Insurance Jottings

New back office deal to save London market £100 million

A new five-year contract which will see bureau services for the London market continue to be outsourced to DXC Technology has been heralded by the London market for its future cost savings.

The Lloyd’s Market Association (LMA) and the International Underwriting Association (IUA) announced on the 31^st October that they have concluded a transaction with DXC Technology for the continuing provision of back office services for the London subscription market.

Under the new terms, DXC will optimise their service delivery, enabling cost reductions to the market in exchange for a fixed five-year deal, delivering savings that were not possible under the previous one-year rolling contract.

LMA CEO David Gittings said: “It is heartening to see the LMA and IUA leading a cross market initiative to deliver a material cost reduction, at a time when the market’s cost base is under constant pressure. I’d like to thank DXC for making the commitment to our market and delivering valued services whilst also committing to guaranteeing the ongoing quality of that service.”

Dave Matcham, CEO of the IUA added: “This agreement will help our members process business more efficiently and is an important part of London’s drive to modernise its systems and provide a better service for clients.”

Apollo receives Lloyd’s approval for 1.1 SPS launch

Lloyd’s Managing Agency Apollo Syndicate Management Ltd has received “in principle” approval from the Corporation’s Franchise Board to establish a sub-syndicate, SPA 6133, which will write property catastrophe business.

The Special Purpose Arrangement (SPA) Syndicate will be led by a team of former Faraday underwriters, headed by Mark Rayner.

Mr Rayner – who resigned from the Berkshire Hathaway-owned Lloyd’s (re)insurer earlier this year – is joined by Andrew Parker, the former head of Faraday’s US property team, and Anthony Forder. Rayner also becomes a director of the managing agency on the 4^th November.

SPA 6133 will have 2018 capacity of £35 million while Apollo’s main Syndicate 1969 will have capacity of £225 million.

Apollo Syndicate 1969 was launched in 2010 with capital from a variety of sources, including trade investors, reinsurers and Lloyd’s Names.

One of its key backers was Jim Hays of US broker Hays Group whose friendship with Neil Armstrong provided the inspiration for Apollo’s name and the number of its main syndicate.

The managing agency also revealed on the 27^th October that it is now expecting its 2016 and 2017 underwriting years to be at a loss following the third quarter cat events. “The current point estimate for the events in aggregate is US$47.6 million (net of reinsurance and outwards reinstatement premiums). This should be split approximately 75 percent to the 2017 year and 25 percent to the 2016 year”.

Apollo continued: “These are early estimates and subject to considerable uncertainty”.

The Rayner SPA received “in principle” approval at a meeting of the Lloyd’s Franchise Board last week.  Another 1.1 2018 SPA start-up that received “in principle” approval was Barbican’s SPA 6132 in conjunction with the Japanese reinsurer Toa Re.

IPT raises £4.8 billion a year in the UK

The ABI has called on the government to cease this tax “raid on the responsible” and say no to further rises as report highlights lack of consumer awareness about the tax.

Insurance Premium Tax (IPT) raises up to £4.8 billion a year for the government according to a report from the Social Market Foundation (SMF).

The study, The Impact of Insurance Premium Tax on UK households, found that IPT, which has been increased a number of times in recent months, now costs the equivalent of £179 for each UK household.

Around £89 is directly paid by households with the remainder coming from increased costs to businesses feeding through to consumers.

The Association of British Insurers (ABI), which commissioned the report, responded to the results describing the tax as unfair and called for a halt to the increases.

Unfair
Huw Evans, director general of the Association of British Insurers (ABI), said: “This report lays bare how unfair IPT is for individuals and businesses who have acted responsibly and taken out insurance. The report exposes that this tax impacts hardest on the poorest as well as penalising the responsible who insure their homes, businesses and health.

“Having doubled this tax in two years, it is time for the government to stop raiding the responsible and commit to no further increases in this Parliament.”

The British Insurance Brokers’ Association has also previously called for a freeze on the tax.

Insurers have warned that rising IPT could lead to underinsurance as customers attempt to save money on premium.

There has also been speculation that IPT could be increased to be in line with VAT at 20%.

Unaware
The report also outlined that the public is largely unaware of what IPT is.

Of 2,000 adults polled about half (48%) of individuals were unaware of the existence of IPT – significantly higher than any of the other taxes and duties the SMF asked them about.

Report author, SMF chief economist Scott Corfe, said: “Forecasts suggest that the per-household annual costs of IPT are set to increase. IPT now raises more revenue than many so-called ‘sin taxes’, having risen faster than tax on tobacco since 1994.

