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EC News (31st August 2017)

August 31, 2017

Round-up of the weekly news and developments from the global insurance market with stories on Hurricane Harvey and more. 

Ardonagh promotes Newman as Donegan becomes group strategic adviser

The Ardonagh Group has promoted Gordon Newman to lead its wholesale broking unit as Michael Donegan has stepped down as Price Forbes CEO to take on a group strategic role.

Currently executive chairman of Bishopsgate, Newman will take on the position of wholesale segment leader, heading up an international insurance and reinsurance broking business that contributes a third of the group’s gross written premium and comprises Price Forbes and Bishopsgate.

Prior to joining Bishopsgate earlier this year, Gordon was CEO of Cooper Gay's London operation, CGNMB since November 2013. This followed Cooper Gay’s (now Ed) acquisition of Lloyd’s (re)insurance broker Newman Martin Buchan - the intermediary that Newman co-founded and led.

Concurrently, Ardonagh also announced that Donegan has relinquished his role as CEO of Price Forbes and has been appointed as strategic adviser for the group.

Donegan, who has been CEO of Price Forbes since 2004, has been succeeded by current chairman of non-marine James Masterton with immediate effect.

Donegan has had a London market career stretching back almost four decades. He oversaw the sale of a majority stake in the then-staff-owned business to financial buyer HPS in late 2015 in deal valuing the company at more than £100mn ($129mn), with a subsequent reorganisation bringing the business into a broader grouping under the Ardonagh umbrella.

Under new structure, Neil Pearce will continue as managing director of Bishopsgate, with both Masterson and Pearce reporting to Newman.

Commenting on the appointment of Newman, Ardonaugh CEO David Ross said: “Gordon is a man of exceptional pedigree and his leadership of wholesale within The Ardonagh Group will be an invaluable contribution to our strategic ambition.”

Ross also paid tribute to Donegan: "Mike has established Price Forbes as one of the most highly regarded independent brokers in the sector. In leading the company to global broker status, he has been instrumental in growing turnover threefold over the course of the past decade."

"As strategic adviser to The Ardonagh Group, he will continue to share with the group his unparalleled expertise whilst transitioning the running of the day-to-day operations to the next generation of leadership."


Harvey economic loss could near Sandy’s toll: Moody’s

As the flooding from Hurricane Harvey continues to engulf southeast Texas, Moody’s Analytics has revised its economic cost projection for the disaster in light of additional categories of damage since its initial estimate of between $51bn and $75bn.

Moody’s has said that Harvey could drive an overall loss similar to, or exceeding that caused by Superstorm Sandy in 2012, potentially making it the second most costly natural disaster of the last thirty years.

The revised projection includes $30bn to $40bn in property damages, $10bn to $15bn in business losses and $5bn to $10bn in infrastructures impacts, Moody's analyst Adam Kamin said in a brief report.

Additionally, he said that lost business output could add a further $6bn to $10bn, in light of the severity of the storm and subsequent flooding. The severity of the flooding means it will take some time for things to return to a more normal state in Texas, with power outages and damages making it difficult for firms to resume business.

"The long-term economic damage associated with Harvey remains likely to be concentrated in the residential market," Kamin said.

There has typically been a lack of flood insurance take-up by homeowners, with a small proportion in the Houston area holding coverage from the National Flood Insurance Program (NFIP).

Moody’s explained that while damaged roads and bridge will be repaired and firms whose assets were damaged can rely on an insurance claim for rebuilding purposes, a lack of flood insurance for homeowners will prevent the type of full-scale reconstruction effort that might otherwise be expected.

 “With the storm threatening to disrupt Louisiana as well, cost estimates may well rise further. If that happens, Harvey could potentially overtake such events as Hurricane Andrew and the Northridge Earthquake of 1994 in terms of total losses as a share of GDP,”  Moody’s warned.

Sandy caused about $70bn in economic losses in 2012, mostly from its sweep into the New York metropolitan area at the end of October, Moody's has estimated. But other estimates put the storm's costs higher, some at as much as $80bn.

While Kamin did not provide an estimate of insured losses, a number of cat modelling firms have projected that industry-wide losses are unlikely to exceed $10bn, with analysts at JP Morgan suggesting that insured losses could total as much as $20bn.


Shareholders approve Axis’ acquisition of Novae

Axis Capital’s proposed £477.6mn takeover of Lloyd’s carrier Novae has gained shareholder approval, with nearly 94 percent of voting investors giving the green light for the deal.

At court meeting, 249 shareholders - collectively representing 71.53 percent of Novae's issued ordinary share capital - voted on the takeover, with 233 shareholders approving the deal.

At a separate general meeting, 99.97 percent of Novae shareholders voted in favour of the acquisition by Axis, which will be executed as a scheme of arrangement.

The approval comes after Axis raised its initial takeover bid from 700p a share to 715p a share on 24 August, in a bid “to bring certainty to the transaction” after it was reported that many shareholders thought the original offer undervalued the company.

