M&A Revs up Going Into 2018

MARKET NEWS, DATA AND INSIGHT ALL DAY, EVERY DAY THURSDAY 7 DECEMBER 2017

ISSUE 4,994

In depth: M&A revs up going into 2018

Deal values are up and now CVS and Aetna have agreed the year’s biggest transaction p4-5 AI insurtech FCA fines Cytora Bluefin over ownership raises disclosure £4.4m

p2 p3

Get the complete picture Award winning scoops, trusted analysis and insight for the specialty and reinsurance sectors

ID-Word Cloud-260x70.indd 1 11/09/2017 09:34 2 www.insuranceday.com | Thursday 7 December 2017 NEWS AI insurtech Cytora Market news, data and insight all day, every day Insurance Day is the world’s only daily newspaper for the international insurance and reinsurance and risk industries. Its primary focus is on the London market and what affects it, concentrating on the key areas of catastrophe, property and marine, aviation and transportation. It is available in print, PDF, raises £4.4m mobile and online versions and is read by more than 10,000 people in more than 70 countries worldwide.

First published in 1995, Insurance Day has become the favourite publication for the London market, which relies on its mix of news, analysis and data to keep in touch with this fast-moving and vitally important sector. Its experienced and highly skilled QBE and Starr among investors, as start-up plans system roll-out insurance writers are well known and respected in the market and their insight is both compelling and valuable. Michael Faulkner Artificial intelligence: Insurance Day also produces a number of must-attend annual Editor Cytora has secured £4.4m events to complement its daily output, including the Insurance Day London Market Awards, which recognise and celebrate the from a funding round very best in the industry. whiteMocca/Shutterstock.com

For more detail on Insurance Day and how to subscribe or attend its events, go to subscribe.insuranceday.com nsurtech firm Cytora has raised £4.4m ($5.9m) in a funding round, Insurance Day, Christchurch Court, 10-15 Newgate Street, with investors including insurers London EC1A 7HD Starr Global and QBE Group. IThe funding comes as the firm, which uses artificial intelligence (AI) Editor: Michael Faulkner and open source data to improve the +44(0)20 7017 7084 way insurers quantify, select and price [email protected] risk, prepares to roll out its system Deputy editor: Lorenzo Spoerry across property and casualty lines with +44 (0)20 7017 6340 a core group of insurers. [email protected] QBE announced yesterday it would deploy the Cytora Risk Engine from ‘With ever-increasing levels of available data, Editor, news services: Scott Vincent +44 (0)20 7017 4131 next year. we can really see the benefits AI and other [email protected] For the past year, Cytora has been similar technological advances bring to working with a consortium of commer- Global markets editor: Graham Village cial insurers to embed its technology. the industry’ +44 (0)20 7017 4020 These insurers include QBE, XL Catlin Maurice Greenberg [email protected] and Starr. Starr Companies Global markets editor: Rasaad Jamie Cytora’s product captures the online +44 (0)20 7017 4103 footprint of potential risks by trawling access to information and insights that ing data science and engineering capac- [email protected] data from company websites, news arti- have traditionally been out of reach.” ity, Cytora said. cles and government datasets, then pro- Maurice Greenberg, the chairman Other investors include Cambridge Account manager: Matthew Smith +44(0)20 7017 7894 cesses it using AI algorithms to predict of Starr Companies, said: “With ever- Innovation Capital, Cambridge Enter- Business development manager: Toby Nunn +44(0)20 7017 4997 future claims, attractive risk profiles increasing levels of available data, we prise, Parkwalk Advisors and a number Advertising/events: Jefferson Emesibe +44(0)20 7017 4061 and quality of risks. can really see the benefits AI and other of angel investors. Head of production: Liz Lewis +44 (0)20 7017 7389 Production editor: Toby Huntington +44 (0)20 7017 5705 Ted Stuckey, head of the global inno- similar technological advances bring to Richard Hartley, chief executive of Subeditor: Jessica Sewell +44 (0)20 7017 5161 vation lab at QBE Ventures, the venture the industry.” Cytora, said: “Cytora’s technology opens Events manager: Natalia Kay +44 (0)20 7017 5173 capital arm of QBE Insurance Group, The new funding will be dedicated to up significant opportunities for the in- said: “Cytora allows insurers to gain fuelling expansion and growth, increas- surance industry.” Editorial fax: +44 (0)20 7017 4554 Display/classified advertising fax: +44 (0)20 7017 4554 Subscriptions fax: +44 (0)20 7017 4097 Munich Re-backed insurtech Wrisk All staff email: [email protected] authorised by FCA Insurance Day is an editorially independent newspaper and opinions expressed are not necessarily those of Informa UK Ltd. Informa UK Ltd does not guarantee the accuracy of the Insurtech start-up Wrisk has received into the sandbox, Wrisk said it was now The FCA’s sandbox allows companies information contained in Insurance Day, nor does it accept full authorisation from UK regulators, putting together a “full, end-to-end trial to test innovative products, services or responsibility for errors or omissions or their consequences. the company announced yesterday, run of the product”. business models in a live market envi- ISSN 1461-5541. Registered as a newspaper at the Post Office. writes Michael Faulkner. It plans to launch with contents in- ronment, while ensuring that appropri- Published in London by Informa UK Ltd, 5 Howick Place, The firm has also been formally surance in the first quarter of 2018, fol- ate protections are in place. London, SW1P 1WG. admitted into the third cohort of the lowed by motor later in the year. In addition to Wrisk, two other in- Financial Conduct Authority’s (FCA) Wrisk was launched earlier this surtech firms were chosen by the FCA Printed by Stroma, Unit 17, 142 Johnson Street, Southall, regulatory sandbox. year by CatCo Reinsurance Opportu- to participated in the third cohort Middlesex UB2 5FD Wrisk, which enables users to create nities Fund chairman, Nigel Barton, of firms in the sandbox, the FCA an- a credit score-style “personal risk score” and Markel’s former head of digital nounced on December 5. © Informa UK Ltd 2017. via an app, is aiming to make buying Darius Kumana. These were blockchain-driven flight personal lines insurance easier for cus- In October it raised more than £500,000 insurer Etherisc and insurance wallet No part of this publication may be reproduced, stored in a tomers, targeting underinsured groups ($669,027) in a crowdfunding campaign. Sherpa. retrieval system, or transmitted in any form or by any such as young people. This followed a £3m seed funding round, They were among the 18 fintech means electronic, mechanical, photographic, recorded or It acts as a managing general agent, with participants including Oxford Cap- companies selected for the scheme, otherwise without the written permission of the publisher using capacity from Munich Re. ital, Hiscox, Qatar Insurance Company which received applications from 61 of Insurance Day. Following authorisation and entry and other angel investors. companies. www.insuranceday.com | Thursday 7 December 2017 3 NEWS