“In recent years, IPT has climbed rapidly as policymakers have sought additional revenue to reduce the deficit. These hikes have taken place despite a lack of published evidence around its impact on consumer behaviour and household finances, especially with respect to the distributional consequences.”

West Of England update on renewals

West of England P&I Club has stated that for both Class 1 (P&I) and Class 2 (FD&D) entries a Nil standard surcharge has been set to apply to all mutual and fixed premium rates. Group reinsurance costs for owned mutual entries will continue to be charged as fixed costs per GT in accordance with the Club’s usual practice. For Members whose records are adverse, rates and terms will be increased and adjusted as appropriate to reflect record and/or risk exposure.

The Rules Deductible for Class 1 entries will be increased from US$11,000 to US$12,000; where individual deductibles are below this level they will be increased by 10% or by US$1,000, whichever is the higher. For Class 2 entries no change will be made to the one-fourth deductible formula.

For both Class 1 and Class 2 risks the basis of charging for mutual risks shall be modified so that for 2018 and subsequent policy years the Club’s estimated total mutual call, which hitherto has been expressed as a net advance call plus an additional call (35% of the net advance call), will be re-expressed as a total mutual call to be payable in five equal instalments (each of 20% of the total mutual call). Four instalments will be paid during the policy year, with the fifth in August the following year.

Group reinsurance costs per GT for owned mutual entries will continue to be charged separately as a fixed cost in equal instalments, together with each total mutual call instalment.

West of England noted that, in practice, this simplification would make no material difference to the timing of or amounts payable by mutual Members.

For time charter and other fixed premium rates, no change will be made to current practice; premium will be payable in up to four equal instalments during the policy year.

Meanwhile, West of England noted that the Club’s overall financial position as of August 2017 continued to be “very strong”. The revised forecast for the year end in February 2018 predicts a total free reserve of US$305 million.

For Class 1 P&I, incurred claims for the Club’s Members for all policy years up to 2016 had continued to develop as anticipated. Although 2015 still had the highest net claim figure for an individual year since 2010, 2016 remained at a lower level than for any year over the same period except for 2014. Pool claims had also been “moderate and stable”.

However, West of England said that early indications about claims levels for 2017 were more mixed. After a moderate first quarter, claims increased during the second quarter and, since the Board’s May review, higher cost claims had been significantly more frequent than for recent years. The Club said that this indicated that a possible change in claims trend could be underway. “Whether or not this reflects generally more favourable trading conditions for Members remains to be seen”, said the Club.

It had therefore been assumed that the current policy year would be more expensive than any recent year. And that the combined ratio at February 2018 was likely to be in excess of 105%.

The Club’s net investment return on its financial assets for the period to August was 2.2%.

The Club’s free reserve forecast assumes a flat return for the rest of the year.

For prior years, West of England said that members’ total incurred claims costs for the now-closed 2014 policy year and for older policy years have again fallen, and Pool costs had remained stable. In aggregate, the closed year surplus had increased by approximately US$10 million since February.

Claims costs for 2015 policy year were higher than for any year since 2010 and had taken more time to stabilise than earlier policy years. The overall figures had developed within projection. No further call was forecast and the year remains scheduled to be closed in May 2018. The release call was reduced to nil in May and remains unchanged.

Total claims costs for 2016 policy year continued to be low.

The forecast additional call of 35% was charged in August 2017 and no further call was forecast. The release percentage which was reduced to 10% (7.4% of the mutual ETC) remained unchanged.

For the current policy year, as a result of second quarter claims frequency and values, mid-year incurred claims for the Club’s Members for the current year were at a higher level than for any recent year. The Club said that, although incurred Pool claims for the first and second quarters were low, Pool claim notifications since then had increased. Based on initial projections, the year was projected to result in an overall loss before investment income.

The forecast additional call of 35% is due for payment by August 20th 2018. No change has been made to it or to the 20% release percentage (14.8% of the mutual ETC).

For Class 2 (FD&D – Freight, Demurrage and Defence) projected total claims for all closed policy years up to and including 2013 had not materially changed since February. The forecast surplus as at August was up by some $200,000 compared with the February position.

Incurred claims for all open years from 2014 to 2016 had developed within projections since February. No change had been made to any of the forecast additional or release call percentages as were set in May and all remain as advised in Notice to Members No 6 2017/2018, published in May.

Claims costs for 2017 appeared similar at this stage of development to previous policy years, but West of England said that it remained too early to make any accurate predictions.

No change had been made to the forecast additional call of 35% payable in August 2018 or to the release of 20% (14.8% of the mutual ETC).

