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EC News (1st March 2018)

March 01, 2018

Round-up of the weekly news and developments from the global (re)insurance market with stories from Aon, Lloyd’s, JLT and more.

Christian named Aon Benfield global chairman as Page becomes Aon UK CEO

Aon has named Julie Page as CEO of Aon UK, replacing Dominic Christian who takes up the new role of global chairman of Aon Benfield.

Christian was most recently CEO of Aon UK Ltd, the firm’s UK risk management, insurance broking, and reinsurance business, and executive chairman of Aon Benfield International since 2013.

In his new position, he will continue to report to Greg Case, president and CEO of Aon plc.

Page is currently CEO of Aon Risk Solutions UK and will continue in this position alongside her new role of CEO of Aon UK Ltd, where she will be responsible for the management and governance oversight of the Aon UK Ltd business, including strategies on how to best meet clients’ needs, delivering on the firm’s UK regulatory commitments and liaising with the UK board.

She will have dual reporting responsibilities: Michael O’Connor, global CEO of Aon Risk Solutions in her new role while also continuing to report to John Cullen, CEO of Aon Risk Solutions EMEA.

Commenting on the appointments, Case said: “Dominic has an innate knowledge of Aon’s global reinsurance business with over 30 years of extensive industry experience, which will be of enormous value in managing the responsibilities of his new Chairmanship and working closely with Eric Andersen, CEO of Aon Benfield”.

“Julie’s appointment is a testament to her skills and in-depth experience. The Board of Aon UK Ltd will greatly benefit from her counsel as we continue to grow the business in this key market and she brings a broad perspective from across the entire industry through her role as Deputy Chair of British Insurance Brokers' Association,” he added.

Both appointments are subject to regulatory approval. 

Cyber market “frustratingly immature”: Beale

Lloyd’s CEO Inga Beale has said that the cyber insurance market remains “frustratingly immature”, highlighting that partnerships are the best way to tackle the risk.

Speaking to delegates at the Organisation for Economic Cooperation and Development (OECD) conference organised in collaboration with Marsh in Paris last week, Beale said that despite huge potential, the cyber market has not developed as much as it should have in the past two decades.

“In 2016, the stand-alone cyber market reached an estimated $3.5bn in written premiums…many analysts suggest that this figure will double over the next two years, largely driven by EU regulation on Data Protection,” Beale said.

However, she added that over the past 20 years, the cyber insurance market has failed to live up to expectations.

“Evidence of the market’s immaturity can be seen in the relatively low take up of cyber insurance. Whereas many businesses have property insurance, only about 20-35 percent have specific cyber insurance in the US and Europe.”

She said this comes despite an increased awareness of the risks and the fact that public and private organisations are “ripe to attack”, citing that the 2017 Wannacry ransomware attack infected 200,000 computers across 150 countries.

She acknowledged there are a number of barriers blocking the development of the class of business, such as the often high and variable cost of premiums and the nature of the risk itself, which Beale said can be difficult to detect, evaluate and price. In some cases cyber insurance is up to six times more expensive than property insurance.

The Lloyd’s CEO said that some buyers may be confused over the types of cover available, while certain policies still don’t cover important losses, for example loss of value of intellectual property.

On the underwriting side, she said that difficulties in detecting and pricing the risk, combined with the potential for large losses is forcing some insurers to tread carefully.

Meanwhile, the fast changing cyber risk landscape puts pressure on underwriters to ensure they have products that cover new threats, which is something the market is tackling head on.

Insurers will “need to take positive and decisive action” to cope with these demands, Beale suggested, adding that the market should prioritise co-operation and engagement to better understand the exposures it faces and ultimately improve the products it provides.

“Cyber risk is so complex that we need to be working together, pooling resources and data where possible to come up with solutions that are based on the latest and best information available,” she said.

Summing up the partnership approach, Beale concluded: “The onus is not just on insurers to take action. Governments and public bodies such as the OECD can play an important role too, especially around data. Customers are looking for evidence that insurers will pay out on cyber claims before they purchase. More information on the frequency and impact of cyber-attacks and losses would help inform underwriting.”

