Insurance Jottings

Harvey’s Insured Losses Hurt Insurers’ Stocks But Could Help Reinsurers’ Prices

Hurricane Harvey’s whipsaw of wind and rain across Houston and the Texas Gulf Coast hurt the shares of US property and casualty insurers on the 28^th August as Wall Street analysts estimated insured losses as high as US$20 billion.

That would make it one of the costliest storms in history for US insurers, but could ultimately help insurers and reinsurers to raise rates, some analysts said, after a period of low premiums.

“Our best guess at this point is Harvey could result in US$10 billion to US$20 billion of industry insured losses, making it one of the top ten most costly hurricanes to hit the United States,” JPMorgan analyst Sarah DeWitt said in a research note on the 28^th August.

Swathes of Houston were underwater on the 28^th August, the effect of Harvey sweeping ashore on the 25^th August as the most powerful hurricane to hit Texas in 50 years. It has since been downgraded to a tropical storm, but more rain is expected to fall on the fourth-largest US city.

Damage caused by flooding is not included in standard homeowners insurance policies and is covered by the US government. However, flood damage to businesses is covered by commercial policies, said DeWitt, which could result in “meaningful losses for the commercial reinsurers and insurers.”

JPMorgan’s and other estimates are currently well below the US$75 billion in insured losses caused by Hurricane Katrina hitting New Orleans in 2005, but are likely to grow.

Shares of Travelers Companies Inc and Allstate Corporation, two of the largest homeowners insurers in Texas, fell 2.6 percent and 1.5 percent respectively on the New York Stock Exchange. Shares of Progressive Corp, a large auto insurer in Texas, fell 2.3 percent.

Stabilise Rates

Harvey struck only days before senior insurance executives hold their annual meeting in Monte Carlo to haggle over reinsurance renewals as premiums remain stubbornly low across the industry.

“We think Harvey could help stabilise global reinsurance pricing, but do not expect a major turn in pricing to follow,” Kai Pan, an insurance analyst at Morgan Stanley, said in a research note on the 28^th August.

Property and casualty insurance stocks tend to underperform immediately after a catastrophic storm, but often beat the overall market once loss estimates become more accurate and insurers are able to stabilize or raise premium rates.

By contrast, insurance brokerage stocks, such as Marsh & McLennan Companies Inc, tend to rise immediately after a storm because such companies are not exposed to underwriting risk and a rise in premium rates boosts their commission income.

Shares of Marsh & McLennan, which bought one of the largest insurance brokerages in Texas in 2015, closed up 0.5 percent on the 28^th August.

Early Estimates

Houston is facing worsening flooding in the coming days as the storm dumps more rain on the city, swelling rivers to record levels and forcing federal engineers on the 28^th August to release water from reservoirs in an effort to control the rushing currents.

Swiss Re said it is too early to gauge the full impact.

“There are so many areas which have been hit by devastating winds and now the massive flooding, and insurance adjusters are having to wait for first responders to simply check on the safety and welfare of citizens,” said Mark Hanna of the Insurance Council of Texas.

Claims are expected to accelerate once Texas residents get their bearings.

“We have just over 2,000 claims across all lines of business,” said Farmers Insurance Group spokesman Trent Frager. “While that may sound low, residents who are evacuated haven’t yet been able to assess and report damage for claims handling.”

Munich Re Syndicate launches new cyber insurance cover for oil and gas sector

Munich Re Syndicate at Lloyd’s said on the 21^st August that it has introduced an insurance solution to cover cyber exposure for the independent oil and gas sector.

This cover will encompass both traditional data breaches and any physical loss or expense associated with a potential cyber-attack.

The operational and financial complexity of this particular sector presents growing threats to cyber risk, due to increased connectivity, sensitivity of data, unmanned operations and complex royalty payment structures for onshore operators, according to the statement. The likely recurrence of cyber-attacks is expected to intensify as the link between technology and business continues to evolve.

“There is a heightened level of awareness around the risk of a cyber-attack on the oil and gas sector, particularly in the wake of recent events which have caused significant economic disruption,” said Dominick Hoare, chief underwriting officer of Munich Re Syndicate in London.

“As automation and integration expose the oil and gas industry to new vulnerabilities, Munich Re is working to deliver a product which will compliment companies’ contingency measures to ensure that they are well prepared should a cyber incident occur.”

Munich Re Syndicate’s offering will bring together a combination of cyber and energy underwriting skills and will deliver a product which meets the growing demand within the industry. There is an unmet need from a capacity standpoint for coverage across the oil and gas sector, as more companies are increasingly exposed to cyber risk, the company said.

The foundation cover is built upon expert risk assessment and competitive pricing with the provision of a full cyber attack buyback and a data breach cover. The product will be predominantly focused on the upstream sector, covering the automated aspect of a company’s operations.

This product will complement the existing Munich Re Cyber Solution “Vector” partnership with Beazley, which focuses on very large corporate clients.

UK Financial Services Sector Seeking ‘Ambitious’ Brexit Trade Agreement

The UK’s financial sector is seeking an “ambitious” trade pact between Britain and the European Union to try to prevent a costly shift of jobs and business to the continent once the country leaves the bloc, according to a draft report.

Unless Britain negotiates new trading relations with the EU, banks, insurers and fund managers in Britain could be locked out of the bloc’s markets when it leaves the EU in March 2019.

The International Regulatory Strategy Group (IRSG) said in the draft report, to be submitted to the British government in September, that such a trade pact would allow UK firms to operate in the EU without the cost of having a local licence.

“The proposals in the report are intended to achieve a level of mutual access for EU and UK firms, which is as close as possible to the current levels of access that exist for such firms within the EU framework,” the report said.

