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EC News (30th November 2017)

November 30, 2017

Round-up of the weekly news and developments from the global insurance market with stories from Ascot, Pool Re, Neon and more.

Ascot launches $1bn Bermuda reinsurer

Ascot has launched its new Bermuda reinsurance division, Ascot Re, appointing former Third Point Re CEO John Berger to lead the operation.

The Canada Pension Plan Investment Board (CPPIB), which acquired Ascot in a $1.1bn deal last year, has injected $1bn of capital into the new reinsurer. Ascot Re has received an A rating from AM Best reflecting the insurer's historic performance, the strength of its capital base and access to capital through the CPPIB.

Berger will join Ascot Re as CEO in January 2018 pending immigration approval, having stepped down as CEO of Third Point Re February. He will continue his role as chairman of the board at the total reinsurer until December.

Prior to Third Point Re, Berger held principal executive roles are the likes of Harbour Point, Chubb and F&G Re.

Ascot CEO Andrew Brooks, commented: "Ascot Re is an important development in the growth of the Ascot Group and the culmination of a long held strategy to strengthen Ascot’s global footprint by building a re/insurance company in a key marketplace."

Neill Currie, executive chairman of Ascot Group added: "Through Ascot Re, we look forward to becoming a leading reinsurer in the Bermuda market, which will enhance our ability to build meaningful long term relationships with brokers and their clients, and positions us well to service any demand for new cover."

"We are delighted that John has accepted the leadership role at Ascot Re, an appointment that will add significantly to the strength of the existing Ascot Group team in Bermuda. His exceptional market knowledge, experience and reputation within our industry will play a huge role in building out the platform we aspire to."

Pool Re to extend cover to include physical damage from cyber terrorism

The UK’s government-backed mutual terrorism reinsurer, Pool Re, has announced that it will extend its cover to include material damage and direct business interruption (BI) as a result of cyber terrorism from April 2018.

The extension to include physical damage from cyber terrorism comes after more than two years of work, Pool Re said, and is based upon a research study commissioned from the Centre for Risk Studies at University of Cambridge Judge Business School to further Pool Re’s understanding of the nature of the cyber terrorism threat.

The cover excludes intangible assets and will be offered as standard to all policyholders which purchase terrorism insurance from Pool Re Members Pool Re CEO Julian Enoizi said; “We will continue to evolve our coverage and today’s announcement is an effort to future proof the Scheme and to close a potential gap in coverage before it became apparent.

“The threat from a cyber-attack is evident and businesses have become increasingly concerned about the extensive repercussions these types of attacks could have on them. This was a clear gap in our coverage which left businesses potentially exposed. After rigorous analysis, we determined that we can close this gap. It is a pivotal moment for Pool Re which establishes a new standard for terrorism cover and places the UK at the forefront of nations reinforcing their economies against emerging risks.

He added: “It is also an indication of what can be achieved through cross-industry, academic and governmental collaboration. We will continue to research and evaluate other emerging terror threats as they become evident.”

Director of Research and Innovation at the Cambridge Centre for Risk Studies, Simon Ruffle, commented; “The Centre has applied an academic approach to modern business, enabling a deep analysis of current geopolitics and technology in order to illuminate the shape of an emerging threat to the UK economy. The cyber terrorism scenarios we examined provide insight into what types of attacks might be possible in the next few years that could impact Pool Re’s portfolio.”

Neon names Heppell as CFO

Neon has appointed Richard Heppell as its CFO, the Lloyd’s carrier has announced.

Most recently CFO at MS Amlin, Heppell oversaw the complex integration of the Amlin and Mitsui Sumitomo Insurance Lloyd’s syndicates, having previously been finance director at Mitsui Sumitomo. Before this, he held a range of senior corporate finance roles at QBE.

In his new role, Heppell will oversee Neon’s finance function, manifesting the discipline and structure required by the business as it continues to grow.

Commenting on the appointment, Neon group chief executive Martin Reith said: “I am thrilled to welcome Richard to Neon, where his experience of multifaceted integrations and business transformation will contribute directly to us achieving our strategic aspirations. His track-record shows continued delivery in the management of high performing finance functions for Lloyd’s businesses and this knowledge will prove valuable as we continue on our exciting trajectory.”

“I look forward to Richard joining our Executive Committee, where we continue to invest in accessing the best quality business and capitalise on the considerable pipeline of opportunities we have identified.”

Neon said the appointment came at a time of expansion for the company, with the opening of its Bermuda office in 2016, the acquisition of Sapphire Underwriters, the launch of Neon Italy, and the joint venture MGAs of Tarian and Chord Re in partnership with Beat Capital in 2017.

