Insurance Jottings
Oil Shippers Face Insurance Uncertainty with Return of US Sanctions on Iran
Oil tanker owners are facing a nervous wait to find out whether they can carry on doing business with Iran after President Trump said on the 8th May he was reinstating a raft of sanctions against the Persian Gulf country.
The return of sanctions is likely to have “significant ramifications” for maritime trade with Iran, International Group of P&I Clubs, an umbrella organisation whose members cover 90 percent of the global tanker fleet against risks including oil spills, said on the 9th May.
Those impacts will only become apparent once America’s partners give their own response to Mr Trump’s decision, and when details of how the US measures are implemented are clear, the IG said.
Ship insurance was a critical hurdle when sanctions were previously imposed on Iran because tanker operators could not obtain the level of cover which is considered standard across the oil industry. It meant most owners were not able to haul Iranian oil and forced some Asian buyers of the Middle East country’s crude to find awkward workarounds such as state-backed cover.
“It’s going to take some time before we can ascertain what the impact will be, because we’re going to have to wait and see what the response will be from Europe and how aggressive the US will be,” Brian Gallagher, head of investor relations at Euronav NV, one of the world’s largest tanker owners, said. As of now, there is yet to be a step change in owners’ approach to Iranian business, he said.
When the US imposed sanctions on Iran in 2012, accompanying European measures also restricted the International Group — which is based in London — from providing cover for Iranian shipments. That effectively shut the country’s own fleet out of the main ship-insurance market as well as international owners if they wanted to lift the Islamic Republic’s crude. It is not yet clear what path Europe will take this time.
Three of the main providers of cover to Iran’s main tanker fleet — Skuld, the Swedish Club and West of England Club — said they did not want to give any further guidance beyond what they published on their websites, saying the situation remains fluid.
“The snap-back of US sanctions will have a major effect on shipowners and their insurers and Skuld and the IG are closely monitoring developments,” Skuld said on its website.
The West of England Club said any activity would have to stop the moment any entity which is dubbed a Specially Designated National by the US Treasury’s Office of Foreign Assets Control is re-added to a secondary sanctions list.
“Should the US reinstate its extra-territorial sanctions, that may have significant adverse impact on the ability for non-US persons to trade with Iran and Iranian interests,” the Swedish Club said.
Buffett warns on cyber risks
The world’s third-wealthiest person, Warren Buffett, has warned that cybersecurity risk is “unchartered territory” and says nobody really knows what they are doing when it comes to underwriting cyber insurance.
The chairman and CEO of multinational conglomerate Berkshire Hathaway made the comments at the company’s annual meeting in Omaha, Nebraska. The event, known as ‘Woodstock for Capitalists,’ allows shareholders, journalists and analysts to grill the man dubbed the “Oracle of Omaha” on a wide range of topics.
“Cyber is uncharted territory. It’s going to get worse, not better,” Mr Buffett said, adding that he does not want Berkshire Hathaway to be among the top three in the industry. “We don’t want to be a pioneer on this.”
He noted that the company has a “pretty good idea” on how to make accurate assessments with regards to natural disasters, but this is not the case with computer hacking threats.
“Frankly, I don’t think we or anybody else really knows what they’re doing when writing cyber insurance policies,” he said, adding that the industry as a whole does not know what the implications of the policies will be.
“I think anybody who tells you now they think they know in some actuarial way either what the general experience is like in the future, or what the worst case can be, is kidding themselves,” he cautioned. “There’s a very material risk which didn’t exist ten or 15 years ago and will be much more intense as the years go along,” the 87 year-old billionaire investor said.
Hannover Re merges specialty business with HDI Global
Talanx group units Hannover Re and HDI Global are merging their specialty activities in a new joint venture in order to capture global growth and high-margin specialty business.
The new company HDI Global Specialty will write agency and specialty insurance business in lines such as errors & omissions liability, directors’ and officers’ liability, legal expenses, sports and entertainment, aviation, offshore energy and animal insurance.
As part of the plan commercial insurer HDI Global is acquiring the majority of the shares in International Insurance Company of Hannover (Inter Hannover), a subsidiary company of Hannover Re, for around €100 million.
After the transaction, Inter Hannover will be renamed HDI Global Specialty. HDI Global will contribute its specialty portfolio to the new company and hold 50.2 percent of the new company while Hannover Re will keep 49.8 percent of the shares.
