WINTER 2017 ISSUE 64 the Intelligent Quarterly from The

WINTER 2017 ISSUE 64 18 Cat 22 Alt. 30 Bullish modelling reinsurance Barbican What’s in a ILS put to 10 years number? the test of specialty

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WEEKENDER

Once in these pages I likened Some consequences are life- the noise were convinced to join the a prolonged soft market to a house changing. The stab victim’s scar is a party and are exuberantly displaying party that gets out of hand. permanent reminder of how things the full convert’s zeal. There had been It starts off as a lot of fun, with can go badly wrong. some bickering but peacemakers everyone socialising and having a Meanwhile, unnoticed by revellers stepped in and cooled it down just in good time. The music gets turned and police alike, the guest who passed time. up louder and louder and someone out has not and will never reawaken. A pizza delivery has come and decides it would be amusing to fill the He is dead from an unspecified gone. Everyone has a full stomach and fruit punch with vodka. overdose. is happy. There are only smiles and an The more experienced take this as Everyone swears they are never overall air of contentment reigns. their cue to call it a night. going to drink again and a period of Even more curious, given the all- Once they leave all hell breaks puritanical abstinence follows. round excess, is an almost paradoxical loose. At least, that is how the moral story sense of sobriety and rationality Some surprising new liaisons used to go. about the gathering. This drug makes are cemented, some in full view of This soft market is different. This everyone appear in control. other guests and, notably, one in the time someone has put a new wonder On the pages that follow Charlie guest bedroom under a pile of coats. drug into the cocktails. It’s like rocket Thomas wonders where the missing Someone passes out in the basement. fuel and has kept the party going HIM billions are, but no one at this Later, obnoxious gatecrashers much, much longer. Miraculously, party appears to be bothered by this arrive and a knife fight breaks out. A it seems to prevent both the question. These guys are certain man is stabbed. formation of hangovers and the the numbers will either turn up The neighbours call the police and onset of fatigue. and will be easily replaced, or the party ends with a raid. The sun has come up and it will transpire they have been Seemingly oblivious to the mayhem the rave is still on. People are overcooked and therefore get a couple have a screaming stand-up dancing on the tables and chairs. written down. row in the front garden. Not a single person has crashed Either way, they think the end In the grey light of dawn the out, passed out or left for home. result is that we’ll all be back on hapless host discovers that the There was worrying moment the dancefloor before long. living room carpet is covered with at 4am when the police came An online re-stocking of the cigarette burns and red wine stains. and banged on the door. But MARK liquor cabinet is on its way. The Smashed ornaments and crockery are they were sent on their way with a GEOGHEGAN crowd is invincible. It looks like we Managing everywhere. combination of charm and guile. director, could be in for a weekender. The hangovers are brutal and the Nothing is going to stop this. Insider Monday is a very long way away. contrition is long-lasting. Neighbours who had complained of Publishing What could possibly go wrong? www.insiderquarterly.com 03 INSIDE CONTENTS IN THE WINTER 2017 ISSUE

MANAGING DIRECTOR Mark Geoghegan [email protected] EDITOR-IN-CHIEF Adam McNestrie [email protected] EDITOR Laura Board [email protected] US EDITORIAL DIRECTOR David Bull [email protected] US EDITOR Ted Bunker [email protected] MANAGING EDITOR Charlie Thomas [email protected] NEWS EDITOR Catrin Shi [email protected] FEATURES EDITOR Gavin Bradshaw [email protected] SENIOR REPORTERS Fiona Robertson [email protected] Dan Ascher [email protected] Lucy Jones [email protected] REPORTERS John Hewitt Jones [email protected] Bernard Goyder [email protected] Sofia Geraghty [email protected] RESEARCH ANALYST Iulia Ciutina [email protected] COMMERCIAL DIRECTOR Spencer Halladey [email protected] SALES DIRECTOR Rob Hughes [email protected] BUSINESS DEVELOPMENT MANAGER Benjamin Bracken [email protected] SALES EXECUTIVE Annie Lightholder [email protected] HEAD OF EVENTS AND MARKETING Jennifer Lord [email protected] BUSINESS DEVELOPMENT EXECUTIVE 10 Sophie Jansen [email protected] MARKETING EXECUTIVE Beatrice Boico [email protected] 03 Comment: 18 Poles apart CONFERENCE PRODUCTION MANAGER Weekender Why were modelled estimates of Matthew Sime [email protected] HIM industry losses so diverse? EVENTS AND MARKETING EXECUTIVE Holly Dudden [email protected] NEWS DIGEST asks Lucy Jones PRODUCT MANAGER 06 Around the world: 22 Every cloud… Carlos Pallordet [email protected] IQ’s global market round-up Alternative reinsurance has DATA ANALYST Khilan Shah [email protected] 08 A touch of class: rebounded quickly from Q3 PRODUCTION EDITOR Market developments by class hurricane losses, findsFiona Peter Williams [email protected] 09 IQ PI: Robertson SUB-EDITOR Ewan Harwood [email protected] Market intelligence on the QT 26 Rapid relief ART DIRECTOR Post-Q3 rate hardening could ease Paul Sargent [email protected] FEATURES renewals for D&F writers, finds

3rd Floor, 41 Eastcheap, London, EC3M 1DT, UK 10 Where are the missing Marcus Alcock Tel main: +44 (0)20 7397 0615 billions? 30 Punching above their weight Editorial: +44 (0)20 7397 0618 investigates the meets with Barbican’s Subscriptions: +44 (0)20 7397 0619 Charlie Thomas Catrin Shi Annual subscription – £2245+VAT/$3505 disparity between projected and co-founders and senior reported Q3 cat losses management team Tel +44 (0)20 7397 0615 Fax +44 (0)20 7397 0616 [email protected] All rights reserved ©2017 IQ 14 History repeating is published under licence by Euromoney Trading Ltd Subscription enquiries Annie Lightholder Q3 cat losses have sharpened the INSIGHT Tel +44 (0)20 7397 0619 Fax +44 (0)20 7397 0616 focus on a broken NFIP, writes 34 Four years of good luck [email protected] Ted Bunker While reinsurers have benefited ISSN 1475-410X

404 www.insiderquarterly.com INSIDE CONTENTS

WHERE ARE THE 10 MISSING BILLIONS? Charlie Thomas on Q3 cat claims versus modelled losses

14 HISTORY REPEATING Q3 cat losses have sharpened the focus on the NFIP, writes Ted Bunker

14 26 RAPID RELIEF D&F writers are set to benefit from post-Q3 rate hardening, finds Marcus Alcock

PUNCHING ABOVE 30 THEIR WEIGHT Catrin Shi meets with the founders of Barbican

26 30

from good luck in recent years, Mark Grocott 56 Filling the gap they’ve also been destroying value, 46 Under the microscope Heneg Parthenay and Simon says Keith Wolfe Charles Pickles assesses asbestos Richards ponder the opportunities 36 Trouble in paradise risk management in the for insurers in the $1tn trade Mark Sutton and Karen Boto workplace finance short-term funding gap consider the insurance implications 58 Ready, steady… wait? of expanding regulations TECHNICAL BRIEFINGS Jonathan Charwat and Robbie 38 White heat 48 Happy birthday to you! Constance explore market concerns Now is the time to forge new Aidan O’Neill celebrates the about readiness for IDD business opportunities by exploring recent second birthday of the 60 Winning performance InsurTech, writes Toby Esser launch of Write-Back The London market relies on an 41 Reflecting on claims 50 Innovation at a snail’s pace overly subjective approach to Cumbersome processes and Greater engagement with measuring the quality of its US settlement delays are reflecting technology is needed to increase legal counsel, says Dwayne Hermes badly on Lloyd’s reputation for the rate of change, says Malcolm 62 Executive moves paying claims, says Sarah Newman Snow 44 Story time 53 Call to action The real story of InsurTech is about Paul Latarche says it's time to turn using it to respond to customers’ words into action on InsurTech needs more effectively, says

www.insiderquarterly.com 055 NEWS DIGEST

THE

IRELAND The quake also killed 10 people in Together the four insurers took a 48.8 Sulaimaniyah, Iraq, and injured more percent share of the state’s homeowners’ Ophelia losses than 400 more in the neighbouring multi-peril insurance market in 2016, Despite relatively modest insured losses country. according to AM Best. and a mercifully low casualty toll, ex- Kermanshah Province’s vice governor, Allstate has put out an initial wildfire Hurricane Ophelia, which made landfall Mojtaba Nikkerdar, has put economic loss estimate of $452mn, while it is in Ireland on 16 October, was nonetheless losses from the disaster at 26tn rials understood that CSAA has a $950mn loss. a notable event. ($738mn). Elsewhere, AIG CFO Sid Sankaran Catastrophe data specialist Perils Early loss figures for the 12 November disclosed on the company’s third estimated insured losses at EUR60mn quake indicate that between 2 and 3 quarter earnings call that it would take ($71.6mn) after Ophelia caused significant percent of properties in the earthquake approximately $500mn of losses from the damage across Ireland, and lesser damage zone were insured, according to English- wildfires. in Wales, Northern Ireland, north- language Iranian business newspaper The Sankaran said the figure was “net of western England and Scotland. Falling Financial Tribune. reinsurance and largely in our personal trees killed three people in Ireland during Iran’s largest insurer, the state-owned insurance business”. the storm. Iran Insurance Company, is expected to Perils said the storm caused EUR49mn pay out 300bn rials ($7.7mn) in claims, ($58.5mn) of damage in Ireland, with The Financial Tribune said. GERMANY another EUR10mn ($12mn) of damage The insurer has so far paid 1.3bn rials occurring in the UK. for 1,320 claims. Xavier causes Perils noted that Ophelia was a very Alborz Insurance is reported to have losses of $343mn rare European windstorm in that it insured 8,000 homes damaged in the Property damage caused by Extratropical resulted from a tropical cyclone travelling earthquake. Cyclone Xavier is expected to cost much further east across the North EUR291mn ($343mn), according to Atlantic than usual. an initial insured loss estimate from It is the largest hurricane ever recorded US catastrophe data aggregator Perils. that far east in the North Atlantic Basin, The storm struck Hamburg on 5 having reached Category 3 on the Saffir- California wildfire October, killing seven people as it moved Simpson hurricane scale by 14 October, losses reach through Lower Saxony, Saxony-Anhalt before becoming an “ex-hurricane” the and Brandenburg before reaching Berlin. following day. $3.5bn Perils said the timing of the storm Total disclosed losses from what are meant that more trees were felled than likely to be the costliest wildfires in if it had happened later in the year, as IRAN Californian history reached $3.5bn as of autumn leaves caught in the wind. 20 November. Georg Andrea, head of data 2-3% of quake The bulk of losses are concentrated management at Perils, noted that “a losses covered among a relatively small number of significant part of the damage was caused The magnitude 7.3 earthquake that struck personal lines insurers. by falling trees which still had leaves on near the Iran/Iraq border is reported to State Farm, Farmers, California State them”. have killed around 500 people and injured Auto Association (CSAA) and Allstate The company said it would release thousands more in Iran’s Kermanshah are the four largest primary writers in the an updated estimate on 5 January 2018, Province, near the temblor’s epicentre. Northern California homeowners’ market. three months after the event.

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www.moorestephensconsulting.com NEWS DIGEST

Global market updates by class of business

Aviation underwriting officer Steve Coates added America, although Brit’s North American Underwriters in the airline market are that the retrocession market had agreed PI business is unaffected by the decision. reported to have secured 3 to 5 percent to include the coverage next year, on Brit declined to comment. increases in lead premiums in the key condition it did not extend to contingent fourth quarter renewals, after 15 years of business interruption caused by cyber downward pricing pressure. terrorism. Product recall London market sources canvassed by Global confectionery giant Mars is sister publication The Insurance Insider claiming for $50mn-$60mn on its product said in the aggregate the increase broadly D&O recall policy after it recalled thousands of tracked exposure growth in the market, 21st Century Fox has agreed to settle a chocolate products over fears of potential with renewals roughly flat for leaders on a shareholder derivative lawsuit arising salmonella contamination. risk-adjusted basis. from the sexual harassment scandal that It is understood that Allianz Global However, composite premiums rose more enveloped the Fox News network last year. Corporate & Specialty (AGCS) leads the strongly, with exposure-adjusted rates up Representatives from 21st Century Fox London-placed policy with a $25mn layer by single digits as following markets closed confirmed that the $90mn settlement in excess of a $25mn retention. the gap with leaders after a disciplined would be funded by the company’s It is further understood that Talbot leads showing. directors’ and officers’ insurers. the following excess layer on the Aon- The tone from some underwriters The settlement provides that the brokered placement, with XL Catlin also remained downbeat, with rates well below individual defendants and the estate of the on the stack. technical levels, but other sources were late chairman and CEO of Fox News Roger In June, Mars issued a precautionary hopeful that Q4 renewals could presage a Ailes, who was ousted from Fox amid a recall of Galaxy Milk bars and counters, turn in the market. sexual harassment scandal, will “cause their Minstrels and Maltesers chocolates with insurers to make a payment” of $90mn to best-before dates of 6 May 2018 and 13 Cyber the company. May 2018 for sale in the UK and Ireland. Pool Re CEO Julian Enoizi said the UK terrorism reinsurer had sealed a “clear Professional Crisis management gap” in its cyber terrorism coverage as it indemnity Liberty has confirmed it is withdrawing its outlined plans to provide cyber physical crisis management offering in both the US damage reinsurance. Brit is withdrawing from the international and the UK “following a strategic review”. The coverage extension, which takes professional indemnity (PI) market, The crisis management product includes effect on 1 April 2018, will protect against according to sister publication The contaminated products insurance, product property damage and direct business Insurance Insider. recall and kidnap and ransom. interruption caused by terrorist hacks. It is understood that members of the In a circular to brokers, Liberty At the Pool Re launch event in London, carrier’s UK and international PI team in International Underwriters (LIU) said Enoizi said the new coverage will be part of London are in consultation with Brit over the decision was part of the ongoing standard property policies purchased from their roles. integration of Ironshore and Liberty. Pool Re members. The team is led by class underwriter It is understood that the 11-strong LIU Pool Re chief underwriting officer Daniel Mitchell, who is supported by US team – which includes Jane McCarthy Steve Coates added that the retrocession underwriters Patrick Ruffell, James Russell and transferred Liberty Specialty Markets market had agreed to include the coverage and Alannah Paul. (LSM) senior underwriter Julie Ross – and next year, on condition it did not extend Jonathan Mudd, divisional director for a team of four at LSM in London are all in to contingent business interruption professional lines, has ultimate oversight consultation with Liberty over their future caused by cyber terrorism. Pool Re chief of the PI division, which includes North roles at the company.

