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EC News (20th July 2017)

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

Round-up of the weekly news and developments from the global insurance market with stories from Saudi Re, Nexus, Axis and more. 

Saudi Re to acquire Probitas stake

Middle Eastern reinsurer Saudi Re has signed a memorandum of understanding (MOU) to purchase nearly a 50 percent stake in Ash Bathia’s Lloyd’s start-up Probitas as troubled backer Istmo Re sells out.

As part of the agreement, Saudi Re will acquire 49.9 percent of the ordinary shares of Probitas’ holding company, Probitas Holdings (Bermuda) Limited (PHBL), which will own 100% of Probitas Corporate Capital Limited, Probitas 1492 Services Limited and Probitas Holdings (UK) Limited after the transaction.

The news comes after Probitas’ majority Panamanian backer Istmo Re was seized in December 2016 by the Panamanian regulator due to concerns about its capitalisation.

In April 2017, Istmo Re was placed in liquidation, with Probitas at the time stating that it was having confidential discussions with a number of new investors to replace the Panamanian reinsurer, some of which were at an advanced stage.

The transaction is subject to approval by both Lloyd’s and the Saudi Arabian Monetary Authority (SAMA) and the completion of the agreement to purchase by PHBL of all Istmo Re Group interests in Probitas.

The parties have entered into an exclusivity agreement to finalise the transaction documents up to 20th July 2017.

Furthermore, Probitas said that Syndicate 1492 will maintain funds at Lloyd’s of around US$135mn to support the 2017 year of account with no contribution from Istmo Re.

Commenting on the announcement, Probitas CEO Ash Bathia said "The substantial involvement of Saudi Re in the Probitas syndicate is consistent with our strategy of building our business in growth markets for Lloyd's, including Middle East, Latin America and Asia."

Meanwhile, Fahad Al-Hesni, MD-CEO of Saudi Re, said: “We are excited about this step which we believe will provide Saudi Re with opportunities to expand its business and investments in the global insurance and reinsurance market particularly the Lloyd’s market in the United Kingdom. This was identified as part of Saudi Re strategy to diversify its operations, and we are very pleased to join forces with the right partners at PHBL”.

Probitas was launched in October 2015 by Bathia, working in conjunction with Istmo Re and former QBE CEO Frank O'Halloran, who is chairman of the business. Capita is the syndicate's third-party managing agent.

Nexus agrees duo of acquisitions

Independent speciality managing general agency (MGA) Nexus has agreed to acquire two MGAs in the last week as it continues on its growth path.

On 19 July, it was announced that Nexus had agreed to acquire US personal accident treaty reinsurance MGA Zon Re. Separately, the firm said on 17 July that it had agreed to purchase Lloyd’s coverholder Equinox Global and all other Equinox group companies.

These deals represent Nexus’ second and third acquisition of this year. In June, the company acquired Lloyd's coverholder and marine cargo specialist Vectura Underwriting from Aquila Underwriting.

Zon Re is a management owned reinsurance underwriting manager founded in 2003 and is run by Kieron Farrelly (executive vice president and chief underwriter), Chris Holland (vice president and senior underwriter) and Vern Ismen (senior vice president and compliance, claims and contracts).

Zon Re produced gross written premiums (GWP) of $14.3mn in 2016, revenue of $3.77mn and EBITDA of $2.69mn.

This acquisition of ZON Re marks London-based Nexus' first in the US, and adds treaty reinsurance as a new class of business to the group. The terms of the transaction were not disclosed.

Meanwhile Equinox, which was established in 2009, is a trade credit MGA that is majority owned by management and staff, with Beazley owning 37 percent.

Following the acquisition, Equinox’s founding shareholders and management team of Steen Parsholt, Mike Holley, Rob Crampton and Vicki Harrison will continue to support the business.

Parsholt will remain as chairman and Holley as CEO of Equinox, with the founders of Equinox and Beazley becoming shareholders in Nexus.

The combination of the two businesses will result in Nexus having a global trade credit insurance business with £60mn of GWP.

Furthermore, Beazley will continue to provide underwriting capacity to Equinox through a 10 year underwriting support agreement.

Thompson said Beazley offering a 10-year capacity commitment "speaks volumes" about the quality of Equinox's underwriting and management.

Importantly, Equinox and Nexus CIFS’ books of business are complementary, with very little overlap, both in terms of line sizes and geographical focus, resulting in significant opportunities to expand globally by harnessing the joint distribution channels following the transaction,” he added.

Combined, Zon Re, Vectura and Equinox will add GWP of £40mn and Ebitda of £4mn to the Nexus Group in 2017, along with three additional countries and 10 new branches to its footprint.

