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EC News (27th July 2017)

July 27, 2017

Round-up of the weekly news and developments from the global insurance market with stories from Markel, Willis Towers Watson, Berkshire Hathaway and more. 

Markel strikes $919mn deal to acquire State National

Markel has struck a $919mn deal to acquire specialist fronting and programme carrier State National.

At $21.00 a share, the consideration represents a 7 percent premium to the State National’s closing share price of $19.67 as of 25 July and a 38 percent premium to the 30-day volume-weighted average price prior to 18 May, the last trading day prior to published takeover speculation.

Upon completion of the deal, State National will operate as a separate business unit, with the current management team led by chairman and CEO Terry Ledbetter remaining in place.

The transaction has been unanimously approved by both companies’ board of directors, which remains subject to State National shareholder clearance.

However, holders of around 37 percent of shares outstanding have already committed to vote in favour of transaction. Markel said it had struck separate deals with the family of founder Ledbetter and CF SNC Investors LP.

Markel said that transaction “brings together two values-driven organizations with a shared commitment to innovation, service, and long-term relationships.”

The firm added that State National’s two core businesses, program services and lender services, “are well positioned to capitalize on changing market dynamics and new opportunities”.

State National’s program services division, which provides fee-based fronting services to general agents, insurance carriers and other capacity providers, generated $57.6mn of pre-tax income in 2016, accounting for around 70 percent of the company's pre-tax earnings.

State National has an exclusive arrangement with Nephila, which allows the Bermudian fund manager to use State National's AM Best A rated paper to write insurance business in the US.

Meanwhile, the company’s lender services division provides protection to auto lenders when borrowers fail to maintain adequate automobile insurance.

Commenting on the announcement, Markel co-CEO Richard Whitt said: "Strategically, State National will help us to leverage our InsurTech and digital distribution initiatives, diversify our underwriting and fee based portfolios and revenue streams, and add to Markel's third party capital capabilities."

Meanwhile, Ledbetter said: “Markel understands the uniqueness of our business model, and will be a tremendous asset as we, together, build upon our leadership position and specialty insurance service offerings, and continue to implement our strategic plan to deliver enhanced value for our clients.

This transaction is all about growth, not cost-cutting, and we believe that State National employees will benefit from being part of a larger, stronger, growth-oriented company with a more diversified platform.”

State National has been subject to takeover speculation for some months. In May, The Insurance Insider revealed the firm had appointed Evercore to run a formal sales process.

Markel’s purchase of State National is its largest deal since the company’s $3.3bn acquisition of Alterra in 2012.

The transaction is expected to close in the fourth quarter of 2017, subject to shareholder and regulatory approval.

Markel appoints Mathur to lead Lloyd’s India business

Markel International has appointed Deepika Mathur to lead its entry into the Indian market.

Capacity will be provided by Markel's Lloyd’s Syndicate 3000 and written through the Lloyd’s India platform, based in Mumbai.

The business is subject to approval from Lloyd's and the regulatory authorities in India.

Mathur joins Markel India with around 20 years’ experience in the Indian insurance industry. She was most recently executive vice president at HDFC Ergo, the Indian/German joint venture general insurance company, where she was responsible for casualty and financial lines business.

During her time as HDFC Ergo, Mathur also helped to launch a number of specialty insurance products and led the carrier’s entry into the trade credit market.

Earlier positions included four years as head of financial products for Marsh in India.

Markel India will initially focus on providing treaty and facultative reinsurance to local Indian insurers across several commercial classes, including casualty, financial lines, contingency, event, personal accident, trade credit, and marine and energy.

Commenting on the announcement, Markel International president William Stovin said that Markel had been interested in the Indian market for some time but the carrier has been waiting to find the right person to head up the business.

Deepika is exactly the sort of person we were looking for. She combines a high level of technical ability with proven management and active business development experience,” said Stovin.

With a 20 year career in the market, in both underwriting and broking, she has a very strong network of local contacts, which will be valuable in supporting the growth of our business. Markel gets into new markets by hiring exceptional local talent and Deepika is just such a hire,” he added.

Markel follows in the footsteps of MS Amlin, which became the first syndicate to join the Lloyd’s India branch and begin underwriting on the platform in April.

Insurtech funding reaches $985mn in Q2 2017: Willis Towers Watson

Funding for InsurTech start-ups reached $985mn in the second quarter of 2017 according to research produced by Willis Towers Watson Securities and Willis Re in collaboration with CB Insights.

This compares to a funding volume of $398mn in Q2 2016, representing a year-on-year growth of 148 percent, while Q1 2017 funding stood at $283mn.

