Insurance Jottings

Top Challenges for London’s Re/Insurers Are Soft Market, Brexit, Regulations: IUA

The top three challenges facing London market companies are the soft market, Brexit and regulatory compliance, according to a survey of International Underwriting Association (IUA) members.


In an online questionnaire, members also cited the IT/cyber revolution, the challenge of innovating new products and the recent change in the UK Ogden discount rate as key business issues.

Around 150 professionals working across the IUA’s 48-member companies answered the survey, conducted to assess the relevance of strategic priorities and obtain feedback on services provided. Representing member views to government and regulators was ranked as the association’s most important service, followed by the provision of market intelligence and supporting modernisation of business process technology.


Survey respondents were also asked their views on Brexit priorities for the London Market. The most important objective cited was mutual market access, enabling businesses in the UK and the remaining 27 EU states to trade freely (via so-called passporting).


This was followed closely by the early agreement of a Brexit implementation period and the signing of new trade agreements between the UK and other countries.


“The results have given us new areas of potential focus as members outlined the most important emerging risks for insurance coverage,” said Dave Matcham, chief executive of the IUA. “Cyber and artificial intelligence, as expected, were prominent, but many other issues were also listed, for example climate change, e-cigarettes and 3D printing. Perhaps the most pertinent answer to this question was from the respondent who simply stated ‘so many.’”


In another section of the IUA survey, members were asked to rank the importance of different legal and regulatory topics. The top two priorities were unchanged from 2014: international sanctions and regulation by the Prudential Regulation Authority/Financial Conduct Authority. However, the third most important issue is now data protection, which was not mentioned three years ago.


Respondents were also asked to rank the importance of seven projects aimed at improving business processing in the London company market. Structured data capture was identified as the top priority, finishing ahead of electronic placing and enhancements to electronic claims files.


Global cyber premiums to increase six- to eightfold within ten years

The global premiums volume for cyber insurance is set to increase six- to eightfold within a decade, according to a Fitch Ratings report.


The ratings agency expects cyber business to be ratings neutral for most highly rated insurer with sound underwriting, particularly as it represents a relatively modest percentage of individual insurers’ overall premium volume and risk exposure.


“Cyber insurance is an emerging business line which presents unique, new risks for insurers,” Fitch said in a statement. “Limited historical loss data creates difficulty in pricing coverage. The nature of cyber risk and the wide variety of potential cyber events add to challenges in quantifying risk aggregations and catastrophe loss potential. A lack of standardised policy language and terms can also lead to meaningful differences in individual carriers’ product offerings, which is a source of confusion and uncertainty for policyholders.”


The global market for stand-alone cyber coverage is estimated to have grown to between US$2.5 billion and US$3.5 billion annually.


This is largely driven by increasing risk and awareness of cyber-attacks, as well as more active regulation, such as in the US where it is considered a prime factor behind an estimated 90% of global cyber premium originating there.


The ratings agency believes the GDRP (General Data Protection Regulation) implementation in May 2018 will also boost the demand for coverage.


Fitch warned that insurer that lack cyber underwriting expertise, poorly manage their risk accumulations or fail to recognise loss potential from “silent” cyber exposure in their traditional commercial insurance products could face pressure on earning, capital or even ratings, if large loss scenarios emerge as the market expands.


Unduly large cyber risk aggregations of specific insurers may not become evident until after a large or catastrophic cyber event, Fitch said.


EU Regulator Warns UK Insurers to Avoid ‘Fronting’ in Post-Brexit EU HQs

London-based insurers applying for licences to operate in the European Union after Brexit will be scrutinised for any attempts to game the system, the bloc’s insurance watchdog said.


Insurance specialists say some insurers have been shopping around for jurisdictions which are less strict when it comes to “reinsuring” or outsourcing the insurance risk back to London or another non-EU jurisdiction.

More than 20 insurance firms with operations in Britain, including Lloyd’s, RSA and Chubb, have so far announced plans to open EU hubs to maintain links with customers there after the UK leaves in March 2019.


Gabriel Bernardino, who chairs the European Insurance and Occupational Pensions Authority (EIOPA), told the Reuters Financial Regulation Summit that while many firms have announced plans, licences have not yet been issued for many of them.