In a statement Axis president and CEO Albert Benchimol said: "The acquisition of Novae accelerates the growth strategy of our international insurance business, creating a $2 billion insurer in the London specialty market, while significantly scaling up our capabilities and enabling AXIS to even better serve our clients and brokers."

Meanwhile, Novae CEO Matthew Fosh said: “We are pleased that Novae shareholders supported the transaction. We strongly believe that the combined company will be superbly positioned to compete in the international specialty insurance marketplace.”

The deal is expected to close in the fourth quarter, subject to regulatory approval.


Harvey losses to be swallowed by European cat budgets: Bernstein

European carriers are likely to absorb the impact from Hurricane Harvey within their existing natural catastrophe budgets, according to analysts at Bernstein.

Hurricane Harvey developed into a Category four hurricane and made landfall near Rockport, Texas on 25 August. In addition to direct losses, the storm is causing heavy rainfall and storm surge-related losses along coastal Texas.

Bernstein predicts that Harvey will trigger losses of between $180mn and $340mn for Munich Re and Swiss Re - within the companies' third quarter catastrophe budgets. Munich Re has set aside $440mn to pay for cats in Q3, while Swiss Re has put aside $500mn.

Both reinsurers, on the other hand, have very strong capital buffers, $27bn and $12bn for Munich Re and Swiss Re respectively so even under a worst case scenario, the event is unlikely to pose a material impact to the capital ratio.

Bernstein analysts expect the insured losses for the property damage and subsequent business interruption claims to be borne equally by the direct market and reinsurance market.

Whereas the majority of the personal lines flood losses will be borne by the National Flood Insurance Programme (NFIP), motor insurance claims will primarily come through the US domestic personal and commercial lines insurance market.

In terms of Lloyd’s of London syndicates, Hiscox, Beazley and Lancashire write significant catastrophe exposed business, the analysts noted.


Fidelis hires Burford

Fidelis has hired former Novae underwriting performance director Ian Burford as chairman of specialised risks within its London underwriting team.

Upon taking up his new position on 4 September, Burford will be responsible for identifying opportunities to expand specialised products in insurance and reinsurance, including MGA start-ups at Fidelis.

He will also underwrite treaty reinsurance, including property for Fidelis Underwriting Limited, where it is complementary to the North American and international business written by Fidelis Insurance Bermuda Limited.

Burford brings with him more than 30 years’ experience within the London (re)insurance market, most recently serving as underwriting performance director at Novae.

He originally joined Novae in 1998. He began as deputy underwriter for its Syndicate 1241 and then Syndicate 2007, then being promoted to joint active underwriter of the group in 2011. He also served as a director of Novae Syndicates Limited.

Commenting on the appointment, UK CEO of Fidelis Dan Burrows, said: “We are pleased to welcome someone of Ian’s calibre and expertise to our underwriting team. His knowledge of the market and emerging needs will be invaluable as we continue our strategy of identifying and attracting specialist underwriting talent with innovative and closely defined products.”


Harvey impact on reinsurance pricing to be regionally limited: S&P

Impact on reinsurance pricing from Hurricane Harvey is likely to be limited to the regions and policies directly affected by the storm as the heaviest losses are expected to be felt by property & casualty (re)insurers with a strong regional focus, according to S&P.

Experts had previously predicted that reinsurance pricing would decrease by flat to 5 percent into 2018, however, S&P analysts believe hurricane Harvey is likely to impact pricing within the devastated Texas area among (re)insurers with a high premium concentration.

Harvey is predicted to have a limited impact on the (re)insurance industry’s overall creditworthiness, with rating actions limited to a few outliers; “With the earnings of certain personal lines players already stretched, the hurricane-related losses could wipe out their earnings for the year.

“Consequently, we could consider taking negative rating actions on certain outliers, specifically those where we believe capital levels might decline beyond our base-case assumptions.”

S&P credit analyst Taoufik Gharib, said; “Primary insurers – as opposed to reinsurers – will bear the brunt of the covered losses from Hurricane Harvey.

“However, the effect on individual companies will vary. While the large, national primary players have sufficient geographic and product diversification to absorb the losses, some of the regional and local players could face significant hits to their earnings and possibly their capital.”

The National Flood Insurance Programme, which is already steeply indebted, is likely to be reviewed as its capacity is expected to be blown in the Harvey aftermath.

Reinsurance coverage that could be triggered includes the $1bn of protection to the NFIP and $2.1bn to TWIA, which attaches at $2.8bn; reinsurers would cover losses between $2.8bn and $4.9bn.

More detailed information on personal and commercial insurance losses will emerge in following weeks to unveil the full impact of Hurricane Harvey, however, based on early estimates, S&P echoes other analysts’ prediction that the catastrophe will likely be an earnings event rather than a capital event for broader and more diversified property/casualty (P/C) (re)insurers.