Insurance Jottings

Britannia to open Greece office next year

Britannia P&I club will open an office in Greece next year, it announced at its annual European Members Forum, held in Athens on the 9th November.


The Forum was attended by 52 Members from across Europe. “Opening a Britannia office in Greece will mean that we can enhance the personalised service to those and future Greek Members,” said Andrew Cutler, CEO of Tindall Riley (Britannia) Ltd.


Dale Hammond (Director, FD&D and claims director for the Club’s Greek membership) and Simon Williams (Director, Underwriting and who has underwriting oversight for the Club’s Greek membership) will oversee arrangements for establishing the office.


Mr Cutler said that further initiatives would be announced in Asia during the coming months.


Britannia P&I Board recently announced there would be no P&I General Increase to its advance call for 2018/19. A US$10 million capital distribution was announced to P&I mutual members based on premium for ships on risk at midnight BST 17th October 2017.


London market fails to provide value for money, says energy panel

The London insurance market is ‘overly complex’ and is losing relevance to its customers in the energy industry, with product that fail provide value for money.


This is according to a panel discussion at the Onshore Energy Conference, held this month in London.


75 percent of an audience of over two hundred insurance professional and risk managers voted to agree with the statement that ‘the insurance industry is full of complicators and not simplifiers.’ The statement went on: ‘We need to disrupt the overly complicated procedures or we should expect to be disrupted’.


Only three percent of the audience disagreed with the statement.


The panel also discussed whether London insurers should ‘unbundle’ their products, separating risk management and risk engineering from the core insurance policy.


Gustavo Penas, Shell’s VP risk and insurance, who does not buy commercial insurance because his company operates a major captive, said: “The level of risk we face is no less than 20-30 years ago but it has become more complex to understand. The insurance market helps us to assess, understand and quantify that risk. Then it helps to transfer the risk if the

owner doesn’t want it. While the first part of that process is still relevant, the second part is fading away as energy firms have large balance sheets so can retain the risk.


“Some ten years ago, we at Shell concluded there was not enough value in transferring risk to the insurance industry. It was too complex and too costly.


“The insurance industry is not ticking the boxes for us in terms of relevance to our risks. Our exposures are massive but the market is not here for us. We had the choice of only transferring a small part of our risk in return for an expensive premium or keeping the lot. We chose the latter – and the last ten years have shown our decision was the right one.”


Asked whether insurers should unbundle underwriting from risk management and risk engineering, Andrew George, Marsh’s global chairman for energy and power, said: “I don’t think we should necessarily separate out our products. It’s different for each client and class.

“We are an industry of complicators. We like making things more complex and we like telling people how clever we are. We have to stop doing that… we need to get on with what we’re supposed to be doing.”


Joe Meaney, VP global insurance and risk engineering for energy business the AES Corporation, suggested that unless the insurance sector did a better job, new entrants to the power sector like Google and Amazon would not need commercial insurance because their balance sheets were too strong.


Mr Meaney said: “I get paid for bringing the best possible solutions to manage our risks. That means I have to find the best solution. Our captive has functioned well, which is sad because I would have hoped that the insurance market could produce a better solution. If insurers help me to be the solutions person, we’ll always do business.


“The good news is that risk is not going away. The bad news is that insurers need to stop complaining about price and change – about how things aren’t what they used to be.”


The session’s moderator Luis Prato, XL Catlin’s energy regional product leader for UK and Ireland, said: “The fact that global energy consumption is forecast to continue growing for the foreseeable future presents real opportunity to the market. Energy companies are facing ever increasing technical and business risks, for which the insurance industry is ideally positioned and capitalised to provide solutions.”


Asked whether the London market’s claims process was ‘fit for purpose’, 60 percent of the audience either agreed or partly agreed that it was.


Introducing the event Richard Foulger, head of claims for AEGIS London, said the event was about ensuring the London insurance market remained relevant to the onshore power sector and adapted to change.


Mr Foulger said: “We had a mixed audience of underwriters, brokers and representatives of the energy industry, which promoted some lively debate. I think the key take-away was that the energy industry will experience some major changes in the next five to ten years, not least because of the growth of new technologies dependent on electricity rather than oil or gas.


“The London market will need to respond to those and other significant changes and consider carefully how it can create value for businesses, some of whom are well equipped to manage much of their own risk.”


New underwriting vehicle for marine at Lloyd’s

Neon, Beat Capital and the management team have launched Chord Re, an underwriting vehicle established by Stefan Long, formerly Head of Aspen Re London.


Chord Re said that it expected to both structure and lead programmes in specialist classes.


It will initially underwrite on behalf of Neon Syndicate 2468. It was launched on the 6th November and will start quoting for risks incepting from January 1st 2018. It has received the requisite approvals to act as a Lloyd’s Coverholder.