LMG proposes UK-EU post-Brexit Free Trade Agreement

The London Market Group (LMG) has released a detailed proposal of a Free Trade Agreement (FTA) that sets out a mechanism that would enable the EU and UK to maintain access to their insurance markets and control over their respective regulatory systems, once the UK leaves the European Union (EU).

The proposal focuses on the need to allow clients uninterrupted access to London’s breadth of expertise and specialist risk capacity. It will ensure that neither the EU nor UK will have to sacrifice market access or control over their respective regulatory regimes.

The LMG Brexit taskforce, representing the UK’s commercial insurers, reinsurers and brokers, has centred its proposal on a Free Trade Agreement (FTA). This would be a bespoke agreement that would permit mutual market access and recognition of both the EU and UK’s prudential regimes - with a Solvency II equivalence outcome built into it.

It would also include recommended framework for supervisory cooperation, which would align regulatory oversight of (re)insurers and brokers/ intermediaries in both the UK and EU.

The agreement proposes a ‘prudential carve-out’ and is not a new concept to the EU.

The proposed solutions build upon the bilateral agreement that came into force on the 7th of November between the EU and US, which allows EU and US reinsurers to operate in each others jurisdiction with no need for local presence and it aligns regulatory systems and removes cross-Atlantic collateral holding requirements.

The LMG suggests a complimentary transition period to provide continuity of client service by allowing the London market to continue operating with current agreements until the FTA is agreed, thus providing EU and UK (re)insurers with the stability needed to prevent business disruption.

In addition, it could relieve EU and UK firms of pressure to ensure post-Brexit contingency plans in the case of a hard Brexit.

The LMG proposals have also been designed to prevention disruption and financial instability for EU clients that rely on the London Market for essential risk mitigation services, remove the risk of gaps in vital insurance cover and provide contractual certainty for business transitioning to new UK-EU models and for businesses to run-off at the time of Brexit.

In addition, they deliver an orderly transition by providing EU (re)insurers and brokers/ intermediaries with sufficient time to transition and secure coverage certainty for clients and maintain client service standards and remove pressure from EU and UK firms to make premature decisions to move business bases prior to the Brexit negotiations being concluded.

Malcolm Newman, managing director of SCOR’s EMEA Hub, chairman of the International Underwriting Association (IUA) and sponsor of the LMG’s taskforce, said the proposal “creates a workable solution that would mean that neither the EU nor the UK would have to sacrifice market access or control over their respective regulatory regimes, solving the access versus control dilemma.

“The London Market plays a vital role in pooling risk across the EU and UK markets, and we are all focused on ensuring continued access to the broad range of insurance services, expertise and capital that we offer to EU businesses. Our goal is to ensure that clients are not left in a situation where there is contractual uncertainty and protection gaps post Brexit.”

Chubb seals cooperation agreement with PICC

Chubb has entered into a strategic cooperation deal with China’s largest P&C insurer, PICC P&C, to take advantage of the Chinese government's "Going Out" and "One Belt One Road" initiatives.

The strategic cooperation agreement, which has a term of 10 years, will see Chubb and PICC establish dedicated underwriting and service centres – dubbed China Desks - for Chinese-affiliated enterprises across Chubb’s offices globally. Chubb and PICC will work together to insure and service China-affiliated companies overseas, as well as explore other business opportunities.

Chubb will also provide education and training for PICC personnel assigned to these China desks. In addition, PICC and its customers will gain access to Chubb's insurance operations in 54 countries and partners in nearly 150 countries, while Chubb will be able to jointly develop insurance business with some of China's largest enterprises.

PICC's commercial customers include some of China's largest enterprises, many of which have complex operations in multiple foreign jurisdictions. The Chinese insurer has total assets of approximately $72.2bn and gross written premiums of approximately $47.3bn, based on 2016 reported figures.

One Belt, One Road is a programme of investment aimed at improving infrastructure networks between Asia and Europe, underlining China's push to take a larger role in global affairs with a China-centred trading network.

Meanwhile, the Going Out policy (also referred to as the Going Global Strategy) is an effort initiated in 1999 by the Chinese government to promote Chinese investments abroad.

Chairman and CEO of Chubb, Evan Greenberg said: “For Chubb, this strategic cooperation agreement is a substantial opportunity to bring the full breadth of our capabilities and global network to bear in meeting the complex insurance needs of China’s largest and most successful companies.”

“With this agreement, PICC now has the ability to offer its clients access to our industry-leading capabilities in countries beyond China. We greatly look forward to working with our new partners.”

Approval received for UK ILS regulations

A UK government cross-party parliamentary committee approved the risk transformation regulations 2017 and the risk transformation (tax) regulations 2017, which will make up the UK ILS regulatory regime.

However, the proposals did raise some questions.

