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EC News (31st May 2018)

May 31, 2018

Round-up of the weekly news and developments from the global (re)insurance market with stories from Swiss Re, Berkshire Hathaway, MS Amlin and more.

Swiss Re and SoftBank call off talks on minority stake

Swiss Re and SoftBank have ended talks over a potential minority stake in the reinsurer without a deal, after nearly three months of discussions.

In a statement, Swiss Re said that it will “continue to implement its technology strategy with a combination of in-house developments and third-party collaborations”, adding that it will also “further explore business ideas between Swiss Re's operative entities and the portfolio companies of SoftBank” in this context.

The news comes after the FT reported at the beginning of May that SoftBank’s interest in acquiring a stake in Swiss Re was waning, which followed an earlier report from Bloomberg that talks between the two parties had stalled due to disagreements on the price and size of the stake and how much management control would be handed to SoftBank founder Masayoshi Son.

It was initially thought that the Japanese conglomerate was considering taking up to a third stake in the reinsurer, as well as seeking multiple seats on the board. However, last month Swiss Re said that the stake was not expected to exceed 10 percent and that the two parties are exploring areas of potential strategic cooperation in parallel.

Speaking on an investor call earlier this month, Swiss Re CFO John Dacey signalled that there could be wider investment interest aside from SoftBank and that its talks with the conglomerate were not exclusive.

“We aren’t exclusive to SoftBank in the sense that we talk to many large groups that might have interesting views on the future of risks and opportunities,” he said.

Berkshire Hathaway takes third largest reinsurer spot in 2017

Warren Buffett’s Berkshire Hathaway has become the third largest global reinsurer after its adverse development deal with AIG propelled the company into the top three for 2017.

According to data compiled by S&P Global Market Intelligence, Berkshire Hathaway’s reinsurance premiums written surged from $12.71bn in 2016 to $22.74bn last year, driven by the $10.2bn of premiums it collected for its $20bn adverse development cover for AIG and pushing it up three places in the latest rankings.

However, Berkshire’s top three spot is likely to be short-lived as the transaction was more of a one-off, meaning that Hannover Re and Scor will likely resume their positions as third and fourth largest respectively for 2018, having dropped down to fourth and fifth place last year.

German heavyweight Munich Re remains the industry’s largest reinsurer after writing $35.67bn of reinsurance premiums in 2017 and Swiss Re in second place with $29.95bn of premiums.

S&P highlighted that until last year, the European big four reinsurers – Munich Re, Swiss Re, Hannover Re and Scor – had held their positions since at least 2008.

Meanwhile, S&P noted that upon completion of Axa’s $15.3bn acquisition of XL, the combined entity will likely have a strong position in the top 10, with 2017 pro forma reinsurance numbers of $11.75bn ranking the collective business in seventh place.

This is just behind Lloyd’s, which took sixth position in 2017 after its reinsurance premiums grew by 6.8 percent year-on-year to $13.61bn.

MS Amlin appoints COO and chief people officer

MS Amlin has strengthened its senior leadership team with two new executive appointments.

Simon Smith will join the carrier as COO in July, having spent the last decade at Willis Towers Watson in a number of senior operations positions, most recently serving as CEO of its global solutions and delivery business. Prior to that, he was Asia Pacific COO for the broker and began his career at GE.

Meanwhile, Vivian Leinster has been named chief people officer and will be responsible for MS Amlin’s HR function. She moves over from Bupa UK where she served as people director since 2014. Before that, she spent 10 years in the HR division at BT.

The appointments come as MS Amlin CEO Simon Beale looks to reposition the business for the long term after taking the helm of the carrier in April following the retirement of Charles Philipps.

The carrier said that the two new hires will “support the momentum behind programme of change”.

Beale commented: “I am delighted to welcome Simon and Vivian to MS Amlin. The hires demonstrate our ability to attract leading industry talent and their wealth of experience and proven ability in successfully implementing change will be invaluable as we embark on an exciting new chapter in our history.

“I am confident they will both make a significant contribution to the programme of initiatives underway as we build a modern, relevant business with a sustainable and profitable long-term future. I look forward to working with them both as we move forward with our plans for MS Amlin."

Amazon leads $12mn investment in Indian InsurTech start-up

Amazon has led a $12mn funding round in Indian digital InsurTech start-up, Acko General Insurance.