Davies Group FCA fines Bluefin over establishes innovation lab

Expanding insurance services and ownership disclosure claims management specialist Da- vies Group has launched an innovation lab as part of its increased focus on digital transformation, writes Scott Vincent. Regulator finds broker did not have adequate controls in place to manage The company said the new proj- ect will “significantly increase” its conflict of interest when owned by Axa multimillion-pound investment in technology, digital transformation and product development. Scott Vincent Money: the FCA has fined Davies Group chief executive, Editor, news services Bluefin more than £4m Dan Saulter, said the lab, which Stopped_clock/Shutterstock.com will work under the banner of “Disruptive thinking”, will become a central plank in the firm’s tech- he Financial Conduct Au- nology and innovation investment. thority (FCA) has warned “Harnessing the power of digi- brokers of the importance tal transformation and innovation of not providing mislead- is a prerequisite for success in the Ting information to customers af- fast-changing global insurance ter fining Bluefin more than £4m and claims market,” he said. “We ($5.35m) for a lack of disclosure. work in partnership with leading The UK conduct regulator said insurance businesses and other Bluefin had promoted itself to highly regulated organisations customers as “truly independent” and they expect us to lead, deliv- during the period from March 9, er change, and offer solutions to 2011 to December 31, 2014, during their challenges.” which time it was owned by insur- Davies has partnered with De- er Axa. loitte consultancy Market Gravity The broker had a strategy to for the initiative. increase business placed with its Nigel Walsh, partner and head parent company ahead of treating pares its market study into the of insurtech at Deloitte, will serve customers fairly. ‘Insurance brokers must promote workings of the wholesale insur- as adviser and mentor for the ini- “Bluefin brokers did not disclose a culture in which they act in their ance broking sector, which will tiative throughout 2018. this policy, so customers risked customers’ best interests and provide closely examine competitive prac- Davies said it had set aside sig- being misled into believing they tices in the London market. nificant capital to commercialise were dealing with a broker who them with the information they need The FCA has said the study the best ideas generated by its staff. would conduct an unbiased search to make an informed decision’ will look at how brokers compete The launch of the innovation lab of the market,” the regulator said. Mark Steward in practice and whether they is the latest expansive move by Da- It said Bluefin had “failed to Financial Conduct Authority use their bargaining power to vies Group following investment implement adequate systems and get clients a good deal. In addi- by US private equity firm HGGC, controls to manage the conflict “Insurance brokers must pro- Bluefin received a 30% discount tion, the regulator plans to as- which took a majority stake in the that arose from its ownership”. mote a culture in which they act to what would have been a fine of sess what conflicts of interest company at the start of this year. Mark Steward, executive direc- in their customers’ best interests £5.7m having settled at an early exist, how they are managed and Acquisitions in 2017 have included tor of enforcement and market and provide them with the infor- stage of the investigation. how they affect competition and specialist regulatory and compli- oversight at the FCA, said it was mation they need to make an in- Axa sold its Bluefin interests to client outcomes. ance services business Cynergie, unacceptable for firms to present formed decision. This is central to Marsh in 2016, having owned the The study will also examine casualty claims business CMSL themselves as being independent the relationship between the in- broker for around a decade. how the conduct of brokers af- and insurance and professional when they are not. dustry and its customers,” he said. The fine comes as the FCA pre- fects competition in the sector. services specialist Ambant. Sedgwick acquires Cunningham Lindsey