Furthermore, these acquisitions will increase Nexus's financial forecasts for 2017 with projected GWP rising to £160mn, forecasted commission income increasing to £30mn and an anticipated EBITDA in excess of £11mn.

Last week, Nexus announced that it had completed a £30mn capital raise that will enable it to undertake further M&A activity.

Venture capital provider BP Marsh & Partners – which has an 18.6 percent stake in Nexus - provided a £4mn loan facility to the MGA, while a further £26mn loan facility was provided by global investment firm HPS Investment Partners.

Axis gets green light to launch Lloyd’s managing agency

Axis Capital has gained approval from Lloyd’s and the UK financial regulators to establish its own managing agent, just weeks after the Bermudian (re)insurer announced a £468mn deal to acquire Lloyd’s carrier Novae.

In a statement dated 14 July, the carrier said that from 4 August, Axis Managing Agency Limited will assume management of Axis Syndicate 1686, replacing the company’s third-party managing agency agreement with Asta, which has been in place since the syndicate’s inception in 2014.

Axis Syndicate 1686 underwrites specialist classes of business including marine, energy, aviation, terrorism, property, casualty, professional indemnity and reinsurance and has a stamp capacity of £336mn for the 2017 year of account.

Mark Gregory, currently CEO of Axis Insurance's international division, will become CEO of the managing agency in addition to his existing position.

Axis said that launching its own Lloyd’s managing agency will enable it to have a more direct relationship with Lloyd's as well as allowing it to take full advantage of the market's worldwide licences and distribution network.

Furthermore, the carrier said the move would also support Axis Reinsurance’s plans to access specialty reinsurance business at Lloyd’s.

This is a significant milestone for Axis. It brings us closer to Lloyd’s and its influential community of brokers, while also allowing us to deliver broader strategic value to our customers,” remarked Gregory.

The news represents Axis’ latest move to expand its presence in London and its Lloyd’s operations following its recent offer to acquire Novae.

Towergate parent rebrands as Ardonagh Group

Towergate’s parent company KIRS has rebranded itself as The Ardonagh Group.

The group, which was temporarily named KIRS, was created in early May to bring together insurance brokers Autonet, Chase Templeton, Ryan Direct Group, Price Forbes and Towergate under a single holding structure, with all five businesses to be run independently.

The newly named Argonagh Group, which is backed by private equity firms Madison Dearborn Partners and HPS Investment Partners, also includes London market start-up Bishopsgate and property broker Paymentshield.

David Ross, CEO of The Ardonagh Group said: “Ardonagh is a combination of the Celtic words for ‘on high’ and ‘warrior’.

"Finding a unique company name is no mean feat, but the spirit captured by these word feels fitting for the journey we've been on and the way we want to move forward as a family of businesses."

In June, the holding company completed an £800mn bond offering. At the time, the company said it intends to use the funds to refinance existing debt, finance the acquisitions of both Direct Group and Chase Templeton, pay for transaction costs and put “incremental” cash on its balance sheet.

Severe cyber-attack could trigger $8.1bn insured loss, Lloyd’s warns

A major cyber-attack disrupting several cloud service providers could lead to an average of $53bn of economic losses and up to $8.1bn of insured losses, a recent report by Lloyd’s and cyber risk analytics modelling firm Cyence has found.

The report also highlighted an enormous and growing cyber protection gap, noting that as little as 7 percent of economic losses could be covered by insurance following a major mass vulnerability attack.

The report, which was developed collaboratively by Lloyd’s and Cyence, outlines the modelled impact of two major cyber scenarios.

Lloyd’s CEO Inga Beale said: “Just like some of the worst natural catastrophes, cyber events can cause a severe impact on businesses and economies, trigger multiple claims and dramatically increase insurers’ claims costs. Underwriters need to consider cyber cover in this way and ensure that premium calculations keep pace with the cyber threat reality.”

“We have provided these scenarios to help insurers gain a better understanding of their cyber risk exposures so they can improve their portfolio exposure management and risk pricing, set appropriate limits and expand into this fast-growing, innovative insurance class with confidence.

Under the cloud service provider hack scenario, which envisages an attack where multiple cloud-based customer servers at the provider fail and cause widespread service and business interruption, the average estimated economic losses ranged from $4.6bn for a large event to $53.1bn for an extreme event.

This is as costly as Superstorm Sandy, which is estimated to have caused economic losses of between $50bn and $70bn.

However, the report highlighted that due to uncertainty surrounding around aggregation, economic losses in an extreme event could be as high as $121.4bn or as low as $15.6bn.