The latest investment takes Acko’s total external funding to nearly $42mn and comes a year after the start-up raised $30mn from a clutch of investors including SAIF Partners and Accel Partners.

The latest funding round, which pegs Acko’s valuation at about $100mn, also saw investments from Ashish Dhawan, founder of private equity fund ChrysCapital, and Narayana Murthy, founder of investment firm Catamaran Ventures.

Acko was founded in late 2016 by Varun Dua as a digital-only business that leverages data and analytics to provide personalised insurance products through its online platform, as well as general and auto insurance.

Dua commented: “We are thrilled to have Amazon and Ashish Dhawan as our investors. This investment is a validation of Acko’s strategy to innovate ever more for tomorrow’s financial needs of users.”

Amit Agarwal, senior vice president and country manager for Amazon India, said: “Acko is a young and nimble start-up bringing technology and data-led innovation to the insurance sector to deliver a better insurance experience for customers.

“We are excited to back companies that are focused on using technology for enhanced customer experience and are led by missionary founders and management teams. We look forward to be a part of their growth journey.”

The investment by Amazon is its first in India’s insurance services sector and marks the e-commerce giant’s first step into offering a slew of financial products to consumers, reiterating the broader potential web retailers see in the space.

Earlier this year, Amazon invested Rs 144 crore ($21mn) in online lending company Capital Float, and also picked up a minority stake in financial services marketplace BankBazaar in 2015.

Allianz takes 8% stake in Africa Re

Allianz has agreed to acquire an 8 percent stake In Africa Re in a bid to increase its presence in fast-growing African markets.

Under the terms of the agreement, Allianz will pay a total cash consideration of $81mn, valuing the African reinsurer at more than $1bn and making Allianz one the largest shareholders in the company.

Through cooperation and innovation in various areas, Allianz and Africa Re aim to jointly support insurance penetration in Africa and the economic development of the continent.

The partnership, built on mutual business support, will enable co-operation in areas of reinsurance, business development, sharing of best practices, risk management tools, as well as training and technical support, especially in emerging areas and underserved markets.

Africa Re was founded in 1976 by the member states of the African Union and African Development Bank (ADB) and has operations across the continent. It conducts business in more than 60 countries and territories and has a strong market share of the African reinsurance market, particularly in Kenya and Nigeria.

In 2017, the reinsurer generated gross written premiums of EUR622mn and net income of EUR73mn.

Commenting on the transaction, Allianz board member Niran Peiris remarked: “Having identified Africa as one of the future growth markets, we continue to invest step-by- step in the continent.”

“This investment in Africa Re is a major milestone for Allianz’s long-term growth strategy in Africa.”

Africa Re group managing director and CEO Corneille Karekezi added: “This partnership with Allianz Group, a reliable and strong partner with a global network, particularly in agriculture and the emerging field of cyber insurance, will definitely strengthen Africa Re’s capacity to offer its clients services of higher quality,”

“This partnership with Africa Re is a strategically complementary one for both companies, as well as being beneficial to our clients on the continent, who can rely on the support, experience, and cooperation of both Allianz and Africa Re,” Peiris concluded.

GDPR to trigger surge in cyber claims: AIG

AIG Europe is expecting a surge in data breach and other security failure claims following the recent enforcement of the EU’s General Data Protection Regulation (GDPR), as the carrier found that ransomware accounted for over a quarter of its cyber claims in 2017.

In a report on the cyber claims market, AIG head of cyber for EMEA Mark Camillo that the fines facing firms that breach GDPR could provide leverage to hackers using ransomware, stating that the new law is likely to become “another tool for negotiation by extortionists”.

“They will threaten to compromise an organisation’s data unless a payment is received, knowing that the consequences could be more significant under the new regime,” he said.

“Companies will be more inclined to report breaches, leading to an increased impact on the volume of cyber claims. This was seen in the US after state breach notification laws came into effect and where nearly every high-profile cyber breach is met with at least one class action lawsuit,” he added.

Ransomware accounted for 26 percent of cyber claims at AIG Europe in 2017, a significant rise from the 16 percent of claims it accounted for between 2013 and 2016, reflecting an increased incidence of such attacks worldwide.

Data breaches by hackers caused a further 12 percent of cyber losses, with security failures or unauthorised access accounting for 11 percent of claims.