808 www.insiderquarterly.com NEWS DIGEST

Market intelligence on the QT

Career best

Followers of AJ Gallagher (AJG)’s Twitter account may have noticed that the racing driver son of International CEO Grahame “Chily” Chilton is something of a chip off the old block. Commenting for the AJG news page on his IndyCar career best performance, Max Chilton noted: “The risk/reward in IndyCar is pretty large...which is why I’m calm, cool and collected on the track.” Chilton Jr, who recently came fourth in the 101st Indianapolis 500 in his Gallagher-sponsored Honda, is also currently ranked fifth in the FIA World Touring Car Championship. In a sponsor-pleasing footnote he added: “Insurance is about risk and reward – making calculated decisions. That’s motorsports.” Private view Insider Quarterly notes that the cover of the autumn issue has graced the Lloyd’s Galleries Twitter feed, albeit with added smut. Thankfully, however, it has evaded the ire of Lloyd’s denizens, who have erupted at the Society’s decision to move the Nelson Collection (artefacts, letters and silverware relating to the hero of the Battle of Trafalgar) to a new location. Nelson has increasingly become a subject of controversy over his associations with the colonial slave trade. However, Lloyd’s Galleries has focused instead on the perceived insult to the Admiral’s memory. “The Nelson Collection is now permanently by the bogs. Retweet if you are appalled” went one Tweet, while another blustered: “England expects that every man will do his duty. England does not expect every man to be charging his phone where the Nelson collection should be.”

www.insiderquarterly.com 909 INSIDE Q3 CAT LOSSES: CLAIMS

w As the (re)insurance his year is likely to be one to more than $140bn. The early industry continues to count T of the costliest on record for the net numbers published so far by the cost of hurricanes international (re)insurance industry, carriers, meanwhile, add up to less thanks largely to hurricanes Harvey, than $50bn, around $28bn of which Harvey, Irma and Maria, Irma and Maria (HIM). relates to HIM and the Mexican Charlie Thomas asks But how much those hurricanes quakes. (see table on page 13). if the third quarter will end up costing the industry is And uncertainties abound around a matter of contention. Modellers how much demand surge could windstorm losses still look seem unable to agree, with estimates inflate rebuilding costs, how much like a $100bn event ranging from less than $100bn loss adjustment expenses will go up Market-wide loss estimates ($bn) Company/Organisation Harvey Irma Maria Nate Mexican quake California wildfires Total AIR Worldwide 10 41 62.5 na 0.96 9.25 California Dept of Insurance na na na na na 9.4 CoreLogic 21.7 24.75 na 1 na na Karen Clark & Company na 25 na 0.5 na na Munich Re 25 na na na na na PCS 15.9 18 21.9 na na 7.3 RMS 21.5 41 22.5 0.5 1.2 7 Midpoint: 17.5 29.5 42.5 0.75 1.1 8.2 89.8 Average: 18.8 30 35.6 0.67 1.1 8.2 91.4 Note: Estimates represent either midpoint of range given or total figures advised by companies Source: Insider Quarterly, company announcements, as of 13 December

1010 www.insiderquarterly.com INSIDE Q3 CAT LOSSES: CLAIMS

by, and how much of the loss will Loss numbers generated on this you add in charges to the National ultimately end up in the relatively basis can deteriorate by at least 25 Flood Insurance Program and the opaque alternative capital markets. percent, and do not capture 100 cat bond market, it feels like it gets There are therefore three main percent of the US losses. towards $100bn, he added. questions that need to be answered: Meanwhile AIR and RMS, as the RK Harrison’s head of claims Nick firstly, do we still believe hurricane- feature on page 18 explains in more Coles, on the other hand, disagrees. related insured losses will amount to detail, differ wildly in terms of the Based on looking at his clients’ books more than $100bn; secondly, if yes, inputs for their models, including the of business, Coles says it “looks where in the (re)insurance food chain assumptions they take on properties unlikely that we’ll reach $100bn from will the losses end up; and thirdly, and their ability to withstand damage. the HIM hurricanes alone”. how much confidence can we have in “There are some really big losses the answers to the first two questions? Puerto Rico and out there, but it doesn’t look as other problems though there are enough of them, Estimating the loss Nowhere is this more obvious than at this point, to get to that sort of This year has seen one of the busiest with the firms’ estimates for Maria, number,” he adds. seasons for named storms. Some 17 which hit the Caribbean at the Another issue worth considering named storms formed, 10 of which end of September. RMS estimated is that primary carriers were reached hurricane strength, and six that insured losses would come in reportedly put under pressure by their of which became major hurricanes, between $15bn and $30bn, while reinsurance counterparts to come out according to the National Oceanic AIR surprised the market with a with loss estimates more quickly than and Atmospheric Administration. range of $40bn-$85bn, with $35bn- they wanted to. That means 2017 had the most $75bn of that coming from Puerto “A number were uncomfortable named storms and hurricanes Rico. It later revised its estimate about it at the time,” says Coles. since 2005, when 28 named storms downwards to $27bn-$48bn, with “What they didn’t want to do was end developed, 15 of which became $25bn-$43bn for Puerto Rico. up step-reserving, as it doesn’t make hurricanes. It was also the first year The vast difference in the ranges the claim run particularly smoothly. since 2005 that hurricanes struck the is in part down to differing beliefs It creates a level of angst in the claim continental US. on the vulnerability of Puerto Rico’s which is unhelpful. Perhaps that’s Insured loss ranges for the buildings. RMS believed Puerto pushed some of the estimates to be storms vary wildly between different Rico’s bunker-style buildings would over-egged and [resulted in] some parties. Data provider PCS currently largely have been able to withstand higher reserves coming out.” estimates the total for Harvey at the storm, while AIR assumed wind $15.9bn, Irma at $18bn and Maria at damage would have seriously hit How the losses shake out $21.9bn, meaning together the three the vulnerable upper storeys of the Few commentators have been brave events would cost just $55.8bn. island’s buildings. enough to try and estimate how The Bermuda Monetary Authority, AIR also believed “demand surge” much of the net loss will end up with meanwhile, has claimed that carriers was likely to hit repair and rebuild primary insurers, reinsurers, retro on the island will collect a $31.2bn costs – suggesting as much as 27 providers and alternative capital, net burden from the trio of storms, percent of its uppermost estimate but broadly speaking, it seems most which it estimated would account for could come from that. expect between 25 percent and a 30 percent of the global industry’s This confused situation from third third could end up with alternative losses. That would put the total at party vendors, plus the lack of data money – that market’s first real test around $104bn. coming out of the affected regions since it was born out of 2005’s cluster AM Best, on the other hand, said – particularly in Puerto Rico – has of hurricanes. its survey of rated carriers suggested a resulted in a very mixed bag of views. AM Best was one of the few to total of $90bn, while estimates from Ian Beaton, CEO at Ark try and put a number on the various the two largest modelling firms, AIR Underwriting, thinks a bill of more groups. In a report released in Worldwide and RMS, range from as than $100bn still sounds possible, November, it suggested that based little as $75bn to more than $125bn. based on the assumptions published on conversations with rated entities The huge variance in estimates so far. some $45bn of the losses from HIM is in part driven by the different “Like all the other cats we won’t and the Mexican quakes would sit methodologies used by the various know the true number for a while, with the primary market, another parties. but plus or minus $10bn, it’s probably $20bn-$25bn with the reinsurance PCS, for example, generates its correct,” he says, although we’re likely market, and a final $20bn-$25bn figures using data from confidential to get closer to that level if we include with alternative capital, mostly in the surveys of insurers, agents, adjusters, losses from the Mexican quakes and form of collateralised retrocession. public officials and other sources, Californian wildfires. The high level of primary net loss which it then analyses alongside trend Between the estimates from AIR, might look surprising, but a number factors to produce an estimate. RMS, PCS, AM Best and others, once Continued on page 12 www.insiderquarterly.com 1111 INSIDE Q3 CAT LOSSES: CLAIMS

of sources indicated that retentions after the events and begin their this, you have to pay a little more for had been increasing over the past assessments. Cargo losses didn’t look each subsequent event. So yes, the decade, particularly in Puerto Rico. as bad as first feared and flood wasn’t expenses are higher.” As detailed on page 22, our own covered by much of the market. interrogation of the insurance-linked Interestingly, Coles notes that No more 3-for-2 securities (ILS) and retro markets adjusters were being brought into The worrying thing as far as the seems to mirror this outcome. Houston to generate full damage (re)insurance market is concerned, is Hurricane risk is the ILS market’s reports so that, if they needed to we’re nowhere near obtaining a full greatest area of exposure, but the reject a claim on the basis that the Puerto Rico loss number. HIM storms each presented such coverage did not include flood, they “We don’t have a handle on it yet, different challenges that they could point to independent evidence and the number of loss adjusters out impacted ILS managers in a variety that the damage was caused by water there isn’t as great as it should be of ways. Retrocession specialists bore and not wind. for an event of this size,” says Cole. the brunt of the losses as aggregation Puerto Rico, however, is a different “At this stage, I don’t think we’re claims mounted, while the cat bond ball game. Getting on and around even up to half of the total expected market appears to have got away the island in the days after Maria loss notifications… it’ll be another relatively lightly. struck was nigh on impossible, as 12 months before we discover what’s Off-the-record comments from Vince Cole, US CEO of Charles Taylor fully going on there.” the market suggest retro writers may Adjusting, explains. Elsewhere, there are also have lost up to half of their money Huge amounts of infrastructure rumblings of potential legal disputes this year, although it’s challenging damage meant there was no power, brewing – and not just in super- to get confirmation, given that no telecommunications, no traffic litigious Houston. these players sit at the end of the lights, nowhere to eat and nowhere Several sources said debates were value chain and may have difficulty to stay, he says. The time taken for already happening around Irma and establishing their losses at such an simple tasks such as navigating Maria, with disputes over coverage early stage. around San Juan suddenly went from and aggregation issues and whether Looking at the industry loss 20 minutes to four hours. buildings and infrastructure were hit warranty (ILW) market, the Micrix “The first month I had people by Irma, Maria or both. index fell 12 percent after September, describing Puerto Rico to me as a Finally, there is a big unknown implying a $720mn loss from the bit of a warzone,” says Cole. “We had in the form of how big a problem $5bn-$7bn market, although when two guys there who were staying in business interruption and contingent aggregate ILW triggers are added in tent and a rented home. The tent business interruption might prove to this figure is likely to be higher. obviously had no power and the be. Interestingly, this event also seems rented one only had a generator that It’s too early to ascertain the to suggest that retro strategies are worked for a few hours at a time. impact this year’s cats will have far more exposed to a 1-in-10-year “Meals were beef jerky and on rates in the upcoming January aggregate loss than a 1-in-100-year bottles of water. Another guy found renewals, but there is a growing single hurricane. a Starbucks after a few weeks and consensus that coverage levels will survived off eating their food for three become a key talking point. Mitigating factors or four weeks. It’s not like they get a As Ark’s Beaton explains: “Has Underlying warnings from the vacation in the Caribbean.” anyone really been pricing in flood likes of Willis Towers Watson’s Bill The terrain also caused problems, risk at anything more than marginally Dubinsky, who said it is “still far too he says: “Getting around the cell above zero? Bushfire – another huge early to close the book on the exact towers in a mountainous region, issue this year, not just in California – allocation of losses among insurers finding them and all the bits and when people were pricing that, were and reinsurers, let alone between pieces and parts has been – and will they putting in anything other than traditional balance sheets and ILS”, continue to be for a year or so – a something approaching zero? are a number of issues complicating challenge.” “Effectively what’s happened is the market’s ability to get its arms Convincing adjusters to go to there’s been a lot of 3-for-2 shampoo around the HIM losses. Puerto Rico was also a problem. sold and people are now realising Chief among the complaints of Stories of poaching were rife. Cole they can’t do 3-for-2 anymore and those seeking clarity on the market’s agrees with other sources that fees for need to put a proper price next to it. HIM losses is the growing question adjusters ramped up due to the quick If you just want the coverage just for mark around Maria’s impact. succession of natural catastrophe named windstorm, then let’s give that Over the past few weeks, anecdotal events. restricted cover again. evidence has pointed to a slightly “It’s not like we don’t have enough “There’s definitely a coverage better picture than first predicted for resources as an industry, there were conversation about what people want Harvey and Irma, with adjusters able enough adjusters available, but to buy and what people want to sell,” to get on the ground relatively quickly when the events get stacked like he concludes.