Sedgwick has signed a deal to Jane Tutoki, chief executive and provide better solutions for buy loss adjusting services of Cunningham Lindsey, told In- the industry.” company Cunningham Lindsey surance Day: “We’re going to be Private equity firm CVC Capital for an undisclosed sum, writes able to grow much better with Partners took a majority stake in Lorenzo Spoerry. this platform. Between the foot- Cunningham Lindsey in 2012. In Michael Arbour, president print that Sedgwick has in the January 2014 KKR, another pri- of Sedgwick, said the deal puts US and its strength in the [third- vate equity firm, bought a major- the company “in an optimal po- party administrator] business ity stake in Sedgwick for $2.4bn. sition to meet the increasingly and our global footprint in 60 Segwick has 15,000 staff across complex needs of clients around countries, it’s a nice way to 275 offices. Cunningham Lindsey the world.” marry together our businesses has 6,000 staff in 600 offices. 4 www.insuranceday.com | Thursday 7 December 2017 www.insuranceday.com | Thursday 7 December 2017 5 M&A

Table: Major insurance underwriting company M&A deals and flotations 2017*

Acquirer Target Notes Price ($m) M&A revs up going into 2018 CVS Health Aetna Deal includes $8bn of debt assumption 77,000 Standard Life Aberdeen Asset Management Agreed deal valued at £11bn, with Standard Life shareholders to own two-thirds of combined company 13,495 Institutional investors Japan Post Insurance Japanese government to sell shares in Japan Post 11,500 Deal values are up and now CVS and Aetna have Map: Number and total value of M&A deals by region, November 2017 Sompo Endurance Japanese group expands its international presence 6,300 agreed the year’s biggest transaction Fairfax/Omers Allied World Deal completed with Omers contributing $1bn 4,900 North Zhongtian Financial Huaxia Life Investment company Zhongtian plans to buy up to 25% of China’s Huaxia Life 4,700 of deals with an aggregate value of unhelpful, notwithstanding recent America Institutional investors Axa Axa plans an IPO of its US operations next year est 4,000 Graham Village more than $13.8bn, including five interest rate rises in the US and UK. Number of deals: 6 Europe Global markets editor Arch AIG Acquisition of United Guaranty now completed 3,400 transactions valued at more than And as the year closes, new fac- Deal size: $2,319m Number of deals: 6 $1bn. Total deal value for the year tors have come into play that for Deal size: $3,422m AIA Commonwealth Bank of Australia AIA is to buy Comminsure Life & Sovereign, CBA’s Australian life business 3,036 has comfortably exceeded the fig- the most part should encourage Liberty Mutual Ironshore Liberty has completed the takeover from Fosun International 2,935 ure for 2016, although it is worth further transactions. The inter- UK/London NN Delta Lloyd NN has now closed the takeover of Delta Lloyd 2,695 ecent weeks have seen an- saying too much focus on the mega- national insurance and reinsur- Number of deals: 4 Assurant The Warranty Group Acquisition from TPG Capital 2,500 other spike in acquisition deals can give a distorted view of ance sector has to handle losses Deal size: $287m Allianz Euler Hermes Allianz plans to buy 25.6% it does not already hold 2,200 announcements, topped underlying trends. of around $100bn from the third Asia-Pacific Cornell Capital and others Hartford Sale of Talcott Resolution, run-off life and annuity book 2,050 by CVS Health’s whopping The main drivers behind the quarter’s catastrophic events plus Number of deals: 6 R$77bn bid for US insurer Aetna, sug- surge in activity are set to remain what could be another significant Institutional investors PICC Chinese non-life group plans offering on Shanghai exchange 1,930 Deal size: $7,845m gesting the insurance sector should in place in 2018. Most obvious- loss in the fourth quarter from Intact OneBeacon Intact plans to use OneBeacon to boost its US specialty account 1,840 expect 2018 to prove another year ly, insurers are finding it hard to Californian wildfires. CF Corp Fidelity & Guaranty US investment group to buy life and annuity insurer 1,835 of heavy activity. grow their accounts organically at Industry capitalisation remains Institutional investors GIC Re State-owned GIC Re has floated 1,720 Even without the CVS-Aetna a time of competitive pricing, mak- high but some players will be un- MS&AD Fairfax Mitsui Sumitomo is to acquire Fairfax’s First Capital, based in Singapore 1,600 transaction, the clear trend is for ing takeovers an attractive way to der severe pressure to deliver ac- Institutional investors New India India’s largest non-life insurer has floated 14.56% stake 1,555 a continuation of the heightened boost development. ceptable shareholder reward, as volving companies expanding out- competitive pricing, reinventing the Institutional investors Zhong An Chinese online insurer has floated 1,500 interest in mergers and acquisi- Some smaller and medium-sized Andrew Holderness, global head of side their core area of operation, a company through a major acquisitions (M&A) in most regions and companies are struggling to de- Clyde & Co’s corporate insurance trend that is likely to continue. CVS tion and rebranding to reintroduce Allstate SquareTrade US warranty provider, founded in 1999 1,400 most lines of insurance, as shown liver the kind of returns their group, said. “This could serve as a Health is a pharmacy chain and the company to consumers.” Institutional investors HDFC Standard Life Owners plan to float up to 20% stake 1,350 by an upturn in activity over the shareholders require, leading the trigger for a wave of M&A in 2018 its takeover of Aetna will create a In terms of regions, Asia is likely Institutional investors SBI Life Owners State Bank of India and BNP Paribas have floated 12% 1,300 past couple of months. November insurers to consider a sale. The as re/insurers look for partners to new kind of company in the wider to remain a big driver of activity Madison Dearborn AmTrust Madison Dearborn has agreed to take a 51% interest in AmTrust’s US-based fee businesses 1,150 saw completion or announcement investment environment remains help absorb these losses or con- healthcare sphere, enabling