AIG said that while the proportion of claims caused by employee negligence declined slightly to 7 percent in 2017, human error “continues to be a significant factor in the majority of cyber claims”.

The carrier also warned that no industry is immune to cyberattack, as insureds in eight previously unaffected sectors made cyber claim notifications for the first time in 2017.

Nonetheless, professional and financial services were found to be largest contributors to cyber claims, with each accounting for 18 percent of overall losses, followed by retail (12 percent), business services (10 percent), manufacturing (10 percent).

Camillo explained: “There is a continuing trend, whereby a larger number of notifications each year are coming from an increasingly broad range of industry sectors and not just those traditionally associated with cyber risk. This reflects the fact that many of the recent ransomware attacks have been indiscriminate in terms of which industry they hit”.

He added that professional services have become more of a target, with the proportion of claims emanating from these types of firms tripling since 2013-2016.

“Solicitors and accountants with large databases of clients are attractive to cyber-criminals because of the quality of the data they hold and are vulnerable to cybercrimes that target regular financial transactions,” he said.

Canopius names Ott as head of continental European reinsurance

Canopius has appointed former Emirates Re executive Stephan Ott as head of continental European reinsurance.

Ott joins the Lloyd’s carrier from Emirates Re, where he most recently served as chief underwriting officer (CUO) for nearly three years, having joined the reinsurer in 2014. Before that, he held various senior underwriting positions at the likes of Al Fajer Re in the Middle East and Sirius in Germany.

Commenting on the hire, Canopius’ reinsurance CUO Jamie Wakeling said: “Stephan is a highly experienced, analytical and forward-thinking industry professional and we are delighted he is joining the team.

“His proven track record of providing ideas and solutions to insurers and reinsurers and his long-standing client relationships make Stephan the ideal person to drive our business forward in Continental Europe.”

Canopius has made a number of senior executive appointments since it completed its $952mn buyout from Sompo in March, including the hire of former Brit COO Nigel Meyer as group CFO and technology specialist Laurie Davison as group COO.

Meanwhile, the (re)insurer also appointed Mike Duffy as chief executive of Canopius Managing Agents (CMA), the group's main regulated entity, alongside his current responsibilities as group CUO. In addition, group deputy CEO Sarah Willmont was named CUO of CMA and active underwriter of Syndicate 4444.

Global insurance premiums to reach EUR7.9trn by 2030: Munich Re

Global premium volume is expected to hit EUR7.9trn by 2030, according to Munich Re’s latest Insurance Market Outlook.

This represents almost double the EUR4.2trn of premiums recorded in 2017.

Munich Re anticipates that some EUR1.2trn of this growth will come from China alone, with almost two thirds of this likely to derive from life and health insurance business, with the rest coming from property and casualty (P&C) insurance.

Nonetheless, the reinsurer said that the US will likely remain the world’s largest insurance market with a market share of around 24 percent, with China expected to move into second place, overtaking Japan.

While InsurTech innovations are also expected to lead to a surge in premium growth in emerging markets and developing countries, they are unlikely to significantly impact premium growth in industrialised countries, although InsurTechs will likely change these markets considerably through their role as digital brokers, as well as through product innovations and the use of new technologies along the value chain.

Looking at the nearer term, the report predicted that rate of growth of the global (re)insurance industry is set to overtake the global economy in 2018 and 2019, with average annual premium growth forecast at 5.3 percent, compared with global GDP growth of 4.9 percent

Munich Re reported that life insurance is set to recover after a weak 2017, with projected annual premium growth of 5.6 percent, while P&C will continue to benefit from a favourable economic environment, with projected annual premium growth of 5 percent.

Emerging countries are expected to act as the primary drivers of growth, although stronger rates in high-volume industrialised countries are also contributing to the positive development.

Growth rates for P&C insurance in emerging markets are forecast on average at 9.5 percent for 2018/2019, with particularly strong growth expected in China, the Middle East, North Africa, and some areas of Latin America.

Life insurance is generally subject to greater fluctuations than P&C but is still forecast average growth rates of 5.6 percent due to an expected recovery in the US market, which currently accounts for around 20 percent of the global market share, and projected growth rates of almost 20 percent for China.

Developed markets will generally see moderate life insurance growth as a result of sustained low interest rates, whereas most emerging markets will experience higher growth, particularly in Eastern Europe and Latin America.