1212 www.insiderquarterly.com INSIDE Q3 CAT LOSSES: CLAIMS

Q3 cat losses – (re)insurer estimates ($mn) Harvey Irma Maria Combined HIM Combined Combined HIM/Mexico HIM/Mexico Company Range Midpoint/ Range Midpoint/ Range Midpoint/ Range Midpoint/ Range Midpoint/ (if given) total (if given) total (if given) total (if given) total (if given) total Asian (re)insurers MS&AD 133-221 177 265-442 354 177-221 199 na 730 na 796 Sompo na 216.5 na 333.7 na 72.2 na 622.4 na 631.4 Tokio Marine na 187.4 na 285.5 na 80.3 na 553.2 na 580 Bermudian carriers Arch Capital na 130 na 155 na 55 na 340 na 348 Aspen na 110 na 135 na 65 na 310 na 360 Axis Capital na 240 na 228 na 116 na 584 na 617 PartnerRe na na na na na na na 472 na na RenaissanceRe na na na na na na na na na 615 Validus na 146.4 na 163.2 na 57.7 na 367.3 na 378.9 XL Group na na na na na na na 1,330 na 1,480 European carriers Everest Re na na na na na na na na 1200 1,200 Hannover Re na na na na na na na na na 838 Mapfre na 48 na 79 na 102 na 229 na 295 Munich Re na na na na na na na 3,200 na 3,800 Scor na na na na na na na na na 699 Swiss Re na na na na na na na na na 3,600 Global carriers AIG 1,100-1,200 1,150 1,000-1,100 1,050 600-700 650 2,700-3,000 2,850 na 3,000 Chubb na 650 na 891 na 220 na 1761 na 1,786 London carriers Beazley na na na na na na na na 175-275 225 Hiscox na na na na na na na 225 na na Lancashire na na na na na na na na na 165 US insurers/groups Alleghany na 265 na 312 na 170 na 747 na 793 AmTrust na na na na na na na na na 54.2 Assurant 134-140 137 na 125 na na na 262 na na Berkshire Hathaway na na na na na na na na na 3,000 Cincinnati Financial Corp na 20 54-66 60 na 6 na 86 na na CNA na 149 na 95 na 20 na 264 na na Enstar na na na na na na na 39 na na Fairfax Financial na na na na na na na 929.5 na 959.5 James River na na na na na na na 10 na na Kemper na na na na na na na 29.8 na na Maiden Holdings na na na na na na na 20 na na National General 25-30 27.5 na na na na na 27.5 na na US nationwide Allstate na 576 na na na na na 593 na na The Hartford na 175 na 157 na na na 332 na na Travelers na na na na na na na 700 na na US specialty AIG na na na na na na na na na 105 Argo na na na na na na na na na 104.5 Markel Corp na na na na na na na na na 503 Navigators na na na na na na na na na 75.1 RLI na na na na na na na 32 na na WR Berkley na na na na na na na na na 107 Other Citizens na na na 1,230 na na na 1,230 na na Liberty Mutual Group na 630 na 800 na 340 na 1,770 na na Lloyd’s na na na na na 900 na 4,800 na na Nagico na na na 400 na 150 na 550 na na QBE na na na na na na na na na 600 Zurich na na na na na na na 700 na na TOTAL: TOTAL: $26.7bn $27.7bn Note: Fairfax Financial figures include Brit and Allied World results; Sompo includes Canopius and Sompo International; MS&AD includes MS Amlin All loss numbers are pre-tax and net of reinsurance and reinstatement premiums Source: Company announcements, Insider Quarterly, as of 13 December www.insiderquarterly.com 131313 INSIDE Q3 CAT LOSSES: FLOOD

HISTORY REPEATING Third quarter catastrophe losses have sharpened the focus on a broken National Flood Insurance Program, writes Ted Bunker

Even before Hurricane Harvey Orleans during Hurricane Katrina and let private flood cover suffice dumped over four feet of rain over and from metro New York and New when a property or business in a Houston and inundated America’s Jersey following Sandy. designated flood hazard area had a fifth-largest metropolitan area, The latter two storms alone left federally backed loan. The Senate Washington policymakers knew the programme owing over $20bn balked. the insurance system set up to help to the US Treasury, and flooding in Texans deal with such events was Louisiana from heavy rains last year Barriers to entry broken. raised it past $25bn – bring losses ever While that same step won But Harvey underlined that closer to the approximately $30bn cap unanimous support in the House of assessment in bold red type. on the NFIP’s borrowing capacity. Representatives last year, passing The National Flood Insurance With depictions of Harvey’s without a single vote against it as Program (NFIP), run by the Federal devastation fresh in their memories, analysts applauded the move, dozens Emergency Management Agency Washington lawmakers – prodded by of House members opposed it this (Fema), was already drowning in debt President Donald Trump – cancelled year. from earlier hurricanes because it was $16bn in NFIP debt. In the Senate, Louisiana never set up to deal with catastrophes But that only cleared some Republican Bill Cassidy had the on the scale of Hurricane Katrina, headroom to cover an estimated provision stripped from hurricane Superstorm Sandy or this year’s $11bn loss from Harvey, not to relief legislation in September. The Harvey. mention claims from hurricanes Irma Senate blocked the step again last The programme was established and Maria. month as it cancelled roughly half of in the Great Society era of the 1960s At the same time, Congress the agency’s Treasury debt. to provide flood cover where private resisted taking what had, as recently Democrats and a few coastal state insurers feared to tread, mainly along as last year, been regarded an Republicans have argued against the low-lying shores and riverbanks. It uncontroversial step to let more market-opening step, characterising was not set up, however, to provide a private carriers into a flood market it as a threat that would undermine catastrophe fund. nearly monopolised by the NFIP and the NFIP’s finances by letting private Because NFIP rates aim to meet its subsidised rates. carriers strip away less risky insureds the needs of insureds during an As part of its debt cancellation from its nearly 5 million policyholders, average year, its finances were easily request, the Trump administration leaving it with less revenue to cover overwhelmed by flood losses in New asked lawmakers to change the rules costs such as rate subsidies.

1414 www.insiderquarterly.com INSIDE Q3 CAT LOSSES: FLOOD

According to Pew Trusts analyst will be hard enough without adding number involving inland flooding, the Laura Lightbody, some opponents costs, as new entrants would have to Union of Concerned Scientists has insisted on a companion measure compete with the below-market rates reported, citing federal data. requiring private carriers that write often offered by the NFIP, as well as Backers of reforms cite the wide the business to support funds set up shouldering substantial risks. and apparently growing gap between for flood mitigation work or for claims Flood is the most common and insured and at-risk properties as from repetitive loss properties – those expensive natural disaster in the reason enough to end a policy that with two or more NFIP claims. US, according to the Insurance virtually requires a large portion of Supporters of opening the market Information Institute. Last year the market to buy NFIP cover. And have argued that getting more produced 15 natural disasters that it is a void many insurers see as an private carriers to write flood cover cost $1bn or more, including a record Continued on page 16 Who’s covered? Percentage of properties with NFIP policies in force versus those at risk but lying outside Fema flood hazard areas

10.70% 6.30% 10.40% 2.50% 12.90% 5.50% 2.80% 6.60% 11.20% 5.70% 4.30% 7.70% 2.40% 5.60% 19.10% 12.90% 6.40% 17.30% 11.50% 3.90% 3.20% 3.20% 3.90% 21.40% 2% 6.30% 2.60% 8.40% 11.90% 33.30% 28.10% 7.80% 7.70% 18.70% 51.80% 4.70% 9.80% 25.50% 5.20% 1.90% 4.70% 22.30% 10.70%

21% 18.40% 56.40% 18.20% 17.70% 5.30%

34.20%

3.50% 63.80%

Total US 16.80% www.insiderquarterly.com 1515 INSIDE Q3 CAT LOSSES: FLOOD

attractive opportunity, under the right member survey showed a 64 percent will.” conditions. increase in demand for flood coverage But government is often reactive “The gap in flood insurance and a 59 percent jump in flood-related rather than proactive, which means protection represents up to a $40bn claims. resources flow into recovery efforts potential new market for private first and then into mitigation after insurers,” Guy Carpenter executives Raising awareness destructive events like Harvey, Irma said in a recent commentary. Analysts see some good coming from and Maria. these impacts. Rubin notes that often as disasters The flood risk gap “We’re hoping that once people recede into history and recovery CoreLogic, a real estate data and recognise their true flood risk, there’s progresses, efforts on preventive analytics company, published a report a greater take-up rate,” Geary says. mitigation lose steam. in December showing how wide the When the door to private carriers As a result, he says: “We’re not gap can be between areas where has been pushed open, they have doing the things we need to do.” NFIP cover is required on homes entered. In Florida, where state The dynamics from a political and businesses with federally backed lawmakers passed legislation to ease perspective are not difficult to grasp. loans, and areas at moderate-to-high lender concerns about flood coverage “It’s very hard – and it’s risk of flooding but which lie outside understandable,” Rubin says. “It’s Fema flood hazard areas. very hard to get legislation when the The map on page 15 shows the danger isn’t imminent.” ratio of NFIP policies in force versus A Pew study found that about 1 Analysts also agree that once the number of properties at moderate- " government bestows a benefit, to-high risk of flooding in each US percent of the properties covered such as guaranteed flood insurance state, but which lie outside Fema by NFIP policies – approximately at discounted rates, it can be very flood hazard areas (expressed as a difficult to get lawmakers to take it percentage). 150,000 – have accounted for away, especially if it involves a real In total, Fema said there were over as much as 30 percent of the cost or hardship. 4.9 million NFIP policies in force at programme’s losses since the the end of September. CoreLogic has Political sensitivities estimated that around 29.4 million 1970s But the need for change has become properties with moderate-to-high glaringly obvious. A Pew study flood risk lie outside Fema-designated found that about 1 percent of the flood hazard zones, where there is properties covered by NFIP policies no legal or regulatory mandate that requirements in 2014, there" are now – approximately 150,000 – have requires NFIP coverage. some 16 companies writing the risk, accounted for as much as 30 percent Presumably, therefore, a significant Geary said in a recent interview. of the programme’s losses since the proportion of those 29.4 million The state also has the largest 1970s. properties lack flood coverage, which number of NFIP policies in force, at Repetitive loss properties is typically excluded in homeowners’ 1.73 million, Fema data shows. accounted for $12.5bn in NFIP losses insurance. But getting Congress to take a before this year’s hurricanes, the Following Superstorm Sandy, similar step has proven increasingly nonpartisan non-profit organisation statistics showed that 80 percent of difficult, as recent actions in the says. It cites as an example the residents in affected areas lacked flood nation’s capital show. $663,000 the NFIP paid out on cover for their homes, according to Veteran lobbyist Alan Rubin is a claims for a Mississippi home with TransRe flood leader Elizabeth Geary. principal in law firm Blank Rome’s a $69,000 market value that had Getting more property owners to government relations practice flooded 34 times over 32 years. buy flood cover is regarded as a vital who has been working on disaster Pew estimates that the NFIP has prerequisite to repairing a market that preparedness and recovery financing paid out more in claims than the the government, whatever its intent, for decades. He notes that attention property is worth on 10 percent of has long skewed through intervention, to the subject often heats up following all repeat-loss properties. The bulk analysts say. a catastrophe. “Then it’s hurry up and of these properties are located in The trick to creating a more viable wait,” he says. Florida, Louisiana and Texas – the (and largely private) market is getting Rubin adds that when it comes top three states in terms of NFIP more property owners to pick up the to issues like mitigation to prevent policies in force – and New Jersey coverage, and one way to accomplish or minimise flood damage: “The and New York. that involves helping them recognise question is, are we willing to spend Texas, New York and Florida their flood risk. Disasters like Harvey the money – and then find a way to rank among the largest states by raise awareness significantly. The get back the money?” population and between them have Council of Insurance Agents & “It’s absolutely doable,” he 108 representatives in the House and Brokers said its third quarter 2017 continues. “It is all about the political 10 Senators – roughly 25 percent