In the meeting of the Fifth Delegated Legislation Committee, Jonathan Reynolds Labour Co-operative MP and shadow economic secretary to the treasury, said: “We should always bear in mind the potential risks around securities markets, with the ILS being particularly affected during the global financial crisis.”

Reynolds suggested that this package of measures was announced in the 2015 budget, a long time ago in political terms.

He commented: “Now we face an entirely different landscape due to our exit from the EU. I do find it odd that the government is taking this approach to ensure the London market is equipped to compete globally, while ignoring the elephant in the room, which is that a no deal Brexit would cut off the industry at its knees.”

However, Stephen Barclay Conservative MP and economic secretary to the Treasury, replied to the shadow minister stating: “It is Brexit that reinforces the benefit of increasing the UK’s influence over what is already an established part of the market … one that is currently off shore. Bringing it within the UK will give UK regulators more influence over this market.”

Over the past two years, the UK Treasury has worked with the Prudential Regulation Authority, the Financial Conduct Authority and the London Market Group’s ILS taskforce to develop the UK’s ILS regulations.

The regulations allow for insurance and reinsurance firms to transfer risk to the capital markets, meaning that risk can be managed more effectively for businesses and consumers.

William Hogarth at Clyde & Co said: “The news that the regulations have been approved is a great step forward. London is in a strong position when it comes to attracting ILS business as it is home to some of the world’s best and brightest insurance talent, whose knowledge, experience and ability to innovate is unparalleled,”

He added: “London also has a thriving community of brokers too and can draw on a huge amount of capital.

“The protected cell company model for ILS is attractive in that it allows investors to ring-fence risk; with each individual cell of a protected cell company effectively operating like a separate insurance vehicle. Each cell is fully funded for the risk or portfolio of risks for which it is designed but is isolated from other cells within the protected cell company, ensuring there is no cross-contamination.”

However, Hogarth went on the outline the hurdles for potential investors to overcome.

He said: “ILS investors used to operating in jurisdictions such as Bermuda will need to get to grips with what London has to offer,”

“A key sticking point is likely to be the speed-to-market facilitated by the efficiency of regulatory approvals; if London can genuinely compete with the established ILS markets in this space then the sky is the limit for the UK to become a hub for ILS business.”

Allianz seeks to buyout remaining shares in Euler Hermes

Allianz has announced that it plans to buy up the outstanding shares in trade credit insurer Euler Hermes and take control of the company.

The German insurer said it has already agreed to buy another 11.34 percent of Euler Hermes for EUR122 per share to take its stake to 74.34 percent.

The company said it intends to launch a simplified cash tender offer to acquire another 24.2 percent of Euler Hermes at the same price.

The offer marks a premium of 20.7 percent on the Euler Hermes share closing price on 24 November.

The carrier said it intends to implement a squeeze-out procedure to acquire the remaining stock in the event Allianz's holding in Euler Hermes reaches 95 percent.

Allianz said it expects to formally file the tender offer in the coming weeks, with any deal subject to regulatory approval.

Allianz said that increasing ownership in Euler Hermes was “a logical step for Allianz to deploy capital in strategic businesses delivering solid operating performance, and to strengthen positions in core home markets and in property and casualty in particular.”

Allianz advised that it remains supportive of the strategy of Euler Hermes board of management and does not intend to change, as a result of the transaction, Euler Hermes supervisory board composition or Euler Hermes operating model beyond ordinary course of business.

Allianz added that the offer will not have an impact on its previously announced EUR2bn share buyback program.

AXA UK appoints Wheway as new chairman of the board

AXA UK has appointed Scott Wheway as its new chairman, succeeding Ian Brimecome, who is retiring from the role following a five-year tenure and over a decade as a non-executive director.

Wheway was previously a member of the board of Aviva until December 2016 and also served as chairman of Aviva Insurance until September 2017.

He is currently senior independent director of Santander UK and chairman of the responsible banking committee.

Additionally, he sits as a non-executive director of FTSE 100 energy services company, Centrica, and is chairman of the remuneration committee.

Meanwhile, outgoing chairman Brimecome joined AXA in 2007 as a non-executive director. He also serves as chairman of Equitable Life Assurance Society, Tokio Marine Kiln Group, HCC Holdings and Delphi Financial Group.

AXA UK & Ireland Group CEO, Amanda Blanc said: "We are delighted to have Scott joining us at AXA. Scott has worked in a number of senior board level roles in a range of different sectors so his wealth of experience will stand us in good stead as we pursue our Ambition 2020 strategy."

"I’d like to thank Ian for his support as chairman over the last 5 years and for spending more than a decade as a hard-working non-executive director. Everyone at AXA wishes him the best for the future."

Wheway added: "I am looking forward to taking up my new role with AXA and continuing the excellent work done by my predecessor. I am joining AXA at an exciting time and am keen to get started working with the Board to help the company achieve its strategic goals."