it to of- during 2018. Despite fears in China KB Financial KB Insurance Korean group is to acquire remaining 60% of insurance arm 1,140 sider putting their businesses up fer a range of medical and related and outside that the country’s in- MS&AD Swiss Re MS&AD is to take stake of up to £800m in closed book business ReAssure 1,048 for sale,” he said. Pressure on the services directly from pharmacists. surers have been expanding abroad Chart: Deals by size range, Nov 2017 (where financial details given) traditional reinsurance market will But the deal is also seen as a de- too rapidly, Chinese interests con- China Development Financial China Life Bid to take 25.3% of Taiwanese life insurer 1,020 Total number of deals: 13 be more acute if alternative capital fensive one on the part of CVS in tinue to plough a large amount of Yunfeng Group MassMutual Hong Kong group to buy MassMutual’s operations in HK 1,010 acts as a brake on rate increases. reaction to Amazon’s increasing in- money into purchases. The largest UnipolSAI Unipol Restructuring involves sale of stakes in health insurer Unisalute and direct insurer Linear 1,000 In the US property/casualty mar- terest in the pharmaceutical sector. deal announcement of last month Enstar RSA Enstar will take over RSA’s UK employers’ liability legacy book via reinsurance 977 ket, the expected price rises follow- The online company has applied for was investor Zhongtian’s plan to Institutional investors ING Life Korea IPO of a stake of about 40% 974 5 ing the catastrophes could allow licences to sell medical supplies and buy as much as 25% of Huaxia Life, Centerbridge Sompo Canopius Buyout group includes Gallatin Point 952 3 $1bn+ insurers to focus on strategic M&A is also reported to be in direct dis- at a cost of $4.7bn. Allianz LV= Allianz to take at least 69.9% of LV= in stages 921 $249m to rather than devoting all their ener- cussion with drug manufacturers. India’s insurance market is un- 1 gy on dealing with the poor rating It will be interesting to watch dergoing massive restructuring and Markel State National Target is a US collateral protection provider 919 Less than $499m First Origin Hong Kong Life First Origin is an investment group based in Hong Kong 914 $100m environment, according to Vikram the progress of the CVS-Aetna ownership change, in part fuelled 2 Sidhu, a partner at Clyde & Co. deal as US regulators have proved by the government’s decision to al- Institutional investors Fairfax Fairfax is selling a stake of 25% in Fairfax India 900 2 It is an opinion shared by Joseph wary of combinations that create low foreign investors to increase Institutional investors ICICI Lombard India’s ICICI Bank and Fairfax have floated this Indian insurer 890 $500m to Milicia, property/casualty M&A prac- large groups, even if they strad- their stake to 49%, up from the pre- $100m to Exin Ethniki General Matt Fairfield’s Exin vehicle is to take a 75% stake in Greek insurer 820 tice leader for the Americas at Wil- dle different market segments (so- vious maximum of 26%. $249m $999m Sirius Phoenix Sirius has exercised an option to buy all outstanding shares of Israeli insurer, owned by Delek 718 lis Towers Watson. Writing in the called vertical acquisitions), as The government has also made it broker’s latest report on the M&A shown by the Department of Jus- easier for Indian insurers to float, Institutional investors IRB Re Flotation of a 23% stake 640 market, based on a survey of senior tice’s opposition to telecom com- and six have already done so, the lat- Axis Novae Axis has completed its takeover of Novae 620 insurance executives over the sum- pany AT&T’s proposed takeover of est being non-life player New India, Santa Lucia Aviva Aviva has sold stakes in various Spanish life businesses 561 mer, he said: “If you look over the media group Warner. selling a 14.5% stake, and HDFC Stan- Graph: Number and value of deals by type, November 2017 Zurich Cover-More Zurich has taken over Australian travel insurer Cover-More, also active in India and the US 551 past three years, firms have been And remember, earlier this year dard Life, floating a 14.9% holding. SocGen Aviva Aviva has sold its 50% interest in French insurer Antarius 550 focused internally on items such as regulators blocked Aetna’s proposed More will follow next year: United n Number Travelers Simply Business Acquisition is a UK tech-based broker for small business accounts 490 n Value improving their balance sheet and $34bn takeover of Humana and India, National and Oriental are all Invest Financial Prudential plc Pru is to sell its US broker-dealer network 448 Total integrating previous deals. Some are Anthem’s $48bn plan to take over due to come to market in 2018. 12 Number of 7.5k now turning their focus externally Cigna. Regulatory attitudes will be In Europe, the market is likely to International Financial Group Friends Provident International Aviva to sell this Asian operation 440 deals: 22 11 and looking for opportunities that under close scrutiny next year. remain active, fuelled by the rigours MS&AD Challenger Japanese group to buy Australian annuity provider 396 10 Deal size: will help them grow.” At a much lower level, insurers of Solvency II and the extended re- Tokio Marine IFFCO-Tokio Marine General Japanese group has increased stake by 23% to 49% 395 $13.87bn 9 Value of deals ($m) Willis Towers Watson expects have been branching out because structuring plans of the region’s HC-One Bupa Bupa is pulling out of the UK care home sector 388 8 strong interest for further deals on of the digital threat to their tradi- larger players. Allianz last month 5k Danske Bank Sampo Danske Bank is to take over the life portfolio of Mandatum Life sold through the bank’s branches in Finland 381 7 the part of companies that have been tional business model. They have announced it planned to take full Assured Guaranty MBIA MBIA UK, mortgage insurance group’s European business 370 6 active purchasers in recent years, recognised the challenge posed by control of credit insurer Euler Her- Bremer Kreditbank Allianz Disposal of Oldenburgische Landesbank 357 5 as well as rising average transaction insurtech and they have reacted by mes at a cost of about $2.2bn.