1616 www.insiderquarterly.com INSIDE Q3 CAT LOSSES: FLOOD

of the House and 10 percent of the legislation, which has not moved extend overall government spending Senate. forward in the Senate. authority and keep all federal While lawmakers from the five In the White House, President departments open and operating. The states may not be much influenced by Trump has thrown his support last NFIP extension, for two weeks, the plight of repetitive loss property behind the House reform measure. was included in such a bill. owners, the breakdown helps But the issue has taken a backseat to When it comes to the multifaceted illustrate why changing the NFIP can efforts to provide disaster relief and issue of NFIP reform, analysts and be so politically difficult. pass a sweeping tax reform bill, which observers agree that overhauling A reform package passed by the the president has urged lawmakers the broken system will come down House, largely along party lines to send over before Christmas. As a to mustering the political will to but with defections on both sides, result, most observers expect another fix it. And that will depend on the contains several mitigation measures extension of the NFIP’s authorisation leaders of both parties, as well as the aimed at easing the costs of repetitive to keep it going into 2018, but president. loss properties. without any reforms. “It’s really a matter of leadership to The measure would phase out get something done,” Pew’s Lightbody rate subsidies, mandate a $5,000 Reforming the NFIP says. minimum deductible and allow the A $44bn disaster relief bill remains After this year’s HIM losses are NFIP to withhold coverage if the pending in Congress and could added to the tally, Blank Rome’s owner refuses a mitigation offer. The provide a vehicle for a further NFIP Rubin says the NFIP’s debt may be measure would also bar properties extension. That measure includes nearing $40bn, which may serve where claims payments have $12bn in flood risk mitigation funds to keep the focus on addressing the exceeded three times the structure’s to be distributed through community programme’s flaws. replacement value from eligibility for development block grants rather than Fixing it is critical, he suggests: NFIP coverage. by the NFIP. Alternatively, the issue “If we continue to make the same Opponents have cited provisions could be attached to another measure, mistakes, the problems are just going like these as fatal flaws in the called a continuing resolution, to to repeat, over and over.” Outside the zone Percentage of properties at moderate-to-high risk of flooding outside of “special flood hazard area” designation

4% 17% 40% 17% 12% 21% 19% 16% 16% 19% 20% 16% 19% 16% 17% 20% 20% 17% 10% 30% 26% 22% 15% 16% 21% 15% 26% 10% 15% 22% 23% 29% 14% 17% 11% 20% 9% 11% 21% 68% 37% 13% 10.70% 25% 14% 15% 31% 12% 49%

54%

30% 19%

Total US 23%

www.insiderquarterly.com 17 INSIDE Q3 CAT LOSSES: MODELLING

POLES APART Why were modelled estimates of industry losses from hurricanes Harvey, Irma and Maria so diverse, asks Lucy Jones

Hurricane Maria makes landfall in Puerto Rico As the Caribbean islands assumptions on what properties are at the island will recover and how much of Dominica and Puerto Rico lay in risk from a storm. that recovery will cost. ruins following Hurricane Maria, the On a reconnaissance trip to the industry’s leading modelling agencies Hazard risk island shortly after the hurricane, an issued two vastly different views of Hurricane Maria has revealed vastly RMS team found the Puerto Rican the event. different assumptions taken by AIR capital San Juan mostly operational. RMS estimated insured losses from and RMS on the vulnerability of Businesses were using fuel-powered Hurricane Maria at $15bn-$30bn, buildings in Puerto Rico. generators as part of hurricane while AIR Worldwide put out a range AIR assumed wind damage would preparedness. New hotels had of $40bn-$85bn, of which losses in have occurred to the vulnerable upper performed well in withstanding the Puerto Rico were pegged at $35bn- stories of buildings in Puerto Rico, hurricane and were open. $75bn. AIR later revised its estimate which are usually made of wood. AIR says the cost of Puerto Rico to $27bn-$48bn, of which $25bn- However, RMS took the view that the getting back on its feet could be $43bn related to Puerto Rico. island’s bunker-style buildings would significant, however. More than two months on, while have been able to successfully resist “After an event of this size, cost of modellers stand by their numbers, the storm. repair and cost of labour is not the the industry at large is asking why On the commercial side, Michael same as before the event, as you have the estimates are so diverse, whether Young, head of Americas climate risk shortages on the island,” says Cagdas models are delivering value for modelling at RMS, says that local Kafali, senior vice president in AIR’s money given the huge loss ranges and pharmaceutical facilities, which make research and modelling group. whether pricing reflects the model up half the company’s exposure base Some 30 percent of AIR’s uncertainty that has emerged. for Puerto Rico, are also built to be uppermost insured loss estimate of The disparities in industry loss incredibly resilient. $43bn for Puerto Rico is attributed to estimates for Puerto Rico partly “The losses we expect to come from this so-called “demand surge”. come down to a lack of information that particular sector tend to be quite following the event. low,” he says. Converging views Weather stations which measure Puerto Rico’s manufacturing One might expect that in the wind speed failed during Maria, industry has shrunk by a third over insurance market’s exposure hotspot which meant both AIR and RMS had the last 10 years, so neglecting to of the US the risk models would to fill in the gaps. include this trend could lead to demonstrate greater convergence But the explanation can also exaggerated losses, RMS notes. – and, indeed, this was the case for be traced back to the inputs that The modelling agencies also appear Hurricane Irma’s impact on Florida. risk modellers begin with – their to differ in their views of how quickly Continued on page 20

1818 www.insiderquarterly.com Specialist Outsourcing & Consulting

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AIR published an estimate of which he terms “chaos modelling”. Another source says the cost of $32bn-$50bn for Irma, including “For example, engineering studies taking on risk should go up, given the $25bn-$35bn of US insured losses. are looking at a particular building model uncertainty recent events have The figures from RMS were in the and how it will react within a wind brought to light. same ballpark, with insured losses field, but in reality you would have The uncertainty of models has estimated at $35bn-$55bn, of many other structures around it with, occupied a less prominent position which US private losses constituted for example, gravel in the roof which in decision makers’ minds until now, $22.5bn-$29.5bn. turns into debris,” he adds. “How is but that needs to change, the source Claire Souch, director of cat risk your risk impacted by an event when says. modelling consultancy AWHA it is surrounded by a community of But even though models differ and Consulting, says that the high other risks?” the ranges for individual events can frequency of big US hurricane events Some might say that’s be vast, insurers still reiterate their in the past 10 years has helped to underwriting judgement but others basic value to risk takers. develop modelled research. But for a might say it belongs in a model, he Having a range of views is useful big US flood event, such as Harvey, continues. and necessary, says Shree Khare, there is less past experience and Castaldi goes as far as to say that group head of catastrophe research at therefore more uncertainty, she says. by not looking at the exaggerations Hiscox. For Harvey, AIR has not provided that might occur insurers could be The reinsurer’s process for an insured loss figure for flooding leaving themselves in jeopardy. assessing a large loss includes but has instead issued an overall “Maybe ratings agencies and taking into account the judgement insurable loss figure of $55bn-$65bn. regulators will start looking at these of its underwriters and catastrophe RMS has given a figure of $25bn- experiences and will say, ‘Maybe we modelling teams, market estimates of $35bn, which includes $7bn-$10bn should look at a modelled loss, plus the industry loss which give insight incurred by the US government- a certain percent to include these into potential losses to individual backed National Flood Insurance impacts’,” he says. carriers, specific modelled events Program, plus $18bn-$25bn of from its modelling partners and commercial insured losses. RMS does Market view knowledge of specific risk losses. not have a US flood model (it will be The disparities in model outlooks “Given the multiple sources of launched next year), whereas AIR have certainly been a cause for uncertainty in loss estimation, I’m does. concern across the market. not surprised to see a large range of “If a Category 4 on Puerto Rico losses from any particular vendor,” he Chaos modelling can cause up to $80bn of loss, what says. “Furthermore, I’m not surprised Modelling involves determining would a Category 5 in Miami/Tri- to see disparities between model the hazard, vulnerability, exposure County really cost?” one insurance- vendors.” However, Khare adds, it and locations of risk impacted by an linked securities market source would also be useful to understand event. However, according to Andrew questions. the drivers behind each of the Castaldi, head of catastrophe perils “Are licensees who use the model vendor’s given ranges. Americas at Swiss Re, there should loading their pricing sufficiently for Harvey, Irma and Maria have be a fifth box – the modelling of such huge model uncertainty?” the provided Hiscox and others in the unexpected components of an event, source adds. industry with a huge opportunity to update their view of risk and learn and work with customers to HIM loss estimates improve their understanding of their exposures. RMS AIR Worldwide “Harvey is a good example of this, 120 160 given [that] it stalled over Houston and caused an unprecedented 104.5 140 135 100 amount of flooding,” says Khare. 120 85 Vendor models tend to be a sanity 80 103.5 100 check, says Castaldi. “If someone is 65.5 60 80 between $5bn and $15bn and we’re 72 49.5 60 48 in that $8bn range, then we feel 40 41 50 32.5 30 41 comfortable but if we’re in a $30bn 25 40 37.5 Loss estimate ($bn) 20 21.5 22.5 Loss estimate ($bn) 32 then we will have to look at what 18 15 20 10 27 went wrong. 0 0 “No model is ever going to be Harvey Irma Maria HIM Harvey Irma Maria HIM perfect or exact but it’s going to be combined combined enough to protect you from going Source: The Insurance Insider bankrupt,” he concludes. Source: The Insurance Insider

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ODYS02-2810-AdCampaign_W6.indd 1 14/08/2017 5:04 PM INSIDE Q3 CAT LOSSES: ILS EVERY CLOUD… Hurricanes Harvey, Irma and Maria are one of the biggest tests the alternative reinsurance sector has faced since it came of age, but the market has quickly rebounded, findsFiona Robertson

H urricanes Harvey, Irma and to emerge that the ILS market could at the end of the risk transfer chain Maria (HIM) were not the nightmare pick up as much as 25 percent of and may have difficulty establishing event for insurance-linked securities total industry claims, a figure cited their losses as they flow through the (ILS) managers that some might have by AM Best chief rating officer Stefan market. anticipated, but as the (re)insurance Holzberger during a November As much as half the ILS market’s industry began totting up costs from conference hosted by the ratings claims could be related to retro the windstorms, concerns began to agency. losses, said Hannover Re’s managing mount that some losses were going director of retrocession and capital astray. Where ILS losses fell markets Henning Ludolphs, speaking While industry losses from the Hurricane risk is the ILS market’s alongside Holzberger at the AM Best full roster of natural catastrophes greatest area of exposure – but conference. in the third quarter of 2017 were Harvey, Irma and Maria all presented This suggests a figure of around generally expected to range between such different challenges that they $10bn – an estimate corroborated $80bn and $100bn, the claims tally impacted ILS managers in an uneven at a Florida event by Aon Benfield emerging from individual company way. president Andy Marcell, who said results was initially perceived to be Retrocession specialists bore the his firm had tracked around $20bn falling well short of this total. brunt of the losses as the aggregation of impacted retro limit, with around Undoubtedly, some of the of claims mounted, while the cat $9bn of collateral affected. fear about the potential scale of bond market escaped relatively Collateralised reinsurance losses alternative reinsurance market losses lightly. will have varied by the risk level of was due to the fact that there is less This also contributed to the individual strategies, but the average public visibility on the ILS market opacity over ILS losses – as the cat recorded by the ILS Advisers index, claims burden. bond sector is the more public part which tracks 34 funds, came to a 9 But a general consensus has begun of the market, while retro writers sit percent loss in September. The year- to-date result for the first 10 months was a 6.91 percent drop. Cat bonds bounceCat backbonds from bounce HIM back storms from HIM storms In 2011, the only other year it was negative, the ILS Advisers index 100 posted a 0.14 percent annual loss. At the other end of the scale, 95 cat bond instruments are largely 90 designed to respond to notably large single events, not the kind of mid- 85 level hurricanes that Harvey and Irma were in terms of insured losses.

Index value 80 The Swiss Re global cat bond price return index was down 5.4 percent 75 over the course of September and October – suggesting a writedown of 70 around $1.25bn to the roughly $25bn market. Many of these losses would have been unrealised mark-to-market 14/07/201721/07/201728/07/201704/08/201711/08/201718/08/201725/08/201701/09/201708/09/201715/09/201722/09/201729/09/201706/10/201713/10/2017 writedowns, although some small Florida bonds and high-risk annual Source:Source: Swiss Swiss Re Re Capital Capital markets, Markets, Trading Trading Risk Risk aggregate deals were expected to