A review was conducted at this meeting to determine whether or not there was potential for some form of return or reduction in call. The Board said in May that it would judge whether or not the recent positive claims trend as noted in May looked likely to be sustained against a background of what was clearly a steadily-declining level of premium across the industry as a whole.

The Board has decided that indications that a change in claims trend may now be underway in 2017 require a cautious and conservative approach to be maintained, and so no return will be made at present.

Endeavour launches cyber facility

Lloyd’s broker Endeavour Insurance Services has announced the launch of a new technology and cyber facility, led by newly appointed Tony Loizides.

Mr Loizides joins Endeavour from broker Safeonline, where he served as head of broking since 2010 and was responsible for insurance lines such as cyber, financial, professional and intellectual property. He brings with him 28 years’ insurance experience, predominantly focused on the North American markets, in all specialty lines including professional indemnity, D&O, financial lines and healthcare, but with a particular focus on technology and cyber.

He began his insurance career in 1989 at brokers Sedgwick before moving to First City Partnership and HSBC Insurance Brokers where he handled primary D&O insurance for some of the world’s biggest and most innovative technology firms.

The Endeavour Cyber Facility will mainly be managed via an online portal, providing multiple opportunities for MGAs, producing brokers and clients in the US and Canada to generate new business streams in the North American specialty lines space.

David Lawrence, chairman and CEO of Endeavour Insurance Services, said: “This is the next step in the growth of Endeavour with an exciting new business offering to an arena where organisations may not have immediate access to this class of insurance. Given recent events, cyber protection is fast becoming a major consideration in future risk management,” he continued, adding that the development of its cyber offering was “a medium term investment” for the company.”

“We expect that by creating an online platform to address the SME cyber space, there will also be offline mid-market opportunities that we can develop and look to build something around, in order to facilitate easier management of risks,” Mr Lawrence added.

RSG acquires wholesale broker Oxford to expand energy practice

Ryan Specialty Group (RSG) has reached a definitive agreement to acquire Houston, Texas-based wholesale broker Oxford Insurance Services LLC.

Oxford specialises in energy, construction, environmental, and other complementary markets. It will become a part of RT Specialty, the wholesale brokerage unit of RSG.

Matt Galtney, president and CEO of Oxford, will become the president of RT Houston and will lead RT Specialty’s energy practice group.

Maersk and partners to implement blockchain-based marine insurance platform

Ship operator Maersk, in conjunction with consultancy EY, data security firm Guardtime, and Microsoft, is to build a blockchain-based marine insurance platform to be rolled out from the beginning of next year. The collaborators called it the first real-world use of the nascent technology in the shipping industry.

In a web alert, Standard Club said that the new platform could represent a watershed moment within the marine insurance industry, and the insurance industry as a whole.

The platform will permit the digitisation of transactions among the global network of ship-owners, insurers, reinsurers, brokers, and third parties, allowing for real-time exchange of original supply chain events and documents through a digital infrastructure.

As such, the parties will have access to distributed common ledgers which will capture data about identities, risk and exposures, and integrate this information into the insurance contracts.

Standard Club noted that the technology would then have the capability of creating and maintaining asset data from multiple parties, linking data to policy contracts, receiving and acting upon information which results in a pricing process change; connecting client assets, transactions and payments and capturing and validating updated first notification or loss data.

Standard Club said that “ultimately, blockchain technology has the potential to have a major impact on the marine insurance sector, and it will be interesting to see how the industry will respond”.

The Club said that it was continuing to look at ways it could utilise new technologies to ensure it meets the needs of its members. It said that as part of this strategy it would shortly be launching an interactive member/broker portal, more information on which would follow in due course.

Demand for BI & supply chain cyber coverage surging

Demand for holistic cyber cover addressing business interruption and supply chain risks has increased significantly, Beazley and Munich Re have reported through their Vector partnership.

The duo forged the partnership back in 2015 to offer bespoke expertise and deep capacity for the world’s largest and most complex cyber risks, allowing some of the world’s largest companies to obtain cover of up to US$100 million (€100 million) for a wide range of first party and third party cyber exposures.

“Since we established Vector, we’ve seen a significant shift in the pattern of demand for cyber cover,” said Paul Bantick, technology, media and business services UK focus group leader at Beazley. “Every company insured through Vector has sought considerably broader coverage, in particular for business interruption and contingent business interruption cover.

“While these businesses have traditional property and cyber liability policies in place, they have recognised that they do not have complete protection for cyber-related events and this is clearly an issue the boardroom wants to address.”