For year-one the focus will be specialty-focused reinsurance lines, including Marine and Marine Composite, Property, Engineering, Aviation & Space, Terror, Nuclear and Cyber.


Tom Meyer will be Chief Underwriting Officer, alongside Chris Schmidt, Ed Wheatley and Marc Brendle. The team will also include two Assistant Underwriters. They will work closely with Neon’s Chief Underwriting Officer and Active Underwriter Darren Lednor across its portfolio. John Cavanagh will join as Non-Executive Chairman after he retires from Willis Re at the end of 2017.


Chord Re is a joint venture between Neon, Beat Capital and Chord Re’s management team.


Their long-term ambition is to create a fully integrated reinsurance carrier, the launch partners said.


Chord Re CEO Stefan Long said that “we intend to build a market-leading reinsurance business, differentiated by product expertise, with a balanced portfolio that combines quantitative analysis with experienced judgement to provide clients with innovative tailored solutions.


“We believe that the knowledge, experience and relationships of the team at Chord Re, aligned to the support of Neon, creates a compelling proposition and we look forward to offering an attractive new source of capacity to the market.”


Cyber solutions are evolving

Cyber insurance is evolving quickly, offering opportunities for carriers able to properly price and manage this risk, write James Auden, managing director, insurance and Eduardo Recinos, senior Director, insurance (LatAm) at Fitch Ratings.


Today the global insurance market for standalone cyber coverage is estimated at US$2.5 billion to US$3.5 billion. Growth is rapid: the April 2017 Council of Insurance Agents & Brokers’ (CIAB) Cyber Insurance Market Watch Survey reported 32 percent of surveyed companies purchased some form of cyber coverage, up from 24 percent a year earlier. Fitch foresees global standalone cyber premiums increasing to US$12 billion to US$20 billion within a decade.


Fitch research suggests that a substantial portion of cyber underwriting risk currently lies outside standalone cyber policies. Embedded ‘silent’ cyber exposures in traditional commercial policies are significant and create considerable uncertainty regarding losses generated from a large cyber event.


Over time, silent cyber risk will diminish as policyholders and insurers address cyber coverage in policy language. However, in the near term, silent cyber creates a genuine challenge for insurer management and industry observers such as Fitch in fully understanding and measuring cyber exposures.


Better aggregation and modelling tools are necessary to improve insurers’ ability to assess potential losses from larger cyber events. Various experts generated studies estimating potential economic and insured losses from cyber catastrophes, but assessing which events are of most concern, and within the realm of possibility, is difficult.


Cyber insurance is a profitable venture for early market entrants. While the market is poised for considerable premium growth in the next few years, signs of competitive forces eroding profit opportunities may occur in cyber earlier than in previous emerging product segments.


Over the near term, Fitch views cyber underwriting as a risk which may exert downward pressure on some non-life insurer ratings if larger loss scenarios emerge.


Ultimately, insurers who lack underwriting expertise, manage cyber risk accumulations poorly, or fail to recognise loss potential from silent cyber exposure within their traditional commercial insurance products are most vulnerable to ratings downgrades.


Dale Underwriting SPA receives approval from Lloyd’s

Dale Underwriting Partners, which is managed by Lloyd’s third party managing agency Asta, has revealed that its special purpose arrangement (SPA) has received approval from Lloyd’s.


The SPA will reinsure a portfolio of contingency and specialty property business, underwritten into Dale syndicate 1729 by a new team led by Tom Phillipson.


Syndicate 1729 will cede a proportion of the incremental business into the SPA. The planned gross premium of US$22 million will be split 40/60 percent between S1729 and the SPA for 2018.


Dale received ‘in principal’ approval by the Lloyd’s Franchise Board to establish the SPA in July this year.


Agora Syndicate gets Lloyd’s approval to start underwriting in 2018

Lloyd’s third-party managing agent Asta has announced that Agora Syndicate 3268 has received approval from Lloyd’s commence underwriting business from January 2018.


Agora Syndicate 3268 will be managed by Asta and privately capitalised by a number of well-known industry players, according to the statement. It will underwrite property business with a focus on direct & facultative, binders and treaty business worldwide.


Agora was initially launched as special purpose arrangement (SPA) 6126 in 2016. Syndicate 3268 received ‘in principal’ approval from Lloyd’s Franchise Board in September this year.


Syndicate 3268 has planned gross premium of £98 million for 2018 and its active underwriter will be Mike Pritchard.


China Unveils Rules Allowing Foreign Firms to Take Majority Stakes in Local Insurers

China took a major step towards the long-awaited opening of its financial system, saying it will remove foreign ownership limits on banks and asset-management companies while allowing overseas firms to take majority stakes in local securities ventures and insurers.


The new rules, unveiled at a government briefing on the 3rd November, will give global financial companies unprecedented access to the world’s second-largest economy. The announcement coincided with Donald Trump’s visit to Beijing and bolsters the reform credentials of Chinese President Xi Jinping less than a month after he cemented his status as the nation’s most powerful leader in decades.