2222 www.insiderquarterly.com INSIDE Q3 CAT LOSSES: ILS respond to claims. ILS market segment loss projections However, it was not one of the Projected loss Estimated total Assumptions three major hurricanes but rather a ($bn) size ($bn) Mexican earthquake that triggered Collateralised 5 35 Taking 15% loss as average based on 10%-20% the cat bond market’s first and reinsurance losses reported by some funds tracked by ILS largest confirmed loss from the 2017 Advisers index catastrophe activity, through the Indemnity retro 5 11 Assuming 42% loss based on Catco’s return $150mn World Bank parametric deal Sidecars 4 8 Based on DaVinci Re loss for Fonden. ILWs 1 6 Based on 12% Micrix index loss, multiplied by 2 This is the cat bond market’s to account for higher US/aggregate exposure largest single payment since the 2011 Cat bonds 1 25 Based on 5% writedown to Swiss Re index Tohoku earthquake, which triggered a $300mn cat bond payout. Total 16 85 In the industry loss warranty Source: Trading Risk (ILW) market, the Micrix ILW index fell 12 percent after the September ILS managers have also hedged their across three decades.” hurricanes – indicative of around a portfolios. That said, the 2017 loss experience $720mn loss in a $5bn-$7bn overall “Thinking about how ILWs has primarily highlighted where the market. might have played into all of this ILS market’s pockets of aggregate However, the index does not track could make one investor seem more exposure lie – and the extent to which the performance of any aggregate exposed on the surface, but very well some retro strategies are far more ILW triggers and is globally hedged beneath the surface,” Popkin exposed to a 1-in-10-year aggregate diversified, so actual ILW losses says. loss than they are to a 1-in-100-year would be expected to be somewhat single hurricane. higher than this, as the market is 2017 loss experience “This was primarily a retro event,” heavily geared to the US and includes This year’s hurricanes have come Seo says. “Retro events should be some aggregate cover. after a run of favourable years for the expected to happen every three to The bulk of the ILS market’s (re)insurance markets. So were ILS eight years.” losses will be in reinsurance and investors prepared for losses such as At more of a micro level, Willis retrocession, with more exposure these? Towers Watson’s Dubinsky highlights to Irma (as it falls in their hotspot While this year’s losses may have loss adjustment expenses as a of Florida exposure) than to Maria, been extensive, cat bond specialist possible exception to the general rule where traditional market share is and Fermat Capital Management co- that investors have not materially higher and exposure would be mostly founder and managing director John changed their view on risk following via retro or sidecars. Seo says he ranks the 2017 events in the 2017 events. But with some ILS managers only fourth place behind 1992, 2005 As Harvey and Irma followed each building up insurance books in recent and 2011 in terms of their market other in quick succession, Florida years, they will also share “a small but impact. carriers faced difficulties in recruiting not insignificant portion” of primary This takes into account the loss adjusters, which put expenses market losses, according to Willis “surprise factor” of losses as well as well ahead of the usual assumptions. Towers Watson Securities’ head of the impact on capital levels, rather “Traditional contracts bore the ILS Bill Dubinsky. than just nominal loss totals. full brunt of the some of the adjuster “It is still far too early to close the “The losses this year are big enough shortages but factor-based contracts book on the exact allocation of losses to check an investor’s commitment, such as the [Florida Hurricane among insurers and reinsurers, let but not big enough to shake an Catastrophe Fund] and reinsurance alone between traditional balance investor’s faith,” Seo adds. backed by cat bonds did not,” sheets and ILS,” he says. Cat bond losses have been in line Dubinsky explains. Moreover, JLT Capital Markets with modelled risk profiles, but Seo co-heads of ILS Michael Popkin and highlights that the return period of Post-loss reloading Rick Miller point out that the issue major losses depends greatly on their The 2017 hurricane season has of trapped collateral complicates the definition and scope. kept everyone in the reinsurance ILS market’s exposure. This concerns So while some are talking about market busy, but spare a thought capital that is not expected to be a a 1-in-40-year loss experience, Seo for ILS managers juggling multiple loss currently, but which is being held argues that this year’s cat bond challenges in the run-up to the 1 over by a buyer in case claims rise to market losses are modelling as closer January renewals. trigger a contract. to a 1-in-10-year aggregate loss. Not only do they need to accurately Equally, just as traditional “If we put 2017 alongside 1992, assess losses and communicate reinsurers have bought retro to 2005 and 2011, we would be seeing Continued on page 24 reduce their net losses from HIM, four similar or greater loss years www.insiderquarterly.com 232323 INSIDE Q3 CAT LOSSES: ILS

with reinsurance buyers about their Risk New York conference. “I think it expectations for renewals, they also is a great opportunity for ILS funds to have to figure out what kind of post- raise more capital.” event pricing opportunity might be But as Irma drifted clear of Miami available and communicate with and it became clear that the HIM their investors to raise fresh capital to losses would be highly manageable replace lost and trapped collateral. for the reinsurance market, the issue Mother Nature was on their side, of how much of a ratings reaction in that the hurricane losses occurred would follow raised a question over midway through the season, giving whether opportunistic investors ILS managers at least a couple of would be willing to move back into months to accomplish this ahead of 1 the market. January. Speaking in late November, The yield question Dubinsky says that most investors John Seo, Ultimately, the key question for seem reasonably well positioned to co-founder investors considering their ILS and managing trade forward. director, strategy for 2018 will be how much Indeed, he suggests that some Fermat Capital additional compensation they can managers may even use the 2018 Management expect to earn post-loss. renewals as an opportunity to “grab But as alternative reinsurance market share intelligently both from capacity now plays such a significant traditional reinsurers and from other role in the catastrophe reinsurance investors”. This was primarily a retro event. segment, the overall reaction is “This shift will only occur if Retro events should" be expected expected to be far more subdued incumbents push price and give and controlled than after the capital investor newcomers the opportunity to happen every three to eight shock loss of Hurricane Katrina, for to do so, whether in cat bond form or years example. in private transactions,” he notes. JLT Re North America CEO Some ILS managers had waiting Ed Hochberg says the firm is lists for new investors before these expecting the diversity of capital events and pointed to this pent-up Perez, CEO of ILS service" provider sources available to buyers to have demand as a factor that would assist Horseshoe, said the firm was involved a “dampening” effect on the pricing with reloading their capital. in preliminary fundraising talks that cycle, but notes that the impact will Moreover, this year’s activity has could have brought in $3bn of capital not be uniform. drawn interest from investors that over the course of just two days. “Some parts of the market will see have been sitting on the sidelines of “We’re seeing investors coming more price adjustments (i.e. loss- the market, commentators observe. back, who haven’t been back since affected programmes) than other When it looked like Hurricane post-KRW [Katrina, Rita, Wilma],” segments and the persistency will not Irma was going to hit Miami, Andre Perez said at the October Trading be the same everywhere,” he says. Ultimately, given that the cat bond market rebounded quickly from ILS Advisers indexEurekahedge returns ILS Advisers Index the 2017 losses, Seo is expecting this market segment to attract new 225 strategic sponsors as a result. This is being influenced by 200 reinsurance buyers shifting their 175 emphasis away from obtaining annual rate decreases towards rate 150 stability, he explains, with the cat bond market offering multi-year 125 cover that can smooth out the impact of losses. 100 “We should expect next year to be yet another record issuance year in 75 the cat bond market,” Seo forecasts. For the alternative sector at least, Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 there has proved to be a silver lining in the clouds of this year’s hurricane Source: Eurekahedge ILS Advisers losses.

2424 www.insiderquarterly.com MorningData-MGA-Ad-USA4-v3-marks.pdf 1 23/06/2017 10:30:48

CMY

K INSIDE Q3 CAT LOSSES: D&F RAPID RELIEF The facultative market is likely to take a hefty hit as a result of Q3 cat losses, but hardening rates and tightening T&Cs could make renewals less of a headache for D&F writers, findsMarcus Alcock

t I was a brutal third quarter for industry losses could be expected (re)insurers, and there can be little every 10 years. “As a sector, we doubt that the facultative reinsurance haven’t been paid [for] this volatility market has taken a significant for too long now,” he said. proportion of overall insured losses. Indeed, although reinsurers have While hurricanes Harvey and Irma warned that it is still too soon after may have been more meaningful hurricanes Harvey, Irma and Maria for treaty reinsurers, there can be (HIM) to take a meaningful look at little doubt that Maria’s devastating pricing conditions (given that many impact, especially in Puerto Rico, significant programmes, especially combined with Mexico’s two powerful for the fac market, are some way off earthquakes in what must surely renewal), there is still an expectation count as one of the fac heartlands, has that firming of facultative reinsurance hit hard. rates could now be around the corner. As if this were not bad enough, For example, Munich Re along came the ferocious wildfires in management board member northern California, ripping the heart Hermann Pohlchristoph has argued out of many wineries. Underwriters that “pricing has to do with the whole and brokers alike have been portfolio. From the sheer size I would struggling to catch their breath. be very surprised if we are not to There is certainly an expectation see higher rates across the globe, among analysts of a significant wider definitely in property cat, but it goes market hardening following these further”. events. Morgan Stanley, which has suggested Q3 industry losses could Swinging a cat total more than $100bn, said the Where fac writers are concerned, significant impact to earnings and there also seems to be little doubt industry capital, current low P&C that for cat-affected accounts the pricing and the potential lock-up rate on line will swing upwards by of alternative capital could mean over 20 percent, and possibly even double-digit rate increases in property more where writers are confident of cat reinsurance, and potentially more retaining the business. in the retro market. Indeed, substantial localised Senior management has also property cat rate rises are now on the supported the need for firming, table for US, Caribbean and Mexican especially in the property reinsurance risks, with facultative underwriters market. RenaissanceRe CEO Kevin suggesting that a number of O’Donnell said he believed there was discussions about price increases have far more volatility in the reinsurance occurred in recent weeks, both on the sector than many appreciated, after direct and reinsurance side, as well a period where there was a dearth of as talks around tightening terms and US catastrophe losses. conditions. “Years like 2017 are not outliers,” The feeling seems to be that clients, he commented on a recent analyst especially those in heavily affected call, adding that similar aggregate regions such as the Caribbean,

2626 www.insiderquarterly.com INSIDE Q3 CAT LOSSES: D&F

appreciate that the market dynamic One London-based fac broker says their contribution to the overall loss is now one where rates can only go the buying dynamic for cat-affected burden, with much of this share likely one way. regions is clear: “I’d say that there’s to be absorbed by fac writers. Although areas that haven’t been little doubt, especially in loss-affected As such, comparisons are being affected as much will no doubt push territories, that what’s happened made with the 2010 Chilean quake, back on price hikes, one Miami-based will have a marked impact for many for which the fac market faced some fac reinsurer says: “The combination cedants, and we’re certainly seeing 50 percent of all claims. of Lloyd’s taking a stand on pricing, that in conversations we’re having. From a buying perspective, in combination with these losses, will Mexican fac will be of keen probably have an impact on prices in interest given the scale of potential the property fac market.” earthquake losses – the Chiapas Civil Hannover Re CEO Ulrich Wallin, Where fac writers are concerned, Protection Agency has reported that speaking on the carrier’s Q3 and " more than 54,000 homes in the state nine-month earnings call, said he was there seems little doubt that for were damaged, with 98 healthcare already seeing evidence of a firming cat-affected accounts the rate on facilities and 129 public buildings also of the reinsurance market on the P&C hit, as well as roads, highways and side “more or less across the board”, line will swing upwards by over bridges. including on loss-free business. 20 percent, and possibly even Fac writers will be hurting “[For the market overall], it’s still given the structure of the Mexican early days, but what we have seen – more where writers are confident (re)insurance market. The market particularly in the London market of retaining the business can be largely split into three distinct on the facultative business – clearly areas: Fonden (Fondo Nacional points to increases,” he added. para el Desarrollo Nacional, or the Wallin went on to note that even Federal Funds for Natural Disasters), Asian clients had “some sympathy” “In many" ways it’s continuing the government-owned entities, and for increased pricing. Referencing pattern of recent years, where those private businesses. 2011, when the global market saw insurers that had decided to increase The Fonden schemes are run an increase in pricing despite a year retentions and centralise purchasing by individual states, which buy of mainly Asia Pacific-based losses, have decided to go back to the fac programmes to cover the vast Wallin said Asian cedants “expect a table because they’ve been hit by majority of uninsured Mexicans similar movement for their markets losses, though of course this is [a] and are designed to be the first for the current year”. much wider spread. I guess we’ll have form of response, covering homes The Hannover Re CEO told a clearer picture over the coming as well as some government-owned analysts that after 2011 the industry months.” infrastructure assets, with a federal had broadly recorded an overall umbrella, or “Super Fonden”, on top increase in rates of 7 percent, and that Latin surge of the states’ covers. this “should be achievable this time For territories such as Puerto Rico The Puebla, Veracruz, Mexico around as well”, with loss-affected and Mexico the expectation of double- City and Chiapas Fondens are accounts securing significantly higher digit rate rises for the property fac especially likely to be heavily increases. market is hardly surprising given Continued on page 28

Harvey, Irma and Maria – industry loss estimates ($bn) Harvey Irma Maria Combined HIM Company Range Midpoint/ Range Midpoint/ Range Midpoint/ Range Midpoint/ Notes Total Total Total Total AIR Worldwide na 10 32-50 41 27-48 37.5 72-135 103.5 CCR na na na 7 na na na na Losses relate to French Caribbean collectivities of Saint Martin and Saint Barthélemy only CoreLogic 17.5-52.9 21.7 22.5-27.0 24.75 na na na na Insurance na 8 na na na na na na The ICT estimate relates to Texas only; an additional Council of Texas $11bn of loss is allocated to the NFIP Karen Clark & na na na 25 na 30 na na The KCC Irma estimate is split $18bn for the US and Company $7bn for the Caribbean Munich Re 20-30 25 na na na na na na PCS na 15.9 na 18 na 21.9 na 55.8 RMS 18-25 21.5 32.5-49.5 41 15-30 22.5 65.5- 85 An additional $7bn-$10bn of losses for Harvey and 104.5 $2.5bn for Irma are allocated to the NFIP Source: Inside FAC, Company announcements, as of 13 December www.insiderquarterly.com 272727 INSIDE Q3 CAT LOSSES: D&F