Number of deals Number values in 2018. Of respondents to its sponsoring initiatives and buying Aviva has been narrowing its Aon Aegon Aon is to buy Aegon’s Unirobe Meeus, a Dutch IFA 350 4 2.5k survey, 17% of companies expect at out the start-up firms with the best focus but last month unveiled a United Insurance American Coastal United/UPC has completed takeover of American Coastal 330 3 least one of their acquisitions over ideas and greatest potential. £116m ($155.18m) deal to acquire Catalina Hartford Catalina has bought Hartford Fin Products and Downlands 320 2 the next three years to be a major Willis Towers Watson said the Irish insurer Friends First Life and Natixis BPCE Assurances Natixis is taking full control of bancassurer BPCE by buying an additional 40% stake 320 1 deal compared with 8% that have most powerful motivation driv- has identified £3bn of excess cap- 0 Banco BPM Avipop Aviva is to sell its interest in Italian joint venture Avipop 312 0 made one such acquisition over the ing deals over the next three years ital to deploy over the next two Institutional investors Sabre Motor insurer plans to float up to 50% 286 Life past three years. will be to gain a strong brand. The years. Further acquisitions are on Kuvare United Fire Acquisition of United Life Insurance 280 Non-life The CVS bid for Aetna is note transition to digital sales requires a the agenda.