The carriers said that recent high profile cyber-attacks such as WannaCry and NotPetya have highlighted clients’ vulnerabilities. While cyber policies back in 2015 only addressed third party liabilities arising from data breaches and were more relevant to firms holding large amounts of personally identifiable customer data such as banks, many other industries such as large manufacturers, industrial companies and critical infrastructure are now very worried about the loss of production capability, whether caused by an attack on the company’s own system or on a critical supplier.

Beazley and Munich Re noted that the loss of customers’ personal data is still a concern, and that concern is increasing with the European Union’s General Data Protection Regulation coming in to force next year.

Chris Storer, head of cyber solutions for Munich Re’s Corporate Insurance Partner, said: “Vector has been highly successful in areas where our shared and complementary expertise can help clients prepare for rapidly evolving cyber risks. The coming together of our specialised experts makes Vector a powerful proposition for companies looking beyond their traditional coverages.”

Neon launches marine joint venture in Italy

Specialist Lloyd’s insurer Neon has launched an underwriting operation in partnership with Italian marine broker, Cambiaso Risso, who will have a minority shareholding in the joint venture.

Based in Genoa, Neon Italy will offer risk capacity to clients, initially targeting hull and cargo business placed locally.

Neon Italy will be led by Sergio Revello, who has extensive experience in the international marine sector across both broking and underwriting roles, including on behalf of Lloyd’s syndicates, according to the press release. The board of directors includes Neon’s group CEO, Martin Reith and Mauro Iguera, CEO of Cambiaso Risso.

Intending to start writing business from January 2018, Neon Italy will, subject to approval, be regulated by IVASS and become a Lloyd’s approved coverholder writing on behalf of Neon’s Syndicate 2468.

The venture will develop Neon’s marine portfolio with Cambiaso Risso’s global network of relationships and specialist technical expertise developed over its 70-year history, the statement said.

London company market wrote £22.725 billion in 2016

The London (re)insurance market reached a record size in 2016 after the International Underwriting Association (IUA) revealed on the 20^th October that its members increased their business written in 2016 by 2.9 percent to £22.725 billion.

The IUA represents the (re)insurers that write London market business in the so-called company market, in contrast to those that write through the Lloyd’s platform.

Earlier this year, Lloyd’s revealed that its GWP had mushroomed to a record size last year, up from £26.69 billion to £29.87 billion. The trend has continued with the 2017 half-year stage up from £16.3 billion to £18.89 billion.

According to the IUA, Gross premium written in London by its members totalled £16.034 billion, while a further £6.691 billion was identified as written in other locations, but overseen and managed by London operations, taking the total to £22.725 billion.

The IUA report for the first time also analyses income earned by branch operations in the London Market likely to be directly impacted by Brexit. A total of £7.383 billion is currently underwritten via such business models which face a change in their regulatory status as the UK leaves the European Union.

In addition, the report calculates that £1.554 billion of income from Europe is earned by London Market companies which are either UK headquartered or subsidiaries of parent companies in a third country outside Europe.

IUA CEO Dave Matcham said: “One of the most important outstanding Brexit questions for the London company market concerns the status of operations currently conducting business in the city as branches of either a continental European parent company or of a European subsidiary and with a parent elsewhere.

“These are popular business models and, without any transitional arrangements or a new trading agreement, their status must change. The Prudential Regulation Authority will need to supervise them either as subsidiaries or as third country branches. Any adjustment to a new framework will, of course, occupy time and resources and the process for change should, therefore, be laid out as soon as possible in order to provide a degree of stability and certainty.

“At the same time there is a significant amount of European premium currently underwritten by subsidiaries and UK domiciled firms under the EU’s financial services passport regime. Our survey clearly demonstrates the interconnected and mutually supportive nature of insurance business across the UK and other EU member states.”

Elsewhere in the IUA’s report, restated figures for 2015 show an overall premium total of £22.068 billion, indicating that over the past year the company market has seen a rise in income of £0.657 billion or 2.9%. This increase is driven by a growth in business controlled by London operations, but written elsewhere, although a significant part is due to better data collection, capturing some premium which was not identified in previous surveys. Exchange rate fluctuations have also been highlighted by a number of companies as a major factor in increasing premium volumes reported in pounds sterling for 2016.

A breakdown of income by class of business reveals that premium categorised as ‘other’ rather than in any of the main classifications rose from £1.045 billion to £1.416 billion over the past 12 months and has almost doubled since 2013. This suggests firms may increasingly be looking to grow their operations by participating in non-traditional lines of business, focussing on specialist classes and possibly developing more innovative new products.

In addition to Lloyd’s and the company market, London’s P&I insurers are estimated to write around £1.7 billion in annual GWP.