impacted by recent catastrophes, Mexico quake – fac grapevine seems to be that at the and are disproportionately reinsured very least some sort of correction will in London. The federal government industry loss estimates ($bn) take place. So for local markets in also insures many of its services Singapore, for example, the hope is Company Range Midpoint/ Notes (for example schools, medical Total for stabilisation of pricing after years facilities, electricity and water) in the AIR Worldwide 0.79-1.13 0.96 Estimate relates to of rating attrition. facultative market, with several likely Chiapas quake on 7 And beyond property? Again, to have substantial losses. September only much depends on geography. Drilling down into the figures, AIR AIR Worldwide 0.74-2.10 1.42 Estimate relates to According to Rich Macrane, Worldwide said insured losses from Puebla quake on 19 managing director for facultative September only the first temblor, which struck off at Willis North America, the series the coast of the state of Chiapas on 7 ERN na 4.8 Estimate relates to of Q3 cats has not turned out to be International Puebla quake on 19 September, would be between 14bn September only all that significant for mainland US pesos and 20bn pesos ($787.6mn- RMS na 1.2 Estimate relates to casualty fac pricing: “I don’t think $1.1bn). Puebla quake on 19 the storms had any impact as the However other estimates point September only casualty rates were already starting to much higher market losses – and Source: Inside FAC, Company announcements as 13 December to turn upwards slightly prior to hence a bigger hit for fac writers. the recent events. This is the case Indeed, the two major earthquakes California wildfires – especially in the wheels segment.” which hit the country in September However, other writers in the could cost the (re)insurance market industry loss estimates ($bn) casualty space do detect an impact up to $5.9bn. Risk modelling agency Company/ Range Midpoint/ Notes from HIM, with one suggesting there Evaluación de Riesgos Naturales, Organisation Total has been a tightening of terms and which has worked with the Mexican AIR Worldwide 8.0-10.5 9.25 AIR previously reduction in capacity pretty much estimated losses at (re)insurance market as well as $2bn-$3bn from the across the board for his class. consulting with construction experts Tubbs, Pocket, Nuns, Public pronouncements also across the region, estimated that Atlas, Redwood and support such sentiments. XL Group Sulphur fires insured losses to the market could top noted it is already seeing “double- out at $4.8bn for the 19 September California na 9.4 California Insurance digit” rate rises for short-tail lines, Department of Commissioner Dave Puebla quake. Insurance Jones said 260 insurers with loss-affected accounts showing When it comes to fac renewals, had reported claims in higher increases, according to Greg excess of $9.4bn, as of although we aren’t expecting a 1 December Hendrick, president of property and really clear picture until the new casualty insurance and reinsurance. Moody’s na 4.6 Moody’s estimated year, once again it’s abundantly total insured losses to Speaking on an analyst conference clear that writers are pushing hard date of $4.6bn, based call in the wake of the group’s third for a correction in Mexican pricing on 5,700 structures quarter results, Hendrick noted: “For destroyed as of 14 following years of rate declines, October the longer-tail lines, these businesses especially after such a poor track PCS na 7.3 will also need to deliver improved record of late. margins, and we are expecting rate RMS 6.0-8.0 7 RMS increased its After an all-too-brief spike in estimate to $6bn-$8bn declines in the aggregate to end.” rates following Category 3 Hurricane in late October, He also suggested that the spread Odile in 2014, prices have declined following its mid- of rating increases would not be October estimate of at a rate of around 10 percent a year, $3bn-$6bn limited to particular lines: “[Given] according to anecdotal evidence. The the reality of a challenging rate Source: Inside FAC, Company announcements, as of 13 December expected response to this is for direct environment for a prolonged period and facultative rates in Mexico to rise among the important manufacturing with increasing return expectations by as much as 40 percent on loss- names. Other significant losses to from underwriting capital providers, hit accounts, and by a still-hefty 20 the fac market will come from hotels, we believe that all lines will be percent on loss-free accounts. especially those on the waterfront impacted from a pricing and terms As significant as Mexican losses will resorts, which are more likely to have and conditions perspective.” be, they are only part of a much wider major claims. Still, it remains to be seen just how facultative loss picture. Discussions far the casualty fac side of the market over Puerto Rican renewals will also Casualty creep? will be able to respond meaningfully be crucial, given that the island has A key question in all of this is the to such increases, with old wags a large pharmaceutical industry, extent to which the wider fac market suggesting we shouldn’t hold our having made a concerted effort to will see rate increases in the coming breath just yet. And with a great entice companies to locate production weeks and months. deal of third party capital still sitting facilities there in recent years, with Here there is a great deal of on the touchline, no-one is being players such as Bayer and Merck uncertainty, though the word on the complacent.

2828 www.insiderquarterly.com

INSIDE PROFILE PUNCHING ABOVE THEIR WEIGHT

Catrin Shi meets with the co- The Lloyd’s carrier is celebrating IQ: It’s been 10 years since founders and senior management its 10th anniversary this year, having Barbican launched. How launched in 2007 with a stamp different does the company look team of Lloyd’s carrier Barbican capacity of just £75mn. now to how it was then? as they reflect on the company’s Today, the group manages around first 10 years of operation £500mn in gross written premium David Reeves: We launched as a and boasts a growing fee business, Lloyd’s business and are eternally as well as a well-respected Lloyd’s grateful to Lloyd’s for giving us that syndicate. During its lifetime, it has opportunity. We have been able to use strived to bring diversity of capital our Lloyd’s platform as the basis to It’s taken something of a to the London market, from both expand into a much wider insurance Herculean effort to get Barbican CEO traditional and alternative sources. group. Back then I thought 2008 was David Reeves, chief underwriting Now, it has set its sights on the a tough market, but if only we had officer Mark Harrington and chief US with a new excess and surplus known how bad it could get! operating officer John Godfray in the lines (E&S) property MGA – but I think we have real survival same room at the same time for their Barbican’s ambitions do not stop characteristics as a business. Our interview with this magazine. there. people are tough, experienced, and The trio are almost constantly CEO Reeves envisages his firm will we have shown we can go through the on the move, visiting clients and continue on its path to eventually whole cycle and come out the other prospective partners in all corners of become a £1bn premium business – end in good shape. We have made a the globe. but by organic means only. big investment in people, processes Because these days, Barbican is Insider Quarterly (IQ) sat down and systems to make us tough and far more than just a London market with Reeves and his colleagues to find sustainable, and to take us through business. out how. the next 10 years and beyond.

L-R: Jon Godfray, group COO; David Reeves, group CEO; Mark Harrington, group CUO

3030 www.insiderquarterly.com INSIDE PROFILE

Mark Harrington: We’ve expertise for underwriting, capital and John Godfray: One of the deliberately introduced a fee-based syndicate management in return for challenges that I think we have part of our business to help us manage fee income. managed very well for a company of the underwriting cycle, so that is This balance of risk-based and fee- our size is making bold choices. We a positive development we didn’t earning income not only allows us to have been very agile in expanding anticipate at the time. manage our bottom line throughout our focus, exploring emerging all stages of the underwriting cycle, opportunities and investing in new David Reeves: We believe that but is also a positive for the market processes and capabilities to keep within three years’ time, our fee in creating a conduit for attractive pace with the demands of our clients income businesses could cover the business that may not otherwise have and brokers. That has required us to whole of our group expense, so this made its way into London. take a number of risks over the years, has become a very big part of what but in the majority of cases these have we do. paid off.

John Godfray: Some opportunities I think we have real survival IQ: You have established a track have been born out of circumstance " record of successfully sponsoring and we have evolved in response to characteristics as a business. Our sidecar syndicates – is this market conditions. However, the something we can expect more underlying principles that we built people are tough, experienced, of from Barbican? the company on have remained and we have shown we can go the same throughout. Whilst we through the whole cycle and come David Reeves: Lloyd’s is a tough have seen significant expansion in place to get into. For people who our headcount, geographical reach out the other end in good shape – don’t know Lloyd’s very well, we help and capacity under management, David Reeves explain the opportunities and tailor the organisational DNA, drive and something to their exact needs. That ambition feel very similar to 10 years worked very well with companies ago. like Credit Suisse, which may not " previously have had a complete IQ: What has been the IQ: What has been the biggest understanding of how the Lloyd’s company’s greatest achievement challenge for Barbican? market operates. in those 10 years? The establishment of Special David Reeves: It’s really about Purpose Arrangement (SPA) 6132 David Reeves: Two things stand relevance and how we stay in the with Toa Re has been a five-year out. First, the people we have brokers’ eye, because we are not one journey of exchanging ideas. We are recruited. We have a team which has of the largest companies in the Lloyd’s speaking to many people in many stayed together through thick and market. diverse territories to tell them what thin. Second, the customers we have Another challenge is that we are we do here in London and see if it and the bigger corporate partnerships a self-sufficient company – we’re not is of interest. There are about six or we have been lucky enough to land. owned by a major insurance group eight organisations that are in that We don’t try to sell hard, we just tell and don’t have a parent to come and dialogue with us, but I don’t know potential partners about our market, help us when times are hard. We are which company will be next. how it works, and what we do. We out there on our own. have found that way of educating We have a very solid investor in Mark Harrington: We are people about London is the most Texas but we run our own business, interested in true partnerships effective way of building long-term so the biggest challenge is doing this where we can add value but also add partnerships. all ourselves – we have done it with something different to our portfolio. our bare hands. It’s a great challenge Where possible, it is great to bring Mark Harrington: An obvious to have and if anyone ever gets that something to the Lloyd’s market one for me is setting up our Lloyd’s opportunity, I would recommend that is not there at the moment. managing agency, BMAL – and we seizing it. We are looking for almost a joint did that within three years of launch. venture-type relationship with them. That is still one of the best things we Mark Harrington: I think we are We rarely engage with what we call have done. genuinely regarded as being able opportunistic underwriting capacity. to punch above our weight. As an John Godfray: I think that a real independent business, with effectively IQ: Tell us a bit more about your differentiator for us is our strong a Lloyd’s-only platform for taking new venture in the US. track record and reputation for risk, we have managed to keep up our establishing, and in some cases profile and franchise pretty well over Mark Harrington: The platform pioneering, ways of leveraging our the years. Continued on page 32 www.insiderquarterly.com 313131 INSIDE PROFILE

that we are developing in the US is conservative about our position on will take a lot to destabilise that. effectively a start-up MGA business, cat risk over the course of the last five which in the first instance will years and have reduced our exposure IQ: Where would you like to see specialise in property E&S. With all as margins have gone down. Now we Barbican in another 10 years’ the recent catastrophe activity, we can aim to increase our position, for time? think our timing may well be perfect example with our new property E&S for Colin Mayo and his team to get business, where we expect substantial David Reeves: I want to see back in the market. rate increases. Barbican at least double in size. The plan is to write $20mn of Although I would hesitate to At some point during the next 10 premium in year one with a focus on call this growth opportunistic, we years we expect to go through that wind-exposed territories in the US, so always plan for all eventualities. milestone and have over £1bn of very much a local US E&S play. I hope It is opportunistic from a timing premium under our management. from the development of the property perspective but not a strategic one. We are not looking to get there via E&S part of the business that we can acquisitions. Our key characteristic is build on this in the same way we have IQ: There are fears the Lloyd’s creating new underwriting platforms. with Barbican Protect and Castel. and London market is losing We are not out in the market with its competitive edge. What do a big chequebook. By creating and IQ: Do you think we will look you think the market can do to growing successful underwriting back at the Q3 2017 cat losses maintain its global status? platforms such as syndicates, MGA, and see them as a turning point SPAs, we will get there. in recent market history? David Reeves: One frequent criticism is that it’s too expensive to John Godfray: We’ve never Mark Harrington: Yes. I think that do business in London. But the fact is shied away from new challenges or we all recognise there is a significant there is a cost for strong regulation, opportunities and I don’t see that amount of capital in the market, but and I think we should turn that into a changing. We see ourselves as early we do believe that, coupled with the selling advantage, because the triple adopters and I would hope that over generally lower margins, recent events layer of regulation is very attractive the next decade we’ll continue to be will provide the final shove to make for people coming to London for at the forefront of advancing new people recognise there needs to be an reliable insurance. They trust the way technologies, innovations and data improvement in rates. And it’s not things are done. The products are modelling. just the underwriters, the brokers are hygienic and long lasting, and that accepting that outlook too. comes at a price. IQ: How do you think the London We expect that the more affected Of course, at the same time, you market will have changed by lines will see strong rate increases – should always be looking to do things then? 20-30 percent on property cat, for more efficiently in your business. It’s a example. For the casualty market, perpetual balance. David Reeves: I think if we stick which is less affected, we anticipate to our core strengths, the future is a positive rate movement of up to 5 John Godfray: The market is bright for the market. Balance sheets percent. not complacent. There is a lot of are strong, liquidity is high and We are trying to get everyone to investment and work underway capability is there. If we can harness think about moving the portfolio across Lloyd’s and the London the intellectual capital, we will be a price in a positive direction, whatever market to enhance market efficiency, much bigger market with a wider area of business you are in. We have streamline processes and improve cost global reach. I am an optimist, and I to remain mindful of the individual management. We need to be receptive see things coming together well. risk characteristics though, and not and responsive to change. to throw the baby out with the bath As an industry, we’re getting better Mark Harrington: If I could wish water. at adapting to market conditions but for something, it would be that the Experienced underwriters will we’ve got to work even faster and industry will manage to make better be able to differentiate between the perform better. Harnessing data and use of the data that is accumulating. portfolio rate changes we are looking technology will have a major part to There is significant cost in the chain for and the realistic rate changes for play in maintaining our competitive at the moment. each individual risk. edge. John Godfray: I think we’ll see more IQ: How is Barbican positioned Mark Harrington: I think the market collaboration on common to take advantage of any rate attractiveness of London is actually areas of process efficiency. The world increases which may occur as a the people that are here. There is real is changing at a rapid rate and, rather result of these losses? strength and depth across the London than fear disruption, we need to work market, which is genuinely unrivalled with technology leaders to ensure that Mark Harrington: We have been by any other global centre. I think it we keep pace.