EIOPA, which writes rules for insurers across the EU, published Brexit licensing guidelines or “opinion” in July aimed at stopping national regulators from undercutting each other to attract insurers from Britain.


“EIOPA is going to monitor how national authorities adhere to the guidance we have given by our opinion,” Mr Bernardino said, adding that it had already identified differing practices during the preparatory talks between regulators and firms.


EIOPA said that in 2016 some 80 UK-based insurance firms were operating under EU rules allowing them to provide life and non-life services across the bloc, with more expected to announce plans for EU hubs supervised by local regulators.


“We expect to see a number of firms indicating their preferences,” Mr Bernardino said.


Lloyd’s, the world’s largest specialist insurance market, has said it will hire up to 20 people for its EU subsidiary in Brussels, while other insurers told Reuters in a recent survey they would hire ten or less for their EU hubs.


EIOPA guidance says that at least ten percent of insurance business should be kept within the new EU jurisdiction to avoid “fronting” or setting up a letter-box firm where governance and risk management functions remain elsewhere.


“We see the ten percent reference of business being retained as a good referential,” Bernardino said.


“What matters is the formal authorisation process. We are looking at each case, each situation and are in dialog with the national authorities,” he added.


EIOPA has no formal powers to stop a national regulator issuing a licence unless it can show that EU insurance law is being broken, but Mr Bernardino does not expect it to come to that. “We believe we will not arrive at such a situation.”


Pool Re looks to broaden coverage

The UK’s terrorism pool, Pool Re, is looking to extend its coverage beyond physical damage in response to the recent Islamist extremist attacks in the UK.

The Pool Re’s CEO Julian Enoizi has said that the changing nature of the threat in which while there has been high levels of death and injury but minimal property damage needs a response from insurers.

Mr Enoizi explained that “Intensive talks” are currently taking place between the government and UK insurers.

“Extending Pool Re’s cover requires a change in legislation, albeit minor. Combined with more affordable pricing as well as incentives designed to improve risk management, a change in underlying insurance cover is essential to enable businesses across the UK to better combat today’s threat and to safeguard future investment in our economy”, he explained.

The news comes as Pool Re publishes its latest “Terrorism Threat and Mitigation Report” which analyses recent terrorist attacks as well as outlining and assessing the broad spectrum of terrorist threats faced by the UK and Europe.

It painted a bleak picture with Islamic extremism remaining the principal threat to the UK with the role of women perhaps greater than expected and low technology/unsophisticated attacks likely to continue.

Pool Re is a mutual reinsurer established in 1993 and backed by the UK Government. Its members comprise the vast majority of insurers and Lloyd’s Syndicates which offer commercial property insurance. It has accumulated reserves of £6.2 billion and, in the event these would be exhausted, the Government provides a guarantee to pay claims.


Lloyd’s Broker AFL Creates Energy Practice Led by Quick & Pearce from Tysers

AFL Insurance Brokers Ltd has created an energy practice headed by London market broking professionals Dominic Quick and Simon Pearce.


AFL’s energy practice will serve both AFL’s clients and customers from other independent brokers connected to AFL through the Worldwide Broker Network (WBN), the company said in a statement..

Quick and Pearce boast nearly 50 years of combined experience in the re/insurance industry. Mr Quick most recently worked as an associate director at Tysers Specialty. Previously, he had roles at JLT Specialty, Lloyd & Partners, JMD Specialist Insurance Services and Guy Carpenter. Mr Pearce also joins AFL from Tysers where he was director of marine and energy. His background has included senior roles at JLT Specialty, RFIB Group and Swiss Re – his most recent roles in a career spanning more than 33 years.


“We plan to offer a broad spectrum energy capability, with our main target market being the USA, but also including emerging markets such as Iran. Fantastic growth opportunities lie ahead,” said Toby Esser, chairman of AFL, which is a privately owned Lloyd’s broker founded in 2008 with offices in London and Manchester, England.


“The launch of the energy practice will also see us work closely with our partners and friends in the Worldwide Broker Network – the largest organisation of privately held insurance brokers, controlling premiums in excess of US$50 billion,” noted Bob Finch, AFL CEO.


AFL Insurance Brokers continues to build on its established business following the acquisition of a controlling interest in the company by Toby Esser in a deal finalised in September 2017.


The company said it plans an expansion strategy that will combine sustainable, organic growth and bolt-on acquisitions.