Willis Towers Watson noted that there was a record total of 64 transactions in Q2 2017, nearly double the 34 deals reported a year ago.

Geographically, US-based transactions represented 45 percent of the Q2 2017 total, down from 65 percent of all deals since 2012, highlighting a growing interest in InsurTech internationally.

The UK was the next biggest market with 9 percent of transactions, followed by France at 8 percent and Germany with 6 percent.

Of the overall 64 InsurTech transactions during the second quarter, 34 were P&C focused whilst the remaining 30 were life and health focused.

Within P&C, start-ups remained targeted on distribution, with 64 percent of Q2 2017 P&C start-ups focusing on this segment of the market. In contrast, just 9 percent were carrier start-ups – up from 5 percent of all such deals since 2012 – while the remaining 27 percent targeted the B2B market.

Willis Towers Watson said that (re)insurers made a record 31 private technology investments in InsurTech firms in the quarter, up from 27 in Q2 2016.

Meanwhile, funding for early-stage companies, including life and health start-ups, also climbed to a record volume of $289mn, with these types of deals comprising 63 percent of total transactions in the quarter.

Commenting on the findings, Andrew Newman, president and global head of casualty at Willis Re, said: “The $985 million that was invested in InsurTech in the second quarter of 2017 serves as another indication that change is coming to the industry.

Whether disruption beckons or opportunity unfolds is primarily a matter of perception relative to each company’s position in the insurance value chain. It is not the technology that is disruptive, but the degree to which a competitor can successfully wield that technology compared to another.

Berkshire Hathaway in talks to acquire IRB stake: reports

Berkshire Hathaway is in talks to acquire a stake in Brazil's reinsurer IRB Brasil Resseguros following its initial public offering (IPO), according to Bloomberg.

On 25 July, the publication reported that its sources had said that no deal is likely to be completed before 27 July, IRB’s IPO pricing date, adding that the acquisition could be made through Berkshire Hathaway subsidiary General Re.

IRB, which was formed in 1939 and was Brazil’s monopoly reinsurer until 2007, published a prospectus earlier in July for a listing of over a fifth of its shares.

IRB is currently 27 percent owned by the Brazilian government. Private and public sector banks own the remainder of the reinsurer, with BB Seguridade Participações and Baradesco Seguros each having a 20.4 percent stake in the carrier and Itaú Unibanco owning a 15 percent stake.

According to Bloomberg, JP Morgan is said to be advising IRB on the stake sale.

IRB shareholders originally agreed to list the company in August 2015, but the offering was postponed. In November 2015, Itaú Unibanco asked the Brazilian securities regulator to halt the pre-IPO process.

Castel expands specialty division with construction

MGA incubator Castel Underwriting Agencies has expanded its specialty division with the launch of a global construction capability under the leadership of newly appointed Peter Wallace.

Wallace moves over from Munich Re, where he was a CAR and EAR underwriter, writing across all sizes of risks on a global basis. Prior to that, he was underwriting and claims manager for the Middle East and North Africa regions at Infrassure.

Led by Wallace, Castel Construction writes construction all risks (CAR) and inherent defects insurance (IDI) business on a worldwide basis. Capacity is provided through Lloyd’s and the London company market.

Castel said that IDI fills the gap in standard property policies where inherent defects are excluded. The cover is supported by a group of specialist and internationally recognised insurance specialist consulting engineers and inspection agencies.

The firm said that it is working with regional distribution partners with strong local market knowledge, specialism and experience to identify and develop new opportunities in CAR and IDI classes not entering the Lloyd’s and London markets.

The construction unit is part of Castel Specialty, which provides the infrastructure, capacity and business support required to support underwriters to begin writing their own books of business.

Wallace commented: “Castel Speciality provides a strong base from which to respond effectively to the gaps and product opportunities that the construction classes offer.

Wallace joins Gordon Steward in Castel Specialty, who is writing forestry physical damage business worldwide.

Brit acquires legacy Catlin US yacht portfolio

Brit Global Specialty USA (BGSU) has reached an agreement with XL Catlin to assume the exclusive renewal rights for legacy Catlin’s US yacht portfolio.

The agreement relates to legacy policies written by Catlin, prior to its acquisition by XL.

BGSU’s yacht team will service existing legacy Catlin policies through to expiration, after which the carrier will provide renewal quotes to eligible customers.

The deal follows the appointments of [former XL Catlin…] Tom Carroll as senior vice president of marine and Craig McGinnes as vice president of yacht business in 2016 to expand the carrier’s presence in the US marine market.