3232 www.insiderquarterly.com

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We also work closely with associates to introduce capital to clients (both risk & working capital), in particular for start-ups

INSIGHT: CAPITAL FOUR YEARS OF GOOD LUCK Normalised return on equity has been significantly below the cost of capital since 2013, so while reinsurers have benefited from good luck, they’ve also been destroying value, says Keith Wolfe

Things aren’t always what they hope. It’s been too easy to ignore the capital base is challenged like it has seem, which is an understatement signals when capital is abundant. been this year. Everyone along the when one considers the overall health The cost of capital has decreased value chain is part of the equation. of the reinsurance sector. every year since 2014 because smart Insurance companies would be The good luck we had with natural investors know a good thing when well advised to review their buying catastrophes is over and it’s forcing they see it. They’ll place generous behaviours over the last several the industry to acknowledge that bets in a low-frequency cat period, years – and consider the partnerships things are in a state of disrepair or, at which can leave (re)insurers feeling they’ve had with reinsurers and the very least, disarray. satisfied with the status quo for address what inevitable economic A glance at reinsurers’ reported pricing. pressures and changes to the capital returns on equity since 2012 wouldn’t Global capital and a steady flow base might mean for them. seem like cause for alarm – they of money into the reinsurance and At Swiss Re, we envision a more were in the 10-15 percent range – but insurance sectors have created resilient world and our mission is to that’s dangerously misleading. an environment where insurance help make it so. But in order to be When all factors are taken into companies could pay less for their successful, we need to examine our consideration, normalised returns reinsurance and therefore sell their own fundamentals and make sure were well under 10 percent in eachNo rmalizeownd Retu rproductsns Paint a D forifficu lowerlt Pictur eprices as well. we’re sound for the long haul, or else of those years – which is a problem,Lac k of largeNobody’s catastrophe immune activity giv ewhens the il luthesion global of sufficie nt retuthatrn resiliency will be elusive. since that level of return is lower . Return on equity adjusted for a normal level of catastrophe activity has been significantly below the cost of capital since than the average cost of capital. 2013; essentially, reinsurers reported results have benefited from good luck while destroying value for the last four years Until recently, good performance Normalised returns in property markets was masking a Lack of large catastrophe activity gives the illusion of sufficient return lot of underlying issues. Companies, in many cases, made money because 20% they were lucky; the catastrophes Reported Return didn’t happen. 15% In reality, the industry wasn’t Cost of Capital properly rating coverage for 10% catastrophes during this Normalised Return benign period, and now those inadequate decisions have come 5% full circle as Harvey, Irma and Inadequate Return California wildfires prompt 0% serious reconsideration of loss projections. -5% 2011 2012 2013 2014 2015 2016 H1 17 KEITH The warning signs have been Return adequacy Reported return on capital WOLFE present for some time: low-severity -10% Cost of capital Normalised return on capital is president cat years, a challenging auto market of US P&C – and low interest rates. Unwillingness Return on equity adjusted for a normal level of catastrophe activity has been significantly below Regional & theSource: cost ofSwiss capital Re since 2013; essentially, reinsurers’ reported results have benefited from good National, at to heed these signals and their luck while destroying value for the last four years. Source: Swiss Re Swiss Re implications is like harbouring false

34 www.insiderquarterly.com We guide our clients through the insurance market place working together in partnership. We drive markets to deliver the best cover, pricing and wording available.

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shepherd: one who cares for, guides and protects a group compello: to drive together [com “together” + pello “drive”] INSIGHT: REGULATION

TROUBLE IN PARADISE In the wake of the Paradise Papers revelations and the introduction of the UK Criminal Finances Act, Mark Sutton and Karen Boto explore the insurance implications of expanding regulations

Yet again tax avoidance is This in turn forces directors and A successful prosecution may also making headline news. The latest officers (D&Os) to maintain better prevent a business from bidding for scandal, the so-called Paradise control of their businesses’ conduct, public contracts. Papers, saw over 13.4 million wherever in the world they operate. The new offences apply to all UK documents leaked to the German Before the new act, it was very companies and partnerships no media. These leaks are revealing the difficult to hold a corporate body matter what size, and are modelled offshore investment arrangements liable for tax evasion – a notable on the “failure to prevent” bribery of corporate entities and the rich example being HSBC’s Swiss banking offence contained in the Bribery Act and famous. They are also putting arm, which allegedly helped wealthy 2010. increasing pressure on governments clients to evade taxes but was Like the Bribery Act, the new to increase their regulatory powers never called to account by the City Criminal Finance Act imposes “strict to force companies to review their regulator. liability”, which means there is no business practices. Under the new legislation, requirement to prove involvement of corporate bodies will be required the “directing mind” of the corporate The Criminal Finances Act to establish appropriate procedures body. This approach is designed to The UK government is strongly to prevent any personnel or agents overcome the previous difficulties attuned to changing public operating on their behalf from encountered when trying to bring expectations regarding corporate deliberately facilitating criminal tax businesses to account for corporate behaviour, and indeed the UK evasion. offences. Criminal Finances Act 2017 came The penalties that can be brought For a company to be found liable into law on 30 September just before against a corporate body found to three elements of the offence must be this latest incident. have committed one of these new established: The key change introduced by the offences are tough. They include act is that it enables companies and an unlimited financial penalty and partnerships, as well as individuals, possibly ancillary orders, including c Criminal evasion of tax by a to be held accountable for incidents confiscation orders or serious crime taxpayer (either an individual or a of tax evasion. prevention orders. firm) The act introduces two new In addition, the conviction will be c Criminal facilitation of the tax corporate criminal offences, namely on public record, so if the media evasion by an associated person of the failure of a corporate body to furore surrounding the Paradise the relevant corporate body, acting prevent the facilitation of both Papers is any indication of the in that capacity. UK and overseas tax evasion by an national mood (where the important c Failure by the corporate body in “associated person” – an employee, distinction between legal avoidance preventing the associated person agent or any other person performing and evasion is often blurred) the from facilitating the criminal act. services for or on behalf of the company will also suffer considerable corporate body. reputational damage. A complete statutory defence is

3636 www.insiderquarterly.com INSIGHT: REGULATION

available to corporate bodies alleged corruption of foreign government Watch this space to have committed one of the officials. The risk of corporate prosecution is facilitation offences, if they can show This action may have been only going to rise. The introduction that they implemented reasonable influenced by the significant DPAs of the Criminal Finances Act preventative procedures (expected that Rolls Royce entered into with will undoubtedly make it easier in the circumstances) or where it various regulators. to prosecute corporate bodies in would have been unreasonable or relation to tax evasion offences. The unrealistic, in the circumstances, to Implications for insurers recent decision in Ivey v Genting have expected such procedures to be In response to this situation, insurers Casinos, which changed the criminal implemented. may want to review their policy test for dishonesty and is widely wordings to exclude liability for tipped to make it easier to prosecute What should businesses do? claims that arise out of an approved tax evasion facilitation offences, will The onus is on the owners and DPA, in order to avoid paying costs also lower the bar. senior managers of a company to More broadly, this change comes at put the appropriate prevention a time when corporates are readying and detection measures in place. themselves for the introduction The new offences will therefore in May 2018 of the general data create the need for further internal The Paradise Papers leaks are protection regulations (GDPR), investigations to be conducted by putting increasing" pressure on which will bring cyber risk and the large companies to ensure that management of sensitive data to the appropriate measures are in place, governments to increase their forefront of the risk landscape for which might also encourage both regulatory powers to force companies both in the UK and across whistleblowing and self-reporting. the EU, further increasing exposures This creates a heightened risk of companies to review their for D&Os. claims being brought against D&Os business practices For financial services and market who may be in breach of their authority-approved firms, the duties to the corporate body if it is scrutiny will be unprecedented as determined that the procedures they they get to grips with the extension have in place are inadequate. " of the Senior Managers and The new act also permits the use upfront and then having to claw Certification Regime to all authorised of deferred prosecution agreements them back post-conviction. firms in 2018. (DPAs), which are a discretionary Insurers may also want to consider This means that D&Os and their tool enabling prosecutors to reviewing the criminal conduct and insurers and brokers will need potentially allow culpable (given the potential for claims to stay alert, particularly as the companies to avoid a criminal brought by the company against government looks set to tighten conviction and receive a directors) insured versus corporate governance further with reduced fine if the corporate insured exclusions in their the suggestion that more “failure to body admits any wrongdoing policy wordings. prevent” offences for other forms of and cooperates, to the In particular, brokers and economic crime may be introduced satisfaction of the prosecutor insureds may expressly seek soon. and the court. confirmation that cover is With this changing regulatory Although going down the extended to this new legislation, as environment in mind, insurers may DPA route would spare the guilty MARK they did following the introduction of wish to review the breadth of their corporate body a conviction, one SUTTON the Bribery Act. D&O policy cover. Over the past is a partner at concern is that often the DPA will Clyde & Co Internal investigation costs will few years they may well have seen involve the corporate agreeing be another key consideration for their wording “creep” in response to to assist and cooperate with the insurers as the new offences will intense competition in the market. prosecutor’s ongoing investigation increase the need to conduct Brokers should also be alert to into particular individuals, complex internal enquiries. the current situation and ensure which could lead to a greater D&O insurers may want that insureds have the appropriate number of requests for costs to review their policies to insurance protection in place. indemnity under D&O policies. see if they will be expected Could the perfect storm of new The evidence and cooperation to meet the costs of any revelations of potential tax avoidance obtained from a DPA are also such investigation, before a on an unprecedented scale, changing likely to increase the number prosecution is initiated. They also public attitudes to corporate of convictions against directors. might want to consider if they are governance and more onerous KAREN Last month we saw this in action BOTO is prepared to provide cover for these regulation be the trigger that finally with the former executives of Rolls legal director at investigations for the corporate entity turns the D&O market? All we can Royce pleading guilty to bribery and Clyde & Co as well as the individual D&Os. say is “watch this space”. www.insiderquarterly.com 3737 INSIGHT: INSURTECH WHITE HEAT London is a crucible for innovation, writes Toby Esser, and now is the time to forge new business opportunities by exploring InsurTech

There is a feeling of change colours and ideas such as hot desking the sector. in the air, and it isn’t tied to the and flexible working hours. In It’s no secret that the insurance inevitable shift of autumn into particular, the hallmark of the most industry needs to modernise, both winter. No, this is something modern independent brokers and in terms of its attractiveness to new different, something molten, difficult underwriters is valuing the ideas talent and its actual processes, which to isolate – and happening as you of all employees, no matter their are still archaic beyond belief in some read this. seniority. areas. From embracing new types of This is a market which must attract For instance, while there may risk to introducing flexible ways and retain new talent, and the best be good reasons why some classes of working, exploring modern companies will proactively identify of business are not currently technology and harnessing the power and propel the most dynamic young electronically placed, there is of networks to compete with giants, minds into senior positions more absolutely no reason why all classes ideas are smelting in the crucible of quickly than at any time in the past. of insurance business should not be the London market. The next generation, with their fresh electronically processed. thoughts and ideas, need to be given Supporting the latest and best From the ground up the opportunity to prove their worth. ideas will disrupt the traditional Some, especially those outside the business model in favour of more industry, may still think that the Accelerating InsurTech agile, proactive ways of working. But future of insurance is an endless This fresh thinking should be InsurTech start-ups require access to repeating pattern of grey suits closely linked to actively seeking private, corporate and institutional working unrelentingly from 08:00 out InsurTech ideas and start-up funding, as well as the expertise to 18:00 within a strict, linear businesses, and accelerating them and insights that broker and carrier hierarchy. to drive change at a market level. partners can offer. Not a bit of it. The traditional, drab We shouldn’t sit around watching It is all very well saying InsurTech image of most businesses connected technology start-ups struggle to get start-ups need the backing and with insurance or financial services off the ground, while simultaneously practical support of the industry, is being replaced with bold, bright complaining about slow progress in but only a few are prepared to

