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EC News (7th September 2017)

September 07, 2017

Round-up of the weekly news and developments from the global insurance market with stories from Sompo Canopius, Tokio Marine, Marsh and more. 

Irma fears put (re)insurers on high alert

The (re)insurance industry is on high alert as Hurricane Irma continues to tear a deadly path through the Caribbean and toward southern Florida after reducing buildings to rubble and causing multiple fatalities on the small island of Barbuda.

Hurricane Irma is a powerful Category 5 storm, with sustained winds of 185mph and gusts of up to 224mph that forecasters say could be the most powerful hurricane to strike the Atlantic coast in more than a decade.

After passing north of Puerto Rico in the early hours of Thursday (7 September), Irma is now expected to pass to the north of the eastern Dominican Republic.

Irma is predicted to reach the southeastern Bahamas by Thursday evening, with projections suggesting that Irma could potentially hit Miami on Sunday (9 September).

Officials in Florida are already planning evacuations and making provisions for vulnerable residents, while Miami-Dade County mayor Carlos Gimenez has declared a state of emergency.

Miami-Dade is Florida’s most populous country with 2.7 million residents.

Florida has not had a Category 3 landfall since Wilma in October 2005.

That event caused insured losses of $2.1bn in 2005 money, according to Swiss Re's Sigma. Indexed for 2016 prices the event cost the industry $15bn, according to analyst estimates.

In a worst case scenario, catastrophe modellers have drawn parallels with the 1926 Great Miami hurricane, which killed about 400 people in what was then a resort town with a population of about 100,000.

That event represented an insured loss of $119bn adjusted for inflation and exposure increases.

While Florida P&C carriers may be in for losses from Irma, their reinsurers may also take a hit should the storm maintain its strength and swerve north into Florida. Most of the Floridians have robust reinsurance coverage.

Sompo Canopius sold to Centerbridge-backed consortium for $952mn

Japanese insurer Sompo Holdings has agreed to sell its Lloyd’s business Sompo Canopius to a private equity consortium led by Centerbridge Partners, in a $952mn deal.

On completion of the transaction, Canopius will become a standalone business led by incumbent executive chairman Michael Watson and chief underwriting officer Mike Duffy.

The consortium of investors includes private investment firm Gallatin Point Capital LLC.

Centerbridge, which has around $29bn of assets under management, was founded in 2005 by Jeffrey Aronson and Mark Gallogly.

Explaining the rationale behind Sompo’s decision, the company’s president and group CEO Kengo Sakurada said: "Following the announcement of the acquisition of Endurance Speciality Holdings in October 2016, we carefully reviewed the potential for Sompo Canopius to be integrated into the new global, commercial business platform, Sompo International. 

“However, it became increasingly clear that the culture and business mix of the two companies were very distinct and that the combination would not necessarily be advantageous to either party.”

Sakurada added that the funds from the sale will also enable Sompo to pursue its “strategic objectives through Sompo International, whilst also providing Canopius with a secure and clear strategic future”.

Sompo first acquired Canopius in 2014 for £594mn and has been one of the main drivers for the Japanese insurer’s Europe and US business and has made a steady financial contribution since.

Commenting on the news, Watson said the deal provided the management team with a "golden opportunity to create a world class specialty (re)insurance franchise".

“We are grateful to Sompo for their support for our business over the past three years and recognise their generosity in allowing us to chart this new course.”

“Our close business and personal connections with Sompo have existed for many years and we hope to maintain a strong business relationship with them in future.”

Meanwhile, Duffy added: “We will continue to focus on those classes where we add value to our clients and brokers and seek profitable diversification through the recruitment of new teams and entry into new classes.”

"I believe we represent a very attractive home for industry leading talent who will thrive in an environment where performance and accountability is rewarded and an independent mind-set is valued," he concluded.

The transaction is expected to close in the first quarter of 2018, subject to regulatory approvals.

Harvey private and public insured losses could reach $40bn: Morgan Stanley

Analysts at Morgan Stanley have suggested that insured losses emanating from Hurricane Harvey could total between $15bn and $40bn, which includes claims from the government-backed flood insurance scheme.

Economic loss estimates have so far varied, with RMS estimating a total loss from the storm at as much as $90bn.

Morgan Stanley said that while insured losses have historically accounted for around half of total economic losses, the insured loss from Harvey could be less, as many homes in the region do not have flood coverage.

The analysts noted that a $40bn insured loss would make Harvey the second most costly hurricane to hit the US after Katrina in 2005, which triggered around $80bn in insured losses, and would be above the $30bn loss caused by Sandy.