Beale said that the market will only realise this opportunity if it invests for the future and all parties work together to “build better cyber resilience”.

Chinese regulator seizes control of Anbang Insurance

The China Insurance Regulatory Commission (CIRC) has announced that the Chinese government has seized control of Anbang Insurance Group.

In an announcement regarding the seizure, the CIRC said Anbang had violated laws and regulations which “may seriously endanger the solvency of the company”, adding that it had seized the company in a bid to “maintain the normal operation of Anbang Group and protect the legitimate rights and interests of consumers”.

The regulator added that Anbang chairman Wu Xiaohui has been prosecuted for alleged "economic crimes."

“Since June 2017, the CIRC has sent a working group to Anbang Group to conduct in-depth inspections, strengthen on-site supervision and urge the company to improve its operation and management according to the regulatory arrangements,” the regulator said.

“At present, the operations of Anbang Group are generally stable and their operations are basically stable. The legitimate rights and interests of consumers and stakeholders are effectively protected,” it added.

During the government takeover of Anbang Group, which will last for one year starting from 23 February, the company will be managed by a team of officials from the CIRC, the central bank and other key financial regulators and government bodies.

The regulator said that the company would remain a private enterprise, stating that the takeover team would concentrate on introducing “high-quality social capital” and completing an equity restructuring. However, Anbang's debts and obligations will not be impacted.

JLT announces group restructure

London-listed broker JLT has unveiled a group restructure and plans for a group-wide global transformation structure alongside the company’s 2017 results announcement.

As of 1 April 2018, the group will be aligned into three divisions - reinsurance, specialty, and employee benefits – in order to “facilitate closer global coordination and enhance client delivery”.

Under the revamped structure, JLT Group CEO Dominic Burke told analysts on a call that based on 2017 revenues of £1.4bn, the split between the divisions is approximately £220mn for reinsurance, £850mn for specialty and £320m for employee benefits.

As announced in January, Lucy Clarke will become global CEO of the group’s specialty business as of 1 April 2018, in line with the structural changes.

JLT said that it believes that bringing its regional insurance broking operations together into an integrated specialty division, with leaders appointed in each of JLT’s principal industry specialities (energy, construction, financial lines, aerospace, marine & cargo and credit & political risks) responsible for globally coordinated sales and delivery to clients, will enable the broker to operate as a combined group of global specialists.

The broker noted that an integrated global management structure already operates effectively and delivers value in its reinsurance division under Mike Reynolds, adding that it is confident that it will realise the same benefits in its global speciality business.

Meanwhile, the firm said that international employee benefits will now also operate as a worldwide business under the leadership of Bala Viswathanan, working closely with global specialty.

JLT also announced that it is implementing a two-year plus group-wide global transformation programme, designed to transform its operational capabilities and to facilitate consistent and systematically coordinated working across the world, as well as eliminating duplication of costs.

JLT said it expects the programme to deliver annualised savings of £40mn by 2020 for a one-off cost of £45mn spread over a two-year period.

QBE sells LatAm operations to Zurich

Zurich has agreed to acquire QBE’s operations in Argentina, Brazil, Colombia, Ecuador and Mexico in a $409mn deal.

Approximately 50 percent of the acquired operations are in Argentina, which will almost double Zurich’s P&C business in the country, Zurich said in a statement.

The acquired operations had combined gross written premiums of around $790mn in 2017, with a highly diversified product offering and strong distribution.

Zurich said that the transaction will position it as the leading insurer in Argentina while also adding incremental scale and capabilities in Brazil, Colombia and Mexico and making the group the third largest insurer in Ecuador.

QBE Puerto Rico will be retained by QBE to facilitate the servicing of claims resulting from Hurricane Maria and will become part of QBE’s North American Operations. 

QBE said that it expects to generate around $100mn of pre-tax profit from the sale. It added that the deal will positively impact the Group’s APRA PCA multiple and S&P capital position due to the profit on sale, lower risk charges and the disposal of approximately $42mn of goodwill and intangible assets.