Composite worthy not just for its size. The deal recognisable brand, the broker said. Axa plans a flotation of its US life Source: Company announcements/Insurance Day M&A database reinsurance International/ is an example of acquisitions in- “This can be just as important as operations during the year. n *announced and/or completed in 2017 6 www.insuranceday.com | Thursday 7 December 2017 www.insuranceday.com | Thursday 7 December 2017 7 LAW & ORDER Tolikoff Photography/Shutterstock.com Court silences testimony Treasury Committee challenges compelled in foreign regulators over Solvency II jurisdictions Parliamentary body calls on the PRA to reduce data and time demands on insurers

David Kendall and Sam Tacey Brexit: insurance industry Cooley should be a priority in the process of the UK leaving the EU, according to the Treasury select committee

Pixelbliss/Shutterstock.com he UK House of Com- duce the amount of data required mons Treasury select from firms to the level the PRA committee has produced can clearly demonstrate is pro- a report that provides a portionate and necessary for Treview of the Solvency II Directive prudential safety. The commit- and, specifically, its impact on the tee expects the PRA to provide it UK insurance industry. with an update regarding the Solvency II has been in develop- development of these proposals ment since the start of the century by March 31, 2018. and was finally implemented on Solvency II provides for two January 1, 2016 as a harmonised distinct methods for insurance framework across all EU mem- bodies to calculate their requisite ber states. The most significant capital requirements: the stan- change was the transition from a dard model and the internal mod- principles-led approach to insur- el. While the majority of firms use ance regulation to a much more the standard model, more sophis- Second Circuit Court’s decision asserts compelled testimony violates Fifth Amendment rights rules-based approach that, it is ticated insurance entities prefer argued, offers less flexibility and the internal model, as it affords Rabobank employee interviewed self-incrimination. The court em- likely to be hotly contested in- restricts the ability of national them a method that is tailored to ship between the PRA and the in- Patrick Linehan The US Second by the FCA reviewed the defen- phasised the Fifth Amendment’s volves whether testimony taken regulators to be proactive regard- their specific risks, liabilities and surance industry. The committee Steptoe & Johnson The committee concluded the Circuit court dants’ FCA testimony before de- self-incrimination clause applies by the foreign authority at issue ing the unique insurance industry exposures. However, the com- insurance industry should be said it would be beneficial for all emphasised the ciding to co-operate with the US even where the defendant’s testi- was truly “compelled”. It will be in their jurisdiction. mittee was concerned about the stakeholders if this relationship Fifth Amendment’s government and later testified mony was compelled “pursuant to interesting to see whether non- Having received evidence from onerous methods the PRA used to treated as a priority industry in improved and there was an on- self-incrimination both before the grand jury and at foreign legal process”. US enforcement agencies will re- a wide range of participants in the process and approve these inter- the Brexit process as it helps to going dialogue, particularly in the ast month the US Circuit clause applies the defendants’ US trial. The court ruled the Fifth Amend- evaluate laws and policies that insurance industry, the committee nal models, saying it was overly face of the uncertainties thrown Court for the Second Cir- The district court rejected the ment prohibited the use of the require the provision of other recorded there was no appetite time-consuming and was inflict- generate economic growth up by Brexit. cuit declined to rehear even where the defendants’ argument the govern- compelled testimony because the witness’s testimony to “targets” of for significant change in Solvency ing significant costs on those seek- The committee concluded the en banc its July 19, 2017 defendant’s ment’s use of the co-operating wit- US was the “prosecuting sovereign” their investigation and whether US II rules, all of which will continue ing approval. broader consideration the com- UK-specific reporting obligations. insurance industry in the UK Ldecision in United States v Allen, ness’s testimony at trial, because seeking to use it. The court conclud- prosecutors will work with their to apply to UK insurers following Some stakeholders also suggest- mittee took of the PRA’s focus on The committee recorded the should be treated as a priority testimony was which recognised the testimony compelled it was tainted by his review of de- ed the compelled testimony tainted international counterparts in seek- Brexit once the EU Withdrawal Bill ed the length and rigidity of the the solvency objective of Solvency industry’s evidence that these industry in the Brexit process of a criminal defendant that is ‘pursuant to foreign fendants’ compelled FCA testimo- both the co-operator’s grand jury ing to limit this type of informa- becomes law. However, the com- approval process (which can take II to the detriment of the comple- requirements were entirely dis- as it helps to generate economic compelled by law in a foreign ju- ny, violated the defendants’ Fifth and trial testimony and vacated tion-sharing with witnesses, so as mittee expressed concern about several months) made it difficult mentary competition objective. It proportionate to the objectives of growth as a significant employ- risdiction cannot be used, either legal process’ Amendment rights. the defendants’ convictions and to avoid the type of tainting of wit- the way in which those rules had for insurers with internal models was concluded this was hamper- Solvency II and not sustainable in er, investor and tax contributor. directly or indirectly, as