The top-end $40bn insured loss projection includes $5bn– $15bn of National Flood Insurance Program (NFIP) claims and a further $5bn-$15bn from commercial flooding claims. Meanwhile, it is estimated that auto insurers could pay out $3bn-$6bn while wind damage may range from $2bn-$4bn.

Morgan Stanley said that commercial flooding losses “are a wild card and difficult to estimate”, basing its projection on the c.$3.5bn industry losses caused by Tropical Storm Allison in 2001, which also caused extensive flood damage in Houston. The area's population has increased 20 percent since that event.

“Similarly, it is highly difficult to estimate NFIP claims,” continues Morgan Stanley.

The NFIP paid out roughly $1.1bn from approximately 30,000 claims during Allison, citing RMS estimates of 500,000 NFIP policyholders being affected by Harvey as the basis of their projection.

“We expect reinsurers to share a significant portion of the overall losses but the breakdown is unclear due to various reinsurance on individual commercial policies. If NFIP losses exceed $4bn, 25 reinsurers will also share up to c.$1bn NFIP claims,” says Morgan Stanley.

Tokio Marine selects Luxembourg for EU hub

Tokio Marine has become the latest carrier to select the Grand Duchy as the location of its post-Brexit EU hub.

In a statement, the company announced that it is seeking regulatory approval to establish an insurance company in Luxembourg in preparation for Brexit, to ensure “business as usual” and to allow it to continue servicing clients in the European Economic Area.

The new company will have branches across Europe, and will be supported by the existing UK and EU group operations.

Subject to regulatory approval, Tokio Marine is aiming to have the new company incorporated and capitalised within the first half of 2018 to enable Tokio Marne HCC and Tokio Marine Kiln to start writing business.

The company intends to write all business classes that are currently offered by Tokio Marine in Europe.

Commenting on the announcement, Tokio Marine Kiln CEO, Charles Franks said: “The new company will complement our Lloyd’s platform operation in the EU which will be written through the Lloyd’s European subsidiary in Brussels. Access to these two platforms will allow us to maintain our commitment to our clients and our innovative approach to product development in Europe.”

The Grand Duchy has emerged as the preferred destination for insurers seeking to establish EU subsidiaries in a bid to safeguard access to the EU following Brexit, with Tokio Marine joining the likes of AIG, CNA Hardy, FM Global, Liberty, Hiscox and RSA in its decision.

Barry Cook, CEO of Tokio Marine HCC International Holding: “Luxembourg is at the centre of Europe and hosts some of its most important institutions. The country is focused on supporting the financial service industry and its regulator has an experienced, robust and pragmatic approach,”

“Post-Brexit, Luxembourg is likely to become an important market place for property and casualty insurance in Europe and we are looking forward to contributing to that new development.”

TigerRisk Capital Markets & Advisory names Wade as UK non-exec chair

TigerRisk Capital Markets & Advisory has appointed Michael Wade as its UK non-executive chairman.

Wade worked as The UK Crown Representative for Insurance at the Cabinet Office and most recently as an advisor to the current and former Chancellor of the Exchequer on issues relating to insurance-linked securities. 

He has also been instrumental in the creation of the regulatory framework which will enable insurance-linked securities (ILS) to domicile in London.

The UK’s ILS regulatory framework is expected to be approved by government later this month and is hoped to be fully in force by the end of 2017, which will mean the UK market can begin to transact in ILS.

In his role as non-executive chairman, Wade will advise the firm as it continues to build its ILS practice in London.

Commenting on the appointment, Tony Ursano, CEO of TigerRisk Capital Markets & Advisory said:

Michael Wade is a highly accomplished and entrepreneurially minded insurance executive and public servant.

“He recently helped position the London insurance market to become a leading insurance linked securities (ILS) center of excellence. We are excited to partner with him and continue to focus on that agenda.”

Meanwhile, Wade said that joining TigerRisk Capital Markets & Advisory UK will provide him an opportunity to work within the new ILS regulatory framework.

"London has the insurers, the distribution, the credibility, the infrastructure and expertise to make it one of the world's leading ILS domiciles," he added.

Wade has held a career in the London market dating back to 1975, when he began as an underwriter at C E Heath.

Later in his career, he went on to found Corporate Lloyd's Membership Ltd, which became CLM Insurance Fund plc, which was in turn sold to SVB (now Novae) in 1999.

Wade is also a former member of the Council and Committee of Lloyd's.

He was also chairman of London market broker Besso, after he joined a consortium to buy out Wells Fargo's 38 percent stake in 2011. Wade sold his 15 percent holding in the broker and stood down in November 2012.

Wade is currently serving as a senior non-executive director at Neon and a senior advisor to Swiss Re.

Lloyd’s underwriters file countersuit against Kayne West

Lloyd’s syndicates have filed a countersuit against Kanye West, citing “substantial irregularities” in the rapper’s medical history.

