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EC News Asia Edition (3rd October 2018)

  • Publish Date: Posted over 5 years ago
  • Author:by Alan Jarque

Round-up of the latest news and developments from the Asian insurance market with stories from MMC, Canopius, Berkshire Hathaway and more.

MMC to buy JLT for $5.6bn

Marsh & McLennan Companies (MMC) is set to acquire London-listed rival JLT in a deal valuing the firm at $5.6bn.

Under the terms of the transaction, JLT shareholders will receive £19.15 pounds per share, representing a 33.7 percent premium to the broker’s closing share price of £14.32 on 17 September. 

The cash consideration equates to $5.6bn in fully diluted equity value, or an estimated enterprise value of $6.4bn. The firm said the transaction will be funded by a combination of cash in hand and proceeds from debt financing.

The deal not only cements MMC’s position as the world’s largest insurance broker but will also create the industry’s largest reinsurance broker based on 2017 revenues, according to analysis by Re-Insurance magazine.

MMC said that is expects the acquisition to increase its overall revenues to $17bn and add another 10,000 people to its global headcount.

The company said that it expects to achieve annual cost synergies of c.$250mn that will be realised over the next three years, adding that realisation of these synergies will result in a one-time integration cost of $375mn.

In a US Securities and Exchange Commission filing dated 18 September, MMC revealed that a substantial portion of the annual cost synergies could come from headcount reductions in addition to savings in real estate, IT, outside services and other initiatives. 

The firm said that it expects a potential headcount reduction of between 2 to 5 percent of its total group workforce, across all geographies and “from a broad range of job categories”, including functional support areas such as finance, human resources, IT, operations, legal and administrative support staff.

With the combined group housing around 75,000 employees, this means that up to 3,750 jobs could be at risk.

In explaining the rationale of the deal, MMC said that the acquisition of JLT accelerates its strategy “to be the preeminent global firm in the areas of risk, strategy and people.”

“JLT's track record of strong organic growth and attractive geographic diversification enhance MMC's ability to accelerate growth and margin expansion across products and geographies,” it added.

“The acquisition of Jardine Lloyd Thompson creates a compelling value proposition for our clients, our colleagues and our shareholders,” remarked MMC president and CEO, Dan Glaser.

He added: “The complementary fit between our companies creates a platform to deliver exceptional service to clients and opportunities for our colleagues. 

“On a personal level, I have come to know, and respect, Dominic Burke and his management team from my time both at MMC and as an underwriter. I am confident that with the addition of the talented colleagues of JLT, Marsh & McLennan will be an even stronger and more dynamic company."

Upon completion of the transaction, JLT group chief executive Dominic Burke will join MMC as vice chairman and will serve as a member of MMC’s executive committee. 

Burke commented: “I am enormously proud of what JLT has achieved, founded on our people, our culture and our unwavering commitment to our clients.”

“MMC is, and always has been, one of our most respected competitors and I believe that, combined, we will create a group that will truly stand as a beacon for our industry.”

According to the Financial Times, discussions surrounding the deal only began on 7 September, when Glaser went to meet Burke.

MMC has said that it has received irrevocable undertakings from JLT's largest shareholder, Jardine Matheson Holdings, and JLT directors who collectively represent 40.5 percent of the issued and outstanding JLT shares in support of the transaction.

The deal is slated to close in spring of 2019, subject to necessary regulatory and shareholder approvals.

Canopius appoints Wattanaumphaipong as head of reinsurance, Asia Pacific

Canopius has appointed Nattakorn Wattanaumphaipong as head of reinsurance, Asia Pacific.

Wattanaumphaipong joins the firms Singapore office in January 2019. He will report to Jamie Wakeling, chief underwriting officer (CUO), reinsurance.

He joins Canopius from Swiss Re where he worked in multiple positions over a period of 13 years, most recently as head of property, Asia (excluding Japan and China).

Commenting on his appointment Wattanaumphaipong said: “Joining Canopius is an exciting opportunity,”

“I am looking forward to attacking this new challenge and being part of driving the strategic agenda for a business that has a clear plan for growth in the Asia Pacific.”

Mark Newman, CEO, Asia Pacific & Middle East North America, added: “Canopius has a long term committed strategy in Asia Pacific, which includes significant investment and a focus on new talent joining the business, as we aim to grow across the region.”