Commenting on the deal, Brit Americas president Nick Davies said: "We have identified marine as an important and attractive market for Brit in the US, and have seen encouraging growth since appointing Tom to establish and lead a team last year.

"This agreement with XL Catlin is a further positive step, enabling us to acquire the renewal rights to a high quality book of business well suited to the team's expertise and experience."

Meanwhile, Brit CEO Matthew Wilson commented: “Brit has a long track record as a leader in marine, and I’m delighted to see us building on this as we develop our recently launched US marine platform. This is another example of our strategy to expand through opportunistic growth underpinned by strong underwriting.”

Talanx acquires Generali’s Columbian business for EUR30mn

Hannover Re parent Talanx has agreed to acquire Generali's majority stake in its Columbian operations as the Italian insurance giant continues to divest non-core businesses.

The deal, valued at EUR30mn, will see Talanx purchase more than 90 percent of Generali Colombia's general and life insurance businesses, Generali Colombia Seguros Generales S.A. and Generali Colombia Vida Compañia de Seguros S.A, as the German insurer looks to strengthen its Latin American presence.

The acquired companies include eight branch offices in Colombia and headquarters in Bogota.

Combined, Generali said that the two units wrote gross premiums of EUR59mn and produced an EBIT of around EUR2mn in 2016.

Around 70 percent of the portfolio relates to the property insurance business, with the remainder focussed on life.

The acquisition is subject to approval by the Colombian regulatory authority and is expected to close by the end of the year.

Talanx said that it already has a presence in six Latin American countries through the HDI brand, with the carrier reporting gross premium income of EUR1.5bn and EBIT of EUR77mn in the target region last year.

Torsten Leue, a member and chairman of the board of management at Talanx International, said: “For Talanx, the acquisition of Generali Colombia is a strategic step to open up the fifth largest Latin American market. For us, this means further strengthening our position in the target region.”

The company added that the new companies will also help it write industrial lines business in Columbia from a “fronting perspective”.

The news comes after Reuters reported in March that Generali had put three of its Latin American subsidiaries up for sale, with the insurer appointing investment bank Rothschild to sell its Colombian, Ecuadorian and Panamanian subsidiaries.

UK government releases final ILS rules

The UK government has now published final regulations for the new insurance-linked securities (ILS) regime, with the rules expected to come into force in autumn.

The UK treasury said that the new regulations, published on 20 July, “introduce a competitive regulatory and tax regime for Insurance Linked Securities which will ensure that UK gets a share of this rapidly growing market.”

The regulations cover how to set up an ILS vehicle, the associated taxation system and legal framework and provide for a tailored and proportionate approach to authorisation and supervision.

Economic secretary to the treasury, Stephen Barclay said that the new bespoke regime will ensure that the UK remains the most competitive (re)insurance hub in the world.

"This global business is evolving rapidly and we are determined to make sure we're part of this evolution," he said.

Meanwhile, Malcolm Newman, chairman of the London Market Group (LMG)’s ILS taskforce said he believes that there is a “real appetite” in the London market to invest in ILS products which will bring investors to the UK and make a significant contribution to growing the country’s trade.

“The new ILS framework offers a very exciting future for the London Market to continue to deliver innovative new products that make a real difference,” he remarked.

The initial draft regulations from the Treasury included several elements that industry commentators lobbied to change during a consultation period earlier this year.

One was a proposal to require pre-deal authorisation for new individual risk transfer cells set up under the umbrella of an insurance special purpose vehicle (ISPV), which has now been dropped.

Instead, underwriters must notify the Prudential Regulation Authority within five working days of setting up new risk transfer cells.

However, the timeframe to initially approve new vehicles has remained the same. Regulators have said they will endeavour to authorise non-complex, single-transaction ISPVs within six to eight weeks.

The regulations will be laid before Parliament after summer recess and will come into force in the autumn of this year.

Liberty appoints Hampton as casualty reinsurance underwriter

Liberty Specialty Markets (LSM) has appointed Angus Hampton as an underwriter within the carrier’s casualty reinsurance division, effective late July.

Angus joins LSM from Ascot where he has been an assistant underwriter since 2014.

He will be based in London and will report to Kevin Ritchie, head of the London casualty reinsurance division, and Shane Aldons, underwriting manager for international casualty reinsurance.

Commenting on the appointment, Dieter Winkel, LSM’s chief underwriting officer for reinsurance, said: “Angus is a talented young underwriter with an excellent career ahead of him. He’s a great example of the new generation of graduates that we’ve been successful in recruiting as we build Liberty’s underwriting strength for the future.