evidence dismissed the indictment. ness testimony that occurred here. been implemented by the Pruden- to react to market-turning events ing the ability of insurers to meet the long term. It was highlighted It said the PRA should begin to against him at trial. Allen resulted from a decision Tainted testimony The court’s refusal to rehear In its motion for rehearing en tial Regulation Authority (PRA), in an agile way. Insurers were the needs of their consumers and this was not only highly costly for develop options for a post-Brexit The Second Circuit’s decision by the US District Court, Southern Although the government argued the case confirms Allen is now banc, the government made clear with too much regard being paid concerned they would not be af- HM Treasury should review the insurers to comply with but that economy and to focus on effecting has far-reaching consequences District of New York regarding the the Fifth Amendment does not the controlling law in the Second its view Allen “will discourage the to the industry’s solvency rather forded the commercial chance conflict between the two objec- it also stifled competition, as the regulatory relief in the identified for individuals involved in crim- conviction of two individuals on preclude its use of testimony com- Circuit and is in general accord commitment of resources neces- than its competitiveness in the in- to seize new opportunities or to tives with a view to increasing the reporting burden absorbed time areas that were proving costly at inal investigations with a multi- charges stemming from alleged pelled by a foreign sovereign, the with decisions of the DC Circuit sary to bring close cases, due to ternational marketplace. mitigate new risks in the market PRA’s focus on the competitive- and resources that could other- present and reducing the compet- jurisdictional dimension in both manipulation of the London Inter district court declined to address and the Fourth, Fifth, Ninth and the possibility that prosecutions The committee concluded – efficiently if the existing approval ness of UK insurers, rather than wise be dedicated elsewhere. itiveness of UK insurers. the US and countries where testi- bank Offered Rate (Libor). The the issue and held the co-operating Tenth Circuits (though those cir- will be dismissed” and it “has among other things – the PRA, process was maintained. primarily their solvency. The committee agreed these data The committee asked the PRA mony can be compelled. This in- conviction was based in significant witness’s testimony had not been cuits have not addressed this already elected to forgo cross- working in tandem with various The insurance industry ex- requirements could be streamlined to provide proposals in response cludes investigations inherently part on evidence arising from com- tainted by his review of the defen- specific issue squarely). As such, border investigations that, absent stakeholders, should develop pro- Undermine purpose pressed qualms about the PRA’s by the PRA and asked the PRA to to the issues raised in its report by trans-national in character, such pelled testimony the defendants, dants’ compelled testimony. foreign nationals under investi- the panel’s decision, it would have posals for improving the sophisti- Further, they argued the PRA’s reporting requirements under Pil- report to it on how these require- March 31, 2018. The willingness of as Foreign Corrupt Practices Act both Rabobank employees and In July the Second Circuit re- gation in the US and elsewhere vigorously pursued”. cation and usefulness of internal inflexibility might even encour- lar III of Solvency II, in terms of ments could be reduced while still the PRA to be flexible in the face investigations, as well as investi- British citizens, gave to the UK’s versed the district court’s decision. can take some degree of comfort Given these concerns, it is a models by maximising the propor- age insurers to use unapproved the volume, detail and complexity remaining useful to the regulator of the committee’s criticisms will gations that can arise in other ar- Financial Conduct Authority (FCA). The court held that because the from knowing testimony that is virtual certainty the government tionality allowed in the directive or inappropriate internal models of the data required and the per- and cost-effective for all parties. be important in light of the issues eas of cross-border activity, such Under UK law the defendants defendants’ testimony was com- truly compelled in a non-US juris- will seek certiorari review of the for the approval of internal mod- in the period between the market ceived severe reporting deadlines It was highlighted that many of facing UK insurers. n as those involving civil agencies could have faced criminal penal- pelled by UK law, the government’s diction will not be able to be used Second Circuit’s decision. n els and simplifying the approval shift and approval, which would for this data. Under Solvency II the issues that have arisen sur- like the Securities and Exchange ties for failing to respond to the use of it in securing an indictment against them in a US prosecution. process for changes to models. inherently undermine the pur- there are obligatory requirements rounding the implementation of David Kendall is a partner and Commission and the Commodity FCA’s inquiry. During the US gov- and at the trial violated their In future cases addressing this Patrick Linehan is a partner at It also concluded the PRA pose of the regulatory framework. for annual and quarterly reports, Solvency II seem to be indicative Sam Tacey a senior associate Futures Trading Commission. ernment’s investigation, another Fifth Amendment right against issue we expect one topic that is Steptoe & Johnson should set out proposals that re- This point tied in with the but the PRA imposes additional of a breakdown in the relation- at Cooley © 2017 Jae C Hong/AP Santa Ana RenRe expects $90m winds drive destructive California wildfire bill wildfires in southern California

