hardy, Hamilton Re, AmTrust and more.
Rate declines gather pace at 1 June Florida renewals
The pace of rate reductions accelerated at this year’s 1 June Florida reinsurance renewals as excess capacity and strong competition placed downward pressure on pricing, according to JLT Re.
The reinsurance broker reported that its risk-adjusted Florida property catastrophe rate-on-line (ROL) index fell by 5.1 percent at 1 June, representing the sixth consecutive year of price decreases. This was deeper than the 3.1 percent cut reported last year.
It said that renewal rates ranged from flat to down 10 percent, with the broker highlighting that pricing for Florida business was now around 40 percent below 2012 levels and only 10 percent above the previous cyclical low of 1999/2000. In its report, JLT Re noted a “renewed vigour” from insurance-linked securities (ILS) markets to deploy capital this year as they looked to increase participations, particularly with stronger-performing cedants.
The broker said that claims from Hurricane Matthew had little bearing on renewals, even for cedants whose lower layers were impacted.
Commenting on the renewals, JLT Re North America Executive Vice President Bob Betz said the outcome of the 1 June renewals had been varied and was very much determined by cedant size and performance.
“After a difficult 18 months for the Florida insurance market, where attritional losses and mounting litigation related to assignment of benefits (AOB) claims contributed to approximately 40 percent of state insurers suffering underwriting losses in the first quarter of this year, smaller companies with capital surplus of less than $25mn in particular have come under increased rating agency pressure,” he noted.
“At a time when markets are focusing on performance, these carriers generally saw less favourable outcomes in both price and reduced line size,” he continued.
Meanwhile, JLT Re said that retro providers had also suffered from price decreases as risk-adjusted rates were down in the mid-single digits, with the broker citing an abundance of capacity and a benign loss environment. Demand remained strong as buyers took advantage of a soft market, with the broker stating that market conditions were now at their most competitive than at any time since the late 1990s and early 2000s. As a result, it said that many reinsurers lowered retentions and added additional layers of coverage at the 1 June renewals, including more per-occurrence covers. Others became more specific in their purchases, moving from worldwide to Florida only covers. David Flandro, JLT Re’s global head of analytics, said that surplus capacity was continuing to drive softening reinsurance market conditions, despite shrinking reinsurer returns in the year-to-date.
The reinsurance broker estimated that dedicated reinsurance sector capital stood at $325bn at end of the first quarter of 2017, up 1.2 percent from the end of last year. This is against 2016 premiums of $255bn.
CNA Hardy, RSA and QBE select EU hubs
CNA Hardy, RSA and QBE have become the latest insurers to announce the location of their post-Brexit hubs.
Both CNA Hardy and RSA have opted for Luxembourg, mirroring plans by Hiscox, FM Global and AIG to open offices in the Grand Duchy. There are also reported rumours that Liberty Specialty Markets is set to establish a subsidiary in the country, but this has yet to be confirmed.
The decision from both carriers comes weeks after it was reported that Nicolas Mackel, CEO of the country’s financial sector development agency Luxembourg for Finance, said that he expected two or three new carriers to announce plans to establish hubs there in the near-term.
In contrast, Australian carrier QBE revealed that it has chosen Brussels for its EU base, following in the footsteps of Lloyd’s, which has previously said that it will open a European insurance company in the region.
In a statement, RSA said that Luxembourg is an “ideal location with multi-national expertise, strategically located within RSA’s existing EU branch network and has an experienced regulator,” adding that the office will house fewer than 10 people.
The new subsidiary will be the headquarters for RSA’s existing EU branches in Belgium, France, Germany, Spain and the Netherlands, the carrier said.
However, the Luxembourg office will not be linked to RSA’s Scandinavian business, which is run separately and is based in Stockholm and wrote net written premiums of £1.7bn in 2016.
“While Brexit is not a major issue for RSA, the move allows the sensible reconfiguration of the branch network in light of the UK’s exit,” the company said in its statement.
CNA Hardy said that it expects to have its Luxembourg subsidiary up and running by early 2019, with the establishment process already underway.
“We are in the business of providing certainty for our customers, and in an increasingly uncertain political environment, we must ensure we act now to provide continuity to our employees, customers and brokers,” remarked CNA Hardy CEO David Brosnan.