In August, Kanye West and his touring company sued various syndicates at Lloyd’s for $10mn in a claims dispute over cancelled tours dates, with insurers refusing to pay out for the final 21 dates on his Saint Pablo tour, which were cancelled when he fell ill in November 2016.

According to court documents, the carriers say that West’s touring company, Very Good Touring Inc, had failed to cooperate in the insurance company’s investigation into the claim for cancelled concerts.

In its countersuit, the consortium of Lloyd’s underwriters said West’s company and other representatives “have delayed, hindered, stalled and or refused to provide information both relevant and necessary for underwriters to complete their investigation of the claim.”

“[The] underwriters are informed and believe, and thereon these same persons have wilfully concealed and or misrepresented relevant facts in an effort to thwart Underwriters’ investigation,” the counterclaim stated.

Within the court documents, Lloyds noted that its policies exclude any losses that are caused directly or indirectly by the possession or use of illegal drugs, the impact of prescription drugs not used as prescribed, or the use of alcohol.

The court documents said in order to protect West “from public disclosure of details of his private life,” Lloyd’s would not include specific information it had obtained in relation to the claim.

The insurers are requesting for the judge to rule that they have no duty to cover the tour company, and that they are awarded legal costs arising from the lawsuit.

Starr appoints Owen as head of A&H

Starr Companies has appointed Laura Owen as head of accident & health, based in London.

Owen was most recently head of A&H at Hamilton at Lloyd's. In her new role, Owen will be responsible for overseeing all of Starr’s London market business. She will also be responsible for growth and expansion in the European marketplace in areas where Starr has established local offices.

In January, Owen joined the Lloyd's Market Association's personal accident committee to serve for a five-year term.

Commenting on the appointment, head of international casualty Colin Buchanan said: “Laura brings extensive experience in the accident and health marketplace having worked for two well-known Lloyd’s syndicates.”

“Her experience will benefit us in developing new channels and relationships particularly as we seek to grow in Europe.”

Meanwhile, Starr has also appointed Nick Lawrence as chief underwriting officer for the liabilities group, also based in London.

He joins from ArgoGlobal, where he served as a general liability class underwriter since the end of 2014. Prior to this, he was a liability class underwriter at Catlin for more than 11 years.

At Starr, Lawrence will be responsible for all London market business including from the US desk and the European marketplace.

Marsh hires Aon’s Nayler to lead financial institutions

Marsh has hired David Nayler to head up its financial institutions industry practice in the UK.

Nayler joins Marsh from Aon, where he held numerous leadership roles within the firm’s financial and professional services group since originally joining the broker in 2005, including leading the legal and claims practice.

Prior to this, Nayler was an associate solicitor at law firm Eversheds. Nayler is also chairman of the British Insurance Law Association.

Upon assuming his new role in early 2018, Nayler will be responsible for bringing together financial services sector client management, technical, placement and risk management specialists from across the business to support Marsh’s financial institutions clients in mitigating the complex risks they face.

He will report to risk management practice leader for the UK and Ireland, Charles Beresford-Davies.

Lancashire makes trio of senior promotions

Lancashire has announced three senior underwriting promotions, appointing deputy chief underwriting officers (CUO) in London and Bermuda, and a new head of property treaty at Cathedral.

Effective 1 September, James Irvine will become deputy CUO for Lancashire Insurance in Bermuda, having been promoted from senior underwriter. Irvine joined the company in 2010 and is currently responsible for the carrier’s property reinsurance portfolio in Bermuda.

In his new role, Irvine will continue to report to CUO Sylvain Perrier.

Meanwhile, head of energy and marine underwriting James Flude has been promoted to deputy CUO within the carrier’s London office, also effective 1 September. Flude joined Lancashire in 2014 from Watkins Syndicate where he spent nearly 14 years, most recently as head of energy and marine underwriting. In his new position, Flude will continue reporting to UK CUO Hayley Johnston.

Meanwhile, Matthew Westerman has been promoted to head of property treaty for Cathedral Syndicate 2010, assuming his new role as of 6 April 2018.

Westerman replaces Mark Wilson, the former property treaty head, who joined Blenheim syndicate last summer.

Westerman joined Lancashire in 2012 and is a senior underwriter in Bermuda with responsibility for the property reinsurance portfolio. Upon commencing his new position, he will report to Cathedral Syndicate 2010's active underwriter Jon Barnes.

Commenting on the promotions, Paul Gregory, CUO of Lancashire Holdings said: “I would like to congratulate James, James and Matthew on their promotions.

“These are in recognition of their individual efforts, development and progression since joining the Lancashire Group. These promotions demonstrate our continued commitment to developing underwriting talent across the Group.”