HDI Global Specialty is being launched with a premium volume of more than €1 billion. As the company seeks organic growth, the individual share in earnings of Hannover Re and HDI Global is projected to be above the individual earnings contribution for both units in the current separate structure already in the year 2019.
Following regulatory approval, the joint venture is set to start operational activities on the 1st January 2019.
XL Catlin warns on ocean risks
A report commissioned by XL Catlin examined the changes happening in the oceans and how the global insurance sector should prepare for the potential consequences.
The report called ‘Ocean connections: An introduction to rising risks from a warming, changing ocean’ produced by IUCN (International Union for Conservation of Nature) examined the impacts of rising ocean temperatures and other stressors such as ocean acidification – the decrease in pH of the ocean – and deoxygenation – a reduction in the amount of oxygen dissolved in the ocean – on the marine environment and human life, and their potential consequences for society.
“The changing chemistry and physics of the ocean as a result of climate change can have devastating consequences for human life, health and livelihoods, the scale of which we are only beginning to realise,” said Carl Lundin, director of the IUCN’s Global Marine and Polar Programme.
“The insurance industry can play a significant role in helping businesses, governments and communities mitigate damages and better adapt to these changes. Insurance against the loss of ecosystems can provide the much needed protection for people dependent on them for their livelihoods, while encouraging their sustainable management.”
The report assesses how the global insurance sector can equip itself for far-reaching impacts caused by the changing ocean, including new modelling systems to account for multiple and inter-connected risks. The report also proposes ways in which the insurance industry can help incentivise greater mitigation strategies to help prevent worst-case scenarios.
According to the IUCN report, ocean warming will affect global food security as a result of changes in fishery yields and the distribution of fish stocks. Damages to property and the displacement of people are expected to rise as a result of sea-level rise and frequent extreme weather events such as storms and floods.
The health of marine species and humans will be affected by increasing bacteria and virus outbreaks as pathogens spread more easily due to the warming waters, while travel and tourism will be impacted by frequent coral bleaching events.
The IUCN report notes that although there is no comprehensive analysis of the costs to society from ocean warming and other ocean stressors, growing evidence suggests that these costs will be significant.
For instance, the 2016 algal blooms and aquaculture fish kills in Chile due to a strong El Niño pattern resulted in potential losses of up to US$800 million. Recently, the World Meteorological Organisation (WMO) confirmed that 2017 was the most expensive year in history in terms of losses from weather and climate-related events, costing the global economy an estimated US$320 billion.
Tokio Marine gets green light for Europe unit
The new European subsidiary of specialist insurance group Tokio Marine is expected to begin operation from the second half of 2018 as it received regulatory approvals and appointed a new chief executive officer.
The group has received regulatory approval from the Commissariat aux Assurances (CAA) and the Japanese Financial Services Authority (JFSA) to set up Tokio Marine Europe in Luxembourg for writing European business after Brexit.
Thibaud Hervy, chief underwriting officer for specialty lines at Tokio Marine HCC, has been appointed CEO of the new company.
Charles Taylor wins LMG delegated authority data contract
Charles Taylor InsureTech has signed a three-year contract with the London Market Group to provide a central service to standardise delegated authority data across the market.
The deal, part of the London Market Target Operating Model project, has been described as a “major contract win” by Charles Taylor.
The initial three-year contract may be extended by up to seven years, the company said.
Swiss Re expands African operations with new P&C licence
Swiss Re has strengthened its African business through its newly approved licence for property & casualty (P&C) business in South Africa.
The South African Prudential Authority has approved Swiss Re’s application to expand the licence of its existing subsidiary, Swiss Re Life and Health Africa, to become a composite entity which can service both life & health as well as P&C business. Operations under the new licence took effect from the 1st May.
Swiss Re Life and Health Africa will be renamed Swiss Re Africa, a subsidiary of Swiss Reinsurance Company, Zurich.
Based in Cape Town, Swiss Re Africa will be led by Thys Nieuwoudt, and service the insurance hub in Johannesburg as well as Southern African markets.
The move will allow Swiss Re Africa to extend its service offering to P&C reinsurance capacity and provide product solutions and tailored capital management services in the region.
Further, it completes Swiss Re’s ambition to re-domicile its Southern African P&C business onto the continent.