He explained that Luxembourg was the “optimum jurisdiction” for its EU base due to its geographic location between three of the carrier’s continental European offices, its stable economic and political environment and the professional approach of the Luxembourg regulator
Meanwhile, QBE said that it plans to have its new Brussels subsidiary set up in time for the 2019 renewals.
"Our priority is providing certainty for our customers and staff, and our decision to set up a legal entity in Belgium ensures we can provide continuity of service irrespective of the outcome of Brexit negotiations,” said QBE Europe CEO Richard Pryce in a statement.
"From the perspective of our customers, broker partners and staff it will be business as usual, with QBE continuing to operate from and across mainland Europe,” he added.
QBE said that it already has a branch in Belgium, which houses around 70 to 80 people, with additional recruits expected.
The company said that there would no reduction in the number of staff it employs in London.
Hamilton Re forms $65mn Turing Re sidecar
Hamilton Re has announced the launch of its first special purpose vehicle (SPV), Turing Re, which will provide $65mn of collateralised capacity for its global reinsurance portfolio. Turing Re has been funded by capital that was raised in a private placement syndicated among multiple investors. The sidecar will support Hamilton Re’s property treaty book.
TigerRisk Capital Markets & Advisory acted as sole structuring and placement agent on the transaction, while Willkie Farr & Gallagher LLP acted as legal counsel to Hamilton Re.
“This transaction represents an exciting next step in the evolution of Hamilton Re as a diversified company meeting the needs of our current and future clients,” remarked Hamilton Re CEO Kathleen Reardon.
Last month, AIG agreed to cede up to $150mn of reinsurance premium per annum for six years to Hamilton Re as part of a broad memorandum of understanding between the two carriers that was announced in line with Brian Duperreault’s appointment as the new AIG CEO.
The volume of ceded premium available to Hamilton Re will rise by seven percent each year over the six-year period.
AmTrust appoints Karkowsky as new CFO
AmTrust has named Adam Karkowsky as executive vice president and chief financial officer, the company has announced.
He succeeds Ronald Pipoly Jr who has served as CFO since 2005, with Karkowsky’s appointment following a comprehensive search process, which included internal and external candidates.
The CFO reshuffle follows revelations of accounting missteps earlier this year, with the carrier announcing that it would have to restate its financials between 2014 and the first nine months of 2016.
Karkowsky has been executive vice president, strategic development and mergers and acquisitions at AmTrust since March 2011, a role in which he was responsible for leading the carrier’s M&A initiatives and directing the company’s strategic expansion in the US and internationally.
Commenting on the appointment, AmTrust chairman and CEO Barry Zyskind said: “Adam, with his leadership and knowledge of AmTrust and demonstrated financial expertise, is uniquely qualified to assume the role of CFO.”
Last week, AmTrust announced that it had raised $300mn of capital through family members of the company’s founders via a private placement, which it said would further enhance its balance sheet and capital base.
Ed names Wicks as non-marine reinsurance chairman
Ed has appointed Ian Wicks as chairman of non-marine reinsurance as it looks to bolster its reinsurance division, the wholesale and speciality broker has announced.
Wicks joins from Willis Re, where he was an executive director within the reinsurance broker’s casualty division. Prior to that, he served two decades at Harman Wicks & Swayne, the reinsurance broking house he co-founded in 1988.
Following JLT’s acquisition of Harman Wicks & Swayne in 2008, Wicks was appointed co-head of non-marine and was also responsible for managing the London-based casualty treaty team.
He will report to Kieran Angelini-Hurl, CEO of Ed’s reinsurance division and will begin his new role with immediate effect.
Commenting on the hire, Angelini-Hurl said: “I am delighted to welcome Ian to our growing team. He is a true market grandee whose experience is second to none.”
“Ian’s exceptional insight and counsel will further enhance our proposition and I am certain that his influence will have an immediate positive effect,” he added.
Guy Carp hires Gen Re executive as Benelux MD
Reinsurance broker Guy Carpenter has appointed former Gen Re Executive Hans van Oort as managing director of its Benelux operations in a bid to strengthen its presence in the region.
Van Oort will report to Roelant de Haas, CEO Benelux and will be based in Brussels, working closely with the broker’s Rotterdam and London offices. He moves over from Gen Re, where he most recently served as chief account executive and marketing manager for Europe, having originally joined the carrier in 1997. Prior to that, he was head of the reinsurance broking and consulting department at Bloemers & Co. Herverzekering, where he was responsible for the Dutch market.