The report noted that the same scenario could trigger insured losses ranging from $620mn for a large loss to $8.1bn for an extreme loss.

Meanwhile, the mass software vulnerability scenario envisages a cyber analyst accidentally leaving his bag on a train that contains a hard copy of a report on a vulnerability that affects all versions of an operating system run by 45% of the global market.

This report is then traded on the dark web and purchased by a number of unidentified criminal parties, who begin attacking vulnerable businesses for financial gain.

Under this scenario, average economic losses were estimated between $9.7bn for a large event and $28.7bn for an extreme event, while average insured losses could range from $762mn to $2.1bn respectively.

The report also revealed a significant underinsurance gap in both scenarios. In the cloud service provider scenario, between 14 and 17 percent of economic losses would be covered by insurance, while only 7 percent of economic losses would be covered in the mass vulnerability scenario.

"This report's findings suggest economic losses from cyber events have the potential to be as large as those caused by major hurricanes. Insurers could benefit from thinking about cyber cover in these terms and make explicit allowance for aggregating cyber-related catastrophes," the report said.

"To achieve this, data collection and quality is important, especially as cyber risks are constantly changing."

SBM settles with majority of primary carriers over Yme loss

Dutch-based offshore energy specialist SBM Offshore has reached a settlement with 73.6 percent of the insurers who provided $500mn of primary cover for the Yme project.

In a statement, SBM said that it will receive a cash payment of around $247mn in full and final settlement with these insurers. After legal fees and other expenses have been paid, the company said that the proceeds will be shared equally with oil producer Repsol, in line with a 2013 agreement.

The final agreement, which remains subject to contract, is expected to be formalised in the coming weeks, SBM noted.

However, SBM said that it continues to pursue its claim against all remaining insurers, including those on the two excess layers, with the trial scheduled to commence in October 2018.

SBM built the Yme oil platform for Canadian oil company Talisman Energy and its partners but faced technical difficulties completing the project, which was evacuated in the summer of 2012 due to safety concerns. Talisman was later bought by Repsol.

Lloyd’s Secrett to join Tokio Millennium Re as CUO

Brian Secrett, Lloyd's interim head of underwriting performance, has been appointed chief underwriting officer at Tokio Millennium Re (TMR).

Effective 1 October and subject to regulatory approvals, Secrett will lead TMR’s underwriting and pricing functions, and will have responsibility for both the risk selection process and controls. Secrett will be based in London.

Secrett will also join the reinsurer’s executive committee.

Secrett joined Lloyd’s in 2015, where he served as head of class of business before being appointed interim head of underwriting performance after Theresa Froehlich vacated the position.

Prior to Lloyd’s, he had led PartnerRe’s catastrophe reinsurance business since 2011.

Secrett began his career in reinsurance in 1989 as a property treaty underwriter at Swiss Re in London.

Commenting on the hire, TMR CEO Stephan Ruoff said: “Brian has an impressive track record with almost 30 years of reinsurance underwriting and insurance risk experience having been responsible for leading the underwriting performance team and initiatives at Lloyd’s, and prior to that leading a very significant catastrophe reinsurance business portfolio.

Brian’s expertise in underwriting, pricing and risk analytics combined with his long term experience of building balanced underwriting portfolios, equips him perfectly for his new role at TMR.

Secrett's departure from Lloyd's follows the exit last year of Tom Bolt, who was performance management director, and then of Froelich, who was head of underwriting performance and took Bolt's role on an interim basis after his departure.

The performance management director role was eventually filled on a permanent basis by Jon Hancock, who joined from RSA.

Beazley gains approval for Irish EU base

London-listed carrier Beazley has received authorisation from the Central Bank of Ireland to convert its long established Dublin-based reinsurance company into an insurance company permitted to transact business throughout the EU.

The Irish company will be renamed Beazley Insurance and will provide access to European business alongside its access to Lloyd's recently announced Brussels hub.

Furthermore, Beazley said that it will be establishing further branch offices in the UK, France, Germany and Spain in the coming months.

The carrier first established a reinsurance company in Dublin in 2009 for internal reinsurance transactions. It said that one of reasons for selecting Ireland as the location for Beazley Re was the option it offered to develop business in Europe, with pre-Brexit plans to grow the non-life insurance book in the region.

Continental Europe currently accounts for just over 5 percent of Beazley’s total business, with Beazley's head of international financial lines Gerard Bloom leading a team which has been developing a suite of products for European markets including cyber, professional indemnity and financial institutions cover.

Beazley CEO Andrew Horton said: "Dublin is an excellent base for our European insurance company, with a highly regarded regulatory system and local access to talented individuals who are well-versed in the operating needs of a modern insurer".