It admitted negotiating such a pact could be challenging. Other EU capitals have been vying to attract London’s financial businesses since the Brexit vote.

Currently, banks authorised in London can “passport” or offer their services to customers across the EU without the need for a licence in each country, but this will end when Britain leaves, forcing the country to agree new trading terms.

Initially, the financial sector called for continued full passporting rights after Brexit, which is being negotiated over two years since Britain triggered the process in March, following a referendum vote in June last year.

The new proposals mark a departure from that stance, a recognition that the EU is likely to rule out future passporting.

The IRSG is sponsored by the City of London Corporation, home to London’s “Square Mile” financial district, and TheCityUK, Britain’s most powerful financial lobby.

Its report sets out how a trade pact for financial services could be structured and policed by a new dispute resolution body with powers to sanction breaches.

Punishment could include withdrawal of mutual access rights, the payment of “compensation” in the form of offsetting trade benefits, or retaliatory steps, such as measures which affect an equivalent value of trade, the report said.

No such trade pact in financial services has been tried before and the report said it was “ambitious in its intent.”

“The IRSG is aware that there will be challenges associated with developing the EU/UK Agreement… and require the parties to reach agreement on a number of novel issues – in particular, with regard to allowing a firm from the other party to have access to their markets without having to obtain a local licence.”

The report said it may be “appropriate to have a lighter touch regime” for wholesale financial business between banks, but this would not be appropriate when retail customers are involved.

Recent EU proposals to supervise clearing houses in Britain after Brexit or move them to the EU because they clear large amounts of euro denominated derivatives raise “potential complication,” the report said.

Britain and the EU could also create a “Financial Services Forum” to encourage “continuing alignment” by sharing information, and participating in the development of new laws and regulations.

The financial sector published an overview of mutual recognition in April, but the follow-up makes specific proposals.

TheCityUK Chief Executive Miles Celic said he has already been making the case for mutual recognition during visits to Brussels and other European capitals. “The general response has been that while ambitious, it is not unrealistic,” he said.

The future of London as Europe’s financial centre is one of the biggest issues in Brexit talks because it is Britain’s largest export sector and biggest source of tax with rival cities battling to draw highly-paid banking jobs and the revenue which they bring with it.

Few banks and insurers believe such a trade pact can be in place by March 2019, and some have already announced they are opening locally licensed subsidiaries in the EU to avoid being cut off from customers on the continent.

Difficult Lift

The proposal comes as the financial sector is running out of time to shape government strategy; in October, Britain wants its divorce talks with Brussels to shift focus from exit bills to the future shape of trade relations.

Given its novelty, the trade pact could take years to negotiate even if there is goodwill in the bloc, bankers said.

But the proposals mark a formal rejection of relying on “equivalence,” the EU’s existing system of market access for companies from outside the bloc.

Equivalence in an adapted form is being promoted by Barney Reynolds, a lawyer at Shearman & Sterling, but dismissed by banks as too politicised and unpredictable.

“I don’t fault them for asking, but a mutual recognition trade deal will be a difficult lift. It requires potential unanimity among EU states, while my proposal is executable and gets to the same place,” Mr Reynolds said.

Anthony Belchambers, a founder of the Legatum Financial Services Forum which researches Brexit’s impact on the sector, said TheCityUK initiative is “both important and timely.”

“But,” he added, “we must be careful to ensure that the inevitable ‘price’ that will be exacted by Brussels for continued market access is justifiable and does not constrain UK sovereignty.”

Some member states may balk at a trade pact which reduces the need for banks, insurers and fund managers to shift staff to the bloc after Brexit, Mr Belchambers added. EU regulators have already warned that financial firms in Britain must sufficiently staff their new units in the bloc.

Bank of England Governor Mark Carney and Financial Conduct Authority Chief Executive Andrew Bailey have mooted a similar pact. But bankers involved say it might be hard to pull off as it has never been done before in financial services on such a scale.

“This is all new and this is our problem,” a banker involved in the proposal said. “We are offering a new paradigm and it will be difficult.”

Ironshore launches dedicated cyber emergency response team

Ironshore has launched what it has called a Computer Emergency Response Team (CERT) comprised of cyber claims coordinators representing each specialty lines division tasked with managing cyber claims across all product lines.

CERT-Ironshore will be led by director Howard Panensky reporting to Mike Mitrovic, Ironshore global claims officer.

CERT-Ironshore will provide insureds a single point of contact for cyber risk claim coordination and collaboration. Its coordinators will offer technical advice and support in response to cyber security incidents and third-party expertise will be available to policyholders at pre-negotiated Ironshore rates.

“CERT-Ironshore reflects our commitment to promoting cyber security situational awareness throughout its entire specialty product lines platform,” said Kurtis Suhs, cyber senior vice president.

Mr Mitrovic added: “In the event of a cyber-related claim, policyholders will benefit from a coordinated claims strategy by accessing coordinators and resources with cyber claims handling expertise.”

Tokio Marine unit establishes representative office in Cambodia

Tokio Marine & Nichido Fire Insurance has established a representative office in Phnom Penh as it looks to support the growing number of Japanese companies operating in the market.

The insurer said that economic growth remains strong in Cambodia and the insurance market has been steadily expanding. As infrastructure has improved, Japanese companies have been investing and expanding their operations in Cambodia to take advantage of the relatively low labour costs.

In 2015, Tokio Marine Insurance (Thailand), a subsidiary of Tokio Marine & Nichido Fire Insurance, set up a business development department and has been providing insurance products and services to Japanese companies in Cambodia through affiliated local insurance companies.

But as it anticipates further growth in the insurance market in Cambodia it has now taken the next step in opening this representative office.