Insurance Jottings

Political risk “difficult new contributor” to nat cat losses: PCS

The role political risk plays in relation to natural catastrophes losses requires much more consideration by the (re)insurance community, a new report by PCS has highlighted.

As Delta approaches the US, a new report from Property Claim Services (PCS) has warned of the increasingly prominent role political risk can play in determining the extent of catastrophe losses.

PCS said long-simmering tensions around the world have been brought to the forefront by Covid-19, economic strain and social unrest, all of which could add to the economic and insured cost of catastrophes.

Bank of England Sees Few Threats to Financial Stability from Brexit

Britain’s full exit from the European Union could be bumpy for investors as banks staff new hubs in the bloc, but there are few threats to wider financial stability, the Bank of England said on the 8^th October.

Britain left the EU in January and full access to the single market under transition arrangements expires on the 31^st December, with future access for financial services largely to be decided.

The BoE’s Financial Policy Committee said that most risks to stability which could arise from disruption to cross-border business after December have now been mitigated.

“Some market volatility and disruption to financial services, particularly to EU-based clients, could arise,” the FPC said.

Brussels has granted market access for UK clearing houses from January, though only for 18 months.

There are currently £59 trillion of derivative contracts between UK clearers and their members in the bloc, £48 trillion of which is due to expire after December, the FPC said.

Banks and insurers who have used London as an EU gateway have set up new or expanded existing hubs in the bloc.

“Financial institutions were continuing to make preparations and engage with clients and customers to minimise any disruption and it was important that they continue to do so,” the

FPC said.

On average, over two-thirds of clients of UK-based banks have now completed the

necessary documentation to enter into derivative trades with the EU entities, the FPC said.

Insurance companies in Britain have restructured their business in order to service the vast majority of their £60 billion of EU liabilities, it said.

“The number of clients actively trading in the new entities is materially lower. Some operational risks therefore remain, including if many clients seek to migrate to the EU entities in a short period of time,” the FPC said.

A rush to shift assets and staff to new EU hubs could “amplify market volatility,” it said.

Brexit cuts London company market premium base by £4.5 billion

More than £4.5 billion (US$5.8 billion) of premium has been lost to the London company market as a direct result of Brexit, according to a study by the International Underwriting Association (IUA).

Cyber insurers should ‘abandon traditional war and terrorism exclusions’

Insurers should abandon traditional war and terrorism exclusions for cyber claims with any new exclusion limited to extreme scenarios, according to a new study released by the Carnegie Endowment for International Peace.

K2 International prepares for Brexit with Brussels office

K2 International, the London-based specialty insurance and reinsurance underwriting platform of US programme manager K2, has launched its European operations with the opening of an office in Brussels.

Chaucer latest Lloyd’s carrier poised to launch Bermudian reinsurer

China Re-owned insurer Chaucer has applied to the Bermuda Monetary Authority (BMA) to launch a Class 4 reinsurer on the island.

The London-headquartered carrier has made the application through its Ireland subsidiary Chaucer Insurance Company DAC and is awaiting regulatory approval for the vehicle.

Chaucer will use the vehicle to principally target US catastrophe business.

Class 4 (re)insurers are vehicles underwriting direct excess liability insurance and/or property catastrophe reinsurance risks and are required to maintain minimum capital and surplus of US$100 million.

The addition of a Bermuda platform would add to Chaucer’s operations in Dublin, Copenhagen, Singapore, Dubai and Miami.

At Lloyd’s Chaucer operates through syndicates 1084 and 1176.

Syndicate 1084 is the 11th largest syndicate at Lloyd’s and writes specialty aviation, casualty, energy, marine, political and property insurance and treaty reinsurance worldwide.

Syndicate 1176 is Chaucer’s nuclear focused syndicate.

In 2019, Syndicate 1084 delivered a profit of US$101.5 million, compared with a loss of US$30.1 million the previous year and a combined ratio that improved 8.4 points to 95.2 percent.

Chaucer’s planned Class 4 is not its first foray on the island. In 2017 the carrier launched a reinsurance sidecar with support from third party capitalty to provide collateralised reinsurance capacity for its Syndicate 1084, Thopas Re.

Thopas Re entered into an exclusive quota share agreement with Chaucer to reinsure a share of Chaucer’s US and international property catastrophe portfolio from 1 January 2018.

In 2018, Chaucer was sold by its owner US specialty carrier The Hanover to China Re in a US$950 million deal. Following the transaction, Chaucer also became the managing agent for China Re’s Syndicate 2088.

Since then, Chaucer – which is led by CEO John Fowle – has made a number of strategic hires as it looks to build out its international footprint.

Earlier this month, it was revealed that Chaucer had hired Axa XL’s former head of Latin America reinsurance April McLaughlin to lead its own treaty operation in the region.

In April, the carrier named former XL Catlin executive Paul Jardine as non-executive chairman.

Chaucer follows fellow Lloyd’s carrier Ark in looking to set up shop in Bermuda and capitalise on the hardening specialty (re)insurance market.

As first revealed by this publication in June, Ark is looking to raise US$750 million to US$1 billion and form a Class 4 Bermudian reinsurer.

The carriers join a growing list of incumbents who are seeking to scale-up since the outbreak of Covid-19, with the period of distress brought about by the pandemic – as well a sustained period of catastrophe losses and issues surrounding casualty reserves –  creating opportunities not only for scale-ups but for new entrants as well.

Fellow Lloyd’s carrier Ark is currently raising US$800 million which would see the firm convert its existing Class 3 Bermuda carrier into a Class 4 carrier while 2019 start-up

Convex is currently undergoing a capital raising exercise which will likely see additional capital injected into its Bermuda operating subsidiary.