While China has already made big strides in opening its equity and bond markets to foreign investors, international banks and securities firms have long been frustrated by ownership caps which made them marginal players in one of the fastest-expanding financial systems on Earth.


Those who enter China will face plenty of risks, including competition from state-owned players and the threat of rising defaults, but optimists say the opening will create new opportunities for foreign firms and make the domestic financial system more efficient.


“It’s a key message that China continues to open up and make its financial markets more international and market-oriented,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd in Hong Kong. “How important a role foreign financial firms can play remains to be seen.”


Regulators are drafting detailed rules, which will be released soon, Vice Finance Minister Zhu Guangyao said at the briefing in Beijing.


Here’s what we know so far:

Foreign firms will be allowed to own stakes of up to 51 percent in securities ventures; China will scrap foreign ownership limits for securities companies three years after the new rules are effective; the country will lift the foreign ownership cap to 51 percent for life insurance companies after three years and remove the limit after five years Limits on ownership of fund management companies will be raised to 51 percent, then completely removed in three years


Chinese markets took the news in their stride, with the nation’s benchmark Shanghai Composite Index trading little changed after the announcement. Shares of Chinese financial companies were mixed in Hong Kong.


Foreign financial companies applauded the move, with JPMorgan Chase & Company and Morgan Stanley saying in statements that they’re committed to China. UBS Group AG said it will continue to push for an increased stake in its Chinese joint venture.


Policy makers had hinted at an opening in recent months. China’s Foreign Ministry had recently said entry barriers to sectors such as banking, insurance, securities and funds would be “substantially” eased “in accordance to China’s own timetable and road map.”


People’s Bank of China Governor Zhou Xiaochuan, who has spent much of this year amplifying calls for financial reform, advocated greater competition in the financial sector in June.


The announcement’s timing, on the day Mr Trump ended his first visit to China as US president, may help him claim some credit for the opening and for warmer ties between the two world powers, but the decision was almost certainly the result of long behind-the-scenes planning by Chinese authorities, according to Iris Pang, a China economist at ING Groep NV in Hong Kong.


State Competition

Bloomberg News reported in September that the PBOC was drafting a package of reforms which would give foreign investors greater access to the financial services industry, citing people familiar with the matter. JPMorgan Chief Executive Officer Jamie Dimon said earlier this year that the bank was patiently negotiating with Chinese regulators for structures which would eventually give it full control.


“I believe China has planned for this for a very long time, and now is the right time to announce it because Mr Trump is visiting,” ING’s Pang said. China is likely to push for improved access to US markets for its financial firms, she added.


The relaxed ownership rules follow a period in which most overseas lenders have lost interest in direct stakes in their Chinese counterparts. After sales by Citigroup Inc, Goldman Sachs Group Inc and others, HSBC Holdings Plc is the only international bank with a major holding — a 19 percent stake in Bank of Communications Company. HSBC has been building its business on the mainland as part of a “pivot to Asia” under outgoing Chief Executive Officer Stuart Gulliver.


Foreign banks held 2.9 trillion yuan (US$436 billion) of assets in China at the end of 2016, accounting for 1.26 percent of the nation’s total banking assets, the lowest share since 2003, according to the China Banking Regulatory Commission. They earned 12.8 billion yuan in the nation last year, less than one percent of the profits at Chinese counterparts.


Even if they take full control of their China ventures, international financial companies will face multiple challenges. One of the biggest is competition from government-controlled rivals, who currently dominate the nation’s financial system and have longstanding relationships with giant state-owned companies which drive much of China’s economic activity.


Then there is the country’s record debt burden, which amounts to an estimated 260 percent of gross domestic product after government-run lenders juiced the economy with easy money in recent years to avoid a deep economic slowdown. The country suffered its first onshore corporate bond default in 2014 and has seen at least 20 defaults so far this year.


Prominent investors including Hayman Capital Management’s Kyle Bass and billionaire George Soros have warned that the country could be headed for a financial crisis.

Still, there’s little sign of an imminent blow-up. Bank earnings in China swelled to 2.1 trillion yuan last year, up four-fold since 2008, and earnings in the securities industry have more than doubled over the same period to 123 billion yuan, according to regulatory data.


Chinese authorities have also taken steps to curb excesses in the banking system, embarking on a campaign this year to clean up some of the nation’s riskiest financial products. The potential influx of foreign capital and expertise could help China manage the aftermath of the credit binge and help prevent a repeat, according to Tom Orlik, the Chief Asia Economist at Bloomberg Economics.


Overseas firms will “calculate the risk-reward margin carefully,” said Raymond Yeung, chief Greater China economist at Australia & New Zealand Banking Group in Hong Kong. “That said, the scale of the market is something they won’t ignore.”