Zurich’s CEO for Latin America Claudia Dill said: “This transaction positions us as the leading insurer in Argentina, a market that is demonstrating strong growth, a stable economy and a positive environment for insurance,”

 “It deepens our capabilities in the retail and commercial businesses and supports our strategy to become the preferred retail and commercial insurer in the region, protecting our customers and helping them to reach their full potential.”

Meanwhile, QBE Group CEO Pat Regan said: “The decision to exit Latin America is consistent with our focus on simplifying the Group, reducing risk and improving the consistency of our results.

“Following a detailed review of our Latin American Operations, we determined that QBE was no longer the best strategic owner of these businesses. Zurich has a significant presence in Latin America and a strong commitment to the region. Following the completion of the sale, we look forward to cooperating with Zurich to service the needs of our multinational customers operating in Latin America.”

Zurich expects to achieve an overall return on investment comfortably in excess of the group’s indicated hurdle rate of 10 percent within the first full year post completion of the transaction.

The deal is expected to close by the end of 2018, subject to regulatory approvals in each of the jurisdictions involved.

Admiral selects Spain for post-Brexit EU hub

Admiral has announced plans to establish an EU hub in Spain as it looks to safeguard its access to the EU following the UK’s exit from the EU.

Within its 2017 results announcement, the motor insurer had already filed applications to the regulator in Spain for permission to underwrite all the EU insurance business (Admiral Seguros, ConTe and L’olivier) from there and expects to have everything up and running in advance of any “hard deadline” that might eventually become clear.

Admiral Group CFO Geraint Jones said: “We have made good progress on preparing the Group to be able to continue trading in Europe should, as seems highly likely, we lose the ability to passport our UK regulatory licenses into those markets.”

He explained that Spain made sense for a number of reasons, “not least the fact that we already have people and infrastructure in Madrid and Seville and of course an existing relationship with the regulator”.

Admiral is also making arrangements in Spain to house its price comparison business, which Jones explained: “things are more straightforward on the price comparison side where we are setting up new, locally regulated entities in Spain and France through which Rastreator and LeLynx will trade.”

The insurer expects to receive the necessary approvals from the Spanish regulator this year.

Jones said that the cost of this Brexit-related restructuring work would not be material to the group and doesn’t expect a material impact on the group’s regulatory capital position as a result of the restructure.

Admiral’s decision to make arrangements in Spain has bucked the trend, with many carriers opting to establish EU hubs in the Grand Duchy, while Lloyd’s has opted for Brussels.

Allianz plans Euler Hermes squeeze-out

Allianz has unveiled plans to initiate a squeeze-out and delisting of Euler Hermes’ remaining five percent of market float share capital and voting rights, in a move that will see the insurer complete its plans for 100 percent ownership of the trade credit insurer.

Allianz intends to file a tender offer in coming weeks for remaining Euler Hermes shares held by minority shareholders, at an offer price of EU122 per share.

The (re)insurer said the tender offer comes as part of its strategy to strengthen its position in core home markets particularly P&C insurance.

The offer remains subject to French Autorité des marchés financiers (AMF) approval, and is to be immediately followed by a squeeze-out and the delisting of Euler Hermes shares expected in the second quarter of 2018.

In 2017, Allianz revealed that it was looking to gain 100 percent ownership of Euler Hermes and filed a tender offer last month which was unsuccessful.

Allianz increased its shareholding of the share capital and voting rights of Euler Hermes to 92.43 percent at the end of the tender offer that closed on 13 February.

At the closing of that tender offer, the remaining float on the market was 2,610,884 shares, representing 6.12 percent of Euler Hermes share capital and voting rights, excluding the 619,189 treasury shares held by Euler Hermes.

Allianz has since acquired 612,753 additional Euler Hermes shares at EUR122 per share, representing 1.44 percent of Euler Hermes share capital and voting rights, leaving a remaining market float of 4.69 percent.

With the latest acquisition, Allianz holds 40,024,315 shares in Euler Hermes, or 93.86 percent of share capital and voting rights.      

The tender offer will have no impact on the announced share buy-back program of Allianz SE for 2018 in the amount of up to EUR2bn.

Euler Hermes Supervisory Board is expected to appoint an independent expert, which will prepare a further report on the fairness of the proposed financial terms.