In his new role, Oort will be responsible for expanding Guy Carpenter’s presence across Belgium, the Netherlands, and Luxembourg.
Commenting on the appointment, De Haas said that Van Oort was a “very strong addition” to the Benelux team. “We firmly believe that our clients will benefit significantly from the insight and industry knowledge that he brings to the role,” he added.
Meanwhile, Massimo Reina, CEO of continental Europe and MENA at Guy Carpenter, said: "The Benelux region is becoming an ever more important territory for Guy Carpenter, as we continue to build on our success in the region in recent years."
IFRS 17 could cost up to £2bn in the UK: Prudential CFO
The implementation of the International Accounting Standards Board (IASB)'s new IFRS 17 reporting standard could cost between £1bn – £2bn in the UK, according to Prudential CFO Nic Nicandrou.
In a piece written by Nicandrou in trade body Insurance Europe’s annual report, he questioned whether IFRS 17 would be worth its considerable cost. He said that the change that IFRS 17 will bring about will likely be as fundamental as the introduction of Solvency II. However, he said that the notion that IFRS 17 amounts to Solvency II with a few adjustments is incorrect.
“Some observers misdiagnose that — as the IFRS 17 requirements have certain similarities with aspects of the Solvency II approach — the hard work has already been done and therefore the effort and associated cost of the new standard will be modest,” he wrote.
"In practice, extensive re-engineering of data storage and actuarial and finance systems to generate all the necessary information will be required. We are talking about fundamental operational as well as technical accounting change," he continued.
Nicandro, who is chairman of the European Insurance CFO Forum, said that that the implementation of IFRS 17 will involve “eye-watering” costs, adding that it was "hard to see how anyone" can conclude that the benefits of the standard will justify the investment and effort. He listed a number of reasons including that financial results have yet to be prepared on the new basis; current investors in the insurance sector have not been “meaningfully consulted”; auditors will have to navigate a "huge learning curve"; and the impact on insurance products and insurers' investment behaviour is unknown.
Nicandrou said that insurers should raise concerns in the lead up to the January 2021 start date as they develop their own implementation plans, with an opportunity to do so as part of a testing programme being undertaken by the European Financial Reporting Advisory Group.
"A core aspect to this programme will be assessing the costs and benefits of the change and, ultimately, whether the standard is both appropriate and in the public good,” he noted.
Nicandrou's comments follow the publication of the new reporting standard by the IASB last month. Insurers across the globe will be required to use IFRS 17 for accounting periods from 1 January 2021.
The new rules require companies to recognise profit when insurance services are delivered, rather than when premium payments are received, as well as to provide information about insurance contract profits that are expected to be recognised in the future.
Insurance companies are also expected to continue incurring costs in applying IFRS 17 on an ongoing basis. These will mainly arise from gathering the necessary information to update assumptions for measuring insurance contracts on a current basis.
EU regulator warns against ‘letterbox entities’
The European Securities and Markets Authority (ESMA) has warned national watchdogs against companies hoping to set up thinly staffed "brass plaque" entities ahead of Brexit.
In an advisory statement aimed at national EU regulators, the EU securities and markets regulator issued guidelines for avoiding "regulatory arbitrage" between the 27 countries that will be left in the EU after the UK leaves the bloc.
ESMA said local regulators in the EU should "reject any relocation request creating letterbox entities."
This would include a company looking to set up an EU operation to gain passporting rights while "essentially performing all substantial activities or functions outside the EU27", ESMA said.
Paris-based ESMA works with the European Insurance and Occupational Pensions Authority and the European Banking Authority to promote "supervisory convergence" across the EU.
In its document, ESMA chairman Steven Maijoor said: "The UK plays a prominent role in EU financial markets and the relocation of entities, activities and functions to the EU27 creates a unique situation requiring a common effort, at EU level.
"Firms need to be subject to the same standards of authorisation and ongoing supervision across the EU27 in order to avoid competition on regulatory and supervisory practices between member states."
ESMA noted it expects senior executives in newly established EU units to be actual decision-makers. The regulator said that even when the entity is part of a bigger corporation, local board members and senior managers must be employed in the country they move to.
ESMA also urged financial services firms to hurry up with Brexit relocation plans.
"The authorisation process takes time," the watchdog noted. ESMA recommended companies approach local regulators "as early as possible" to ensure efficiency.