“Hiring Natt supports our key regional objectives and we’re delighted that he is coming on board. As a proven leader and developer of talent, he is entrepreneurial and motivated, and has strong commercial acumen and multi-line reinsurance experience.”

“Natt will bring a dynamic new aspect to Canopius in the Asia Pacific, enabling us to better serve our customers.”

Berkshire Hathaway appoints key product line & service leaders in Dubai

Berkshire Hathaway Specialty Insurance (BHSI) has further expanded its leadership team in Dubai with several executive appointments for key product line and service posts.

Aisling Malone has been appointed as head of executive & professional lines. Malone was previously head of professional liability cyber for MENA and senior underwriter at AIG MEA Ltd. She is joined by Joe Saab, senior underwriter.

Emir Erdur will take on the role of head of casualty. Erdur joins from QBE Insurance where he was casualty leader and regional underwriter of casualty for the MEA region. Erdur is joined by Mohammed Hannoun, senior underwriting manager.

Carlos Beltran has been appointed as head of commercial property. Beltran was previously regional vice president, P&C underwriting at Chubb Latin America.

Meenakshi Srinath will take on the role of head of marine. Before joining the company Srinath was head of marine (Gulf and KSA) at AXA Insurance Gulf.

Kapil Palathinkal has been appointed as head of energy and construction. Palathinkal was most recently the energy & engineered risk manager for the Arabian hub at AIG. He is joined by Anuradha Sekar, senior underwriter.

Pruthviraj More will serve as senior risk engineer. More joins from Allianz Global Corporate Specialty (AGCS) where he was a property loss control engineer.

John Lewis will take on the role of head of claims. He was previously head of claims at Zurich Insurance DIFC Dubai.

Earlier this year BHSI announced the appointment of Alessandro Cerase as senior executive officer (SEO) and Neeraj Yadvendu as deputy SEO and head of third party lines for the Middle East, both based on Dubai.

Alessandro also leads first party lines for BHSI’s broader Asia Middle East region, which includes BHSI’s other regional hubs of Hong Kong and Singapore as well as BHSI operations in Malaysia and Macau.

Commenting on the appointment Marc Breuil, president, BHSI, Asia Middle East said: “Building a strong foundation of servicing capabilities and local knowledge and expertise is critical to BHSI’s long term plans in the Middle East.”

“Since BHSI Middle East commenced operations in February, we have established a strong and dynamic team to bring BHSI’s unmatched ­financial strength and capital to the Middle East.”

Alessandro Cerase, senior executive officer, BHSI Middle East said: “Our new teammates in Dubai embody the excellent capabilities and strong character that is so valued by BHSI and by our customers,”

They will lead our efforts to bring BHSI’s long-term focus, multi-line underwriting and service excellence to customers throughout the Middle East. We are pleased to welcome them aboard.”

GIC Re retains first right to reinsurance business in India

The Insurance Regulatory and Development Authority of India (IRDAI) has maintained its established ‘order of preference’ guidelines, which grant GIC Re first refusal to all reinsurance business placed in India, according to sources at BloombergQuint.

The new regulations will govern the terms for reinsurance business in India and will reportedly come into effect from March 2019 when reinsurance contracts are renewed for the following year.

IRDAI adopted the order of preference recommended by its expert committee on 5 January despite objections from Insurance Brokers’ Association of India, Global Reinsurance Forum that represents over 67 percent of the world’s reinsurance capacity, and Global Federation of Insurance Associations representing insurance industry of 60 countries that account for around 87 percent of total insurance premiums worldwide. The organisations had called the suggestions anti-competitive since they allowed GIC Re to maintain its monopoly.

According to BloombergQuint sources, after GIC RE, the second preference will be given to other Indian reinsurers that have been doing business in the country for at least three consecutive years. In case both GIC Re and Indian reinsurers refuse, third preference will be given to foreign reinsurance branches in the country.

As of now, GIC Re is the sole domestic reinsurer and its nine foreign peers have local offices.

The fourth preference, if at least four foreign reinsurance branches refuse to underwrite risk, will go to insurance offices in International Financial Services Centre, GIFT City—the tax-free hub set up in Prime Minister Narendra Modi’s home state Gujarat.