Dry Santa Ana winds gusting up to 70 mph have helped fuel at least four major wildfires, which broke out in southern California late on December 4 and early the next day, writes Scott Vincent. The fires have destroyed at least 150 homes and other structures, charred tens of thousands of acres, forced the evacuation at least 27,000 people and forced the closure of schools and motorways. The worst of the blazes – the Thomas fire – accounted for AIR Worldwide suggests total industry losses from event could top $10bn the bulk of the destroyed structures as it charred more than The third-quarter wildfires are around $500m, the bulk of 45,000 acres and entered the Scott Vincent expected to be the costliest on which will be recorded in its city of Ventura 80 miles north- Editor, news services $1.5bn+ record for the insurance sector, personal insurance business. west of Los Angeles. Total industry with the latest AIR Worldwide Chubb expects a pre-tax loss Around 180,000 people were estimate suggesting the industry of $280m, with its fourth-quar- left without power in Ventura disclosures for bill could reach $10.5bn. ter catastrophe bill reaching County late on December 6. Two enaissanceRe’s fourth- the California To date, Travelers has posted $320m in total. of the other fires broke out in quarter earnings will wildfires so far the largest preliminary disclo- Markel has said it expects to north-west Los Angeles County, include a $90m im- sure, with the insurer estimat- record an impact of $40m to with another in San Bernardino pact from October’s ing it will face a pre-tax loss of $80m in its fourth-quarter re- County east of Los Angeles. Rwildfires in California, taking to- between $525m and $675m. sults, while Arch Capital said The National Weather Ser- tal preliminary industry disclo- AIG has said it expects a it is expecting a wildfire loss of vice said the dry, easterly winds sures for the event past $1.5bn. fourth-quarter impact of $25m to $30m. would persist through the week. Fema files reinsurance claim to recover more than $1bn in NFIP losses

The Federal Emergency Manage- in premiums, is triggered when the NFIP has to date paid out ricane Irma have increased 7% sent the bulk of filed and settled ment Agency (Fema) has submit- losses top $4bn. Fema said it sur- $6.687bn, resulting from over the past month to claims. Of the 51,290 commercial ted a claim to its reinsurers to passed $4bn in paid claims relat- 120,000 claims. nearly $6.3bn. claims filed, only 7,077 had been recover $1.042bn of the National ed to Harvey on November 6. Fema said it is The office’s most closed and paid while 32,546 re- Flood Insurance Program’s (NFIP) The reinsurance programme is in the process recent report on mained open. damage bill from Hurricane Har- structured to cover 26% of losses of negotiating 91,135 Irma showed With around $700m in Irma-re- vey, writes Scott Vincent. between $4bn and $8bn, up to a a reinsurance 853,356 claims lated claims closed in Georgia Fema expects total NFIP pay- maximum of $1.042bn. Fema said placement for Number of claims had been filed so far, the two states have seen outs related to the storm to total it anticipates its full policy limit next year. as of Decem- around $7bn in insured losses between $8.5bn and $9.5bn. To will be reached by the event. Separately, so far received ber 4, of which from the storm to date. date, 91,135 claims have been re- Harvey was the only one of the Florida Of- in relation to 381,584 had In mid-September, cat mod- ceived related to Harvey, of which this year’s three major hurricane fice of Insurance Harvey been closed and eller AIR Worldwide estimated 99.5% were located in Texas. loss events to trigger the NFIP’s Regulation has re- paid and 227,744 industry-wide losses from Irma The NFIP’s reinsurance pro- reinsurance programme. Includ- vealed insured losses were still open. at $32bn to $50bn, with $25bn to gramme, which cost Fema $150m ing Hurricanes Irma and Maria, in the state related to Hur- Homeowners claims repre- $35bn of those in the US.