If they refuse too, the insurer can then obtain best terms for reinsurance from cross-border reinsurers with a minimum credit rating of A- from S&P or equivalent rating from any other international financial and credit rating agencies, according to BloombergQuint.

GIC Re reported a combined ratio of 104 percent for the financial year ended 31 March 2018 after 99.7 percent in the period ending 31 March 2017.

PICC gets green light for Shanghai stock listing

People's Insurance Company of China (PICC) has received approval following its public stock offer application for a listing in Shanghai.

The company and its underwriters will confirm the schedule for listing at the Shanghai Stock Exchange and release the prospectus following discussions with the bourse, reports the Xinhua news agency.

Under the current IPO system, new shares are subject to approval from the China Securities Regulatory Commission (CSRC). China is gradually switching from an approval to registration-based IPO system.

Headquartered in Beijing, PICC has been listed on the Hong Kong Stock Exchange since 2012.

With its return to the A-share market, the company will become China's fifth insurance company listed on both the A-share and H-share markets.

In the first half of 2018, the premium income of PICC reached CNY286.16bn, up by 2.3 percent year on year, according to the company's half-year report.

The company's net profit saw a 12.2 percent surge to CNY14.35bn in 1H2018.

Purchase of Chaucer to accelerate China Re overseas expansion

China Re's acquisition of Chaucer from Hannover will complement the Chinese reinsurer's existing product offerings and increase its geographic diversification according to Kelvin Kwok, analyst and  Sally Yim, associate managing director, Financial Institutions Group of Moody's Investors Service.

Chaucer is China Re's first major international acquisition. The international rating agency, in an article in the 20 September issue of Moody’s Credit Outlook, expects the deal to mark the start of an acceleration in China Re's overseas expansion and the development of its international business capabilities, which is in line with China Re's ”go global” focus.

Chaucer’s footprint and established customer base in Europe, North America and Latin America will increase China Re’s position as the largest reinsurer in Asia by premiums and reduce its geographic concentration in China.

China Re will also benefit from Chaucer’s significant presence in the Lloyd’s market, helping it to expand its market share in the global specialty reinsurance segment.

Chaucer owns two Lloyd's syndicates, 1084 and 1176. Syndicate 1084 was the 11th largest Lloyd’s syndicate by premiums in 2017. On a pro forma basis, the acquisition will raise China Re’s overseas premiums to 35 percent of its overall P&C reinsurance premiums from 13 percent in 2017.

The proposed acquisition is credit positive for China Re, says Moody's. The transaction is also credit positive for Hanover because it will boost Hanover’s capital adequacy by reducing its catastrophe and other underwriting risk, and will lower its financial leverage.

Chaucer’s focus on underwriting specialty risks, in particular marine, aviation and political risk, will complement China Re’s existing P&C (re)insurance products, which are concentrated on the traditional motor and property sectors.

The motor sector represented 73.5 percent of China Re’s domestic primary P&C premiums in 2017 and 41.2 percent of its domestic P&C reinsurance premiums. The added underwriting capability will reduce China Re’s reliance on its domestic motor business, whose growth is under pressure from moderating new car sales and the liberalisation of commercial motor pricing in China.

In addition, China Re will benefit from Chaucer’s technical know-how. As the operator of two Lloyd’s syndicates, Chaucer specialises in infrastructure and utility construction projects, which usually entail complex engineering, energy and geopolitical risks and demand specialised risk assessment and underwriting. This expertise will support China Re’s efforts to serve growing insurance demand from China’s Belt and Road Initiative.

The acquisition will improve China Re’s profitability based on its latest return on equity (ROE) performance. Chaucer reported a three-year average ROE of 12.1 percent between 2015 and 2017, much higher than China Re’s weighted average ROE of 7.2 percent in 2017 and 6.2 percent in the first half of 2018.

The transaction is small compared with China Re’s large capital base of CNY85.6bn ($12.5bn). The proposed consideration would equal 7 percent of China Re’s shareholders’ equity at the end of June 2018. According to China Re’s announcement, the Chinese reinsurer will fund the purchase from both internal resources and through external financing, the latter capped at $550mn. If China Re raises the full $550mn via senior debt, its pro forma financial leverage would increase to 14 percent from 11 percent as of 30 June 2018, which is not significant.