3838 www.insiderquarterly.com INSIGHT: INSURTECH

lead by example and integrate new risk that the (re)insurance market This is an opportunity for non- technology into their own processes needs to wake up to. owned network models, which first. The short-term letting market is involve independent brokers around This is where young, independent another example of a new peer-to- the world collaborating to service brokers come into their own – the peer model which has shown huge multinational clients, to come into absence of legacy issues makes these growth in the last two years, but the their own. The Worldwide Broker businesses much more agile and open sector is now being held back by the Network is the largest of these non- to adopting and quickly integrating slow pace of recognition from some owned networks of independent new ways of working, unlike their areas of the insurance industry. brokers, collectively handling larger, more unwieldy competitors. This is a new frontier for insurance, premiums in excess of £50bn This is certainly not to say the and there is great potential for ($65.54bn). market will move away from being innovation, including developing There is strength in numbers, relationship-driven, rather that the on-demand premiums, streamlined but also the advantage that each best technology enables more face- individual broker is incentivised to-face meetings to cover what truly to give the best possible personal matters, while offering more efficient and bespoke service in their region, and effective underlying processes offering multinational retail clients a to support every aspect of that It is all very well saying InsurTech real alternative to the one-size-fits-all relationship. start-ups need" the backing and approach on the table elsewhere. New areas of risk practical support of the industry, Competitive edge Change is also coming to the way the but only a few are prepared to The big brokers try to be all things to market looks at risk, particularly new all people, but this isn’t necessarily areas of risk. lead by example and integrate a sustainable strategy. On the Traditional insurance has tended new technology into their own wholesale side, choice is also key, to work from the “product first” but here consolidation is limiting perspective, where an off-the-shelf processes first choice for insurance buyers. Indeed, product is pushed towards a client as the UK broker consolidation wave part of a “one-size-fits-all” approach. continues to roll, driven by relatively But innovators in the market have cheap debt, historically low interest been flipping this approach on its policy access" and much more. But rates and interest from private equity head and have instead focused fully unless the insurance industry works backers. on the client, taking the time to together to recognise and properly However, having been involved in sit down with them and listen to service rising consumer demand, it 11 M&A processes in the UK over what they are looking for from their risks not only hindering progress the last year, I can say that pricing insurance products. Such innovators in the peer-to-peer model, but is the highest I’ve seen in 25 years are then working back through also missing out on the enormous – and this concerns me because the market with forward-thinking opportunities offered by modern I feel bidders don’t properly take Lloyd’s underwriters to create a truly economies. into account exchange rate impacts, bespoke solution. particularly considering the US dollar A more open-minded approach Independent growth revenue and sterling expense setup of from underwriters is still required. Expanding into new and existing a typical UK broker. Take, for instance, the peer-to-peer areas of risk involves growth, both To be successful in the future, and sharing economy sector, where organically and through acquisitions. brokers must be at the forefront of there is a real need for the insurance But realistically, it is a huge challenge all the changes to distribution norms industry, and insurance market for a smaller, independent broker to that new technology is enabling. associations, to wake up and find reach the required critical mass to The best will have the flexibility to innovative solutions for areas of compete with the international quickly adapt and navigate uncertain uninsured risk. broking behemoths, and their landscapes where cumbersome As the furore over taxi-hailing wholly owned global networks. business models may stall. technology firm Uber’s licence However, change is coming The key ingredient of course is to operate in London recently to this model too. For instance, commercial viability. Whatever the demonstrated, sharing economy on the retail side, the large initiative, it must offer a competitive initiatives must keep pace with international players can be edge to the backer, as well as benefits regulation and insurance, and vice proficient in servicing multinational for the end user, client or employee. versa. Sharing economy and peer-to- TOBY ESSER clients in some core countries, but New ideas must be able to withstand is executive peer business models are disrupting chairman of they can also let these clients down the fierce heat of competition, and traditional models around the world, AFL Insurance with poorly performing local offices emerge stronger than the sum of and represent an area of uncovered Brokers elsewhere. their parts. www.insiderquarterly.com 3939 Advising cedants globally for 17 years Can your security committee afford to be without us?

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INSIGHT: CLAIMS REFLECTING ON CLAIMS

Cumbersome processes and settlement delays are reflecting badly on Lloyd’s reputation for paying claims, as well impacting coverholders’ standing in their domestic markets, says Sarah Newman

Sometimes we can get so belatedly and reluctantly. Kanye West’s ongoing tussle with wrapped up in the internal workings This perception is not improved Lloyd’s over a tour cancellation) hit of the spectacular machine that is by the fact that, earlier this year, a mainstream headlines around the the Lloyd’s insurance market that new law came into force in the UK, world. we forget how we appear to those under the Enterprise Act granting Rightly or wrongly, news that outside this specialist global hub – or insureds the right to claim damages a claim is being disputed will even to those on its periphery. if undisputed claims are paid late. inevitably feed public perceptions Simple market-led mechanisms The law, which applies to all about the industry. such as premium price hardening (re)insurance contracts, stipulates It’s time to hold a mirror up to this in the wake of catastrophic events payment within a “reasonable time” market. We all need to work harder can easily be interpreted by – the first time that the issue of late to make sure valid claims are paid the wider world as unfair, even claims payments had been tackled swiftly and efficiently. underhand, machinations – just with penalties in this way. Take the coverholder model, for another insurance complot designed The fact that this law was deemed instance. Coverholders are a proven cynically to kick those that are down, necessary says a lot about the and successful way of placing and price the uninsured out of the industry’s track record. business with Lloyd’s, offering market. benefits to each of the parties The industry also suffers from A claim is a promise involved and increasing the volume the perception in the public Swift payment of all valid claims of business, from the US and Canada consciousness that complex wordings should be the central role of any in particular, flowing into Lloyd’s. and exclusions are designed to insurance business – lose focus on But in the past Lloyd’s coverholders impede claims payments. this and you risk damaging not only have complained of cumbersome The suspicion is that insurers your own business’s reputation, but and onerous processes for extracting will either point to the small print that of the whole industry. It’s an claims from the market. These and refuse to pay a claim, or drag issue of trust, which isn’t helped include inefficiencies and delays their feet and pay valid claims only when claims disputes (such as Continued on page 42 www.insiderquarterly.com 4141 INSIGHT: CLAIMS

connected with duplication, regulatory compliance, use of multiple platforms, and an It’s time to hold a mirror up to this market. We all overall lack of transparency and need to work harder to "make sure valid claims are accountability. paid swiftly and efficiently Mirror on the market Delays in paying claims can obviously have a reputational impact on a coverholder in its domestic market. " A Canadian coverholder we New technology central location, whilst providing the work with voiced the views and Work to streamline London market capability to interface with market experiences of many, telling us that claims payments is progressing of systems such as Lineage and ECF, Lloyd’s generally responds slower course, and it has been for years. and other parties’ internal systems. than subscribing domestic markets, For instance, the London Market Crucially, Endeavour clients can use regularly leading to a situation where Association says it is undertaking the system free of charge. they have funds from every other some “exploratory work looking There are other models out there market to settle a loss, except Lloyd’s. into the feasibility” of introducing too, of course, and ultimately the This is not aided by some of the automated learning/robotics entire market needs to work together existing systems and processes that technology. to cut out inefficiencies in claims we continue to persevere with, which These are carefully chosen words, processing. ultimately create something of a but clearly there is promise here: This in turn would allow valuable bottleneck for business. such technology has the potential resources to be refocused and Our clients are calling on the to support and enhance the roles of redistributed to client-facing work, London market to empower claims handlers and managers. improving both the client experience coverholders and provide them However, delegated authority and the experience of the claims with resources to propel the Lloyd’s claims must be handled more handler, whose job would become brand into a position of high esteem; efficiently right now in order to more dynamic since they would no rather than the current situation of prevent loss of business. Systems longer need to laboriously re-enter coverholders having to explain delays are needed today, yesterday even, data for claim after claim while due to an old-fashioned business that empower coverholders to more slowly slumping their head against model or process. effectively exercise the authority their keyboard. Challenges also persist relating given to them. to ever-increasing compliance It is essential that new systems Retaining claims talent and regulations, which require enhance the notification and Making the claims process more Lloyd’s coverholders to spend an communication of claims during the efficient – and the job more inordinate amount of work and time life cycle, improving the message absorbing – could even improve implementing procedures necessary and notification to brokers and staff retention. There is a large pool to satisfy Lloyd’s requirements and customers. of talent in the claims community, pass audits. We also firmly believe brokers have but we risk seeing more and more Of course, there are clear benefits to a role to play, but it’s not the one claims professionals leave the market being a Lloyd’s coverholder, not least they’ve been playing in bygone years. unless we modernise, and this means the fact that it provides access to a With increasing costs, compliance supporting them with the tools and flexible business model that allows restrictions and actuaries scrutinising technology that allow them to swiftly them to secure business within business plans, it is inevitable that deliver what insureds were promised. the broker channel, which other the basis for remuneration and Lloyd’s success has been built on its non-coverholder domestic rivals how that is apportioned will reputation for paying all valid claims. may not have access to. be reviewed. There is pressure The aftermath of the 1906 San However, the current issue of on brokers, in particular, to Francisco earthquake is testament Brexit should bring challenges demonstrate that the role they to this. like slow claims payments to are undertaking adds value to In fact, to many clients, the claims international coverholders into the process. service is one of the most influential even sharper relief. For this reason, the model that factors when choosing a product Now, more than ever, the London SARAH we have embraced provides a from a (re)insurer. market must protect and increase its NEWMAN single, unified platform that allows We simply don’t have time to wait competitive edge in the international is support coverholders, brokers and the market for more months and years of testing services director market or risk coverholders simply at Endeavour to keep sight of claims with complete – delays in paying valid coverholder getting fed up and refocusing Insurance transparency. claims are reflecting poorly on the elsewhere. Services All information is stored in one market today.

4242 www.insiderquarterly.com Trusted Asbestos Inspection & Testing

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Untitled-3 1 29/08/2017 11:57 INSIGHT: CLAIMS

STORY TIME

Technology is driving the themselves embrace technology, in the best way to provide the desired claims process, but the order to remain relevant in today’s insight into the customer experience, market. as well as the ability to feed real story, says Mark Technology can, when deployed seamlessly into major clients’ and Grocott, is about knowing correctly, improve our processes, providers’ own systems. customers’ needs and speed up our business flow, add It helps us support the customer, value and shorten the distribution make decisions more quickly and using technology to chain. But how specifically should identify fraud patterns. And all that respond to them more we use technology to respond to our data can be used to develop more effectively customers’ expectations? sophisticated claim strategies with insurers and reinsurers. A new narrative But that’s just the beginning of In the aftermath of an escape of the story (since all stories have a water, for instance, policyholders beginning, a middle and an end). The demand action. The small food next step is to harness the power of We all tell stories. They processing company with a business technology to provide smarter service begin, as often as not, where interruption claim is primarily and better outcomes. Here again questions arise and a decision has to concerned with getting the business there are decisions to be made over be made. What will I do if I win the back on track as quickly as possible. priorities. lottery? Where will my business be in The homeowner doesn’t want his For example, technology can allow five years’ time? or her family spending months in us to receive input data just once A story provides the framework that temporary accommodation. Yet, every and analyse it on the spot. Or we embeds choices in actions that have a year after a flood, we hear complaints can overlay new data sets with our past, a present and a (still uncertain) that the insurance industry is lacking claims data to help us identify fraud future. And, in business, one of the in urgency and empathy. potential more accurately. Or use greatest driving forces behind the Technology, closely married to analytics to help our clients with their stories we tell ourselves these days is customer service skills and great own risk management strategies. the pace of technological change. processes, can play a big part in Clearly brokers, insurers and all alleviating this frustration. But there Finding the plot those involved in service delivery are big decisions to be made. The way we use technology is critical. to the insurance industry need to At Davies we’ve established beyond Consider the motor claims market, embrace technology, particularly all reasonable doubt that when it which in a typically risk-averse to support those customers who comes to claims a single platform is space has been in the vanguard of

4444 www.insiderquarterly.com INSIGHT: CLAIMS

technology, empowering claims taking out cost through technology only about responding to the needs handlers to make virtually real-time – may not in the long run mesh with of the customer. That entails first decisions. the client’s objectives. knowing your customers’ needs inside At Davies we use a lot of online Think of your own experience with, out. video evidence provided by say, internet banking. Most of the Are they time-poor? Do they need policyholders – and this has now time you may be happy with online extra support through the claims been widely extended to property connectivity without the intervention process? Can you help them to claims too. But it’s not a silver of any human operator. But there will manage their business and reduce bullet. It works only if backed up by be times when you long to talk to a risks? expert handlers who can interpret real person. People still answer these questions the evidence and respond to each In handling insurance claims we better than machines, but they need individual case. have to be very sensitive to these support in collecting and analysing There’s a long list of technologies varying needs. It would be a massive the raw data. helping to cut claims times. We mistake to think that all claims could The processes we develop need to now regularly use drones to assess be settled using artificial intelligence be grounded in hard evidence and property damage in areas where (AI). The secret is to allow technology continuous improvement. That’s access is difficult. Smartphone to carry out the simpler processes, where AI comes in again, monitoring technology makes it possible to freeing up your team to make the outcomes – claim costs, complaints, agree on-the-spot instant variations on works with contractors through video data capture. And the future will bring more and more options. The strategy must be to enhance the overall service with The connected home where all risks " are diagnosed, or the smart car that technology and not impair it. Other strategies – such as can pinpoint the events leading up simply taking out cost through technology – may not in the to an accident are no longer the imaginings of science fiction. long run mesh with the client’s objectives Connectivity is the future for the implementation of technology in the claims arena. Some claims will harder decisions and focusing on " life cycles – through joined-up be resolved instantly without the the more complex concerns of your technology and providing a much insurer’s intervention. For instance, clients. For instance – in employing faster and more dynamic way of facts about a delayed flight will be measures, such as net promoter score driving improvement and service relayed instantly and the appropriate and client satisfaction surveys, to delivery. sum paid directly into the insured segment the customer base in a way We must offer a broad toolkit traveller’s bank account. that achieves the best outcome. of options to support customer But what impact will all this have on If claims administration companies choice. By adopting technology and the claims culture? What are the legal are to play an integral part in the automation we will be able to release implications? And, above all, to what future value chain, it will only be by skilled staff to solve harder problems extent will the new world support adapting to clients’ needs, both by and implement effective strategies to customer choice? embracing new technologies and further improve service. In stressing the importance of investing in the skills of their people. If we don’t take this route and choice in the implementation of Take just two key areas: customer instead opt for an entirely automated technological innovation, it is clear complaints and regulatory services. approach to claims, then there will there is a wide range of approaches to Innovations for supporting both be plenty of new entrants into the individual claims and it’s our job to of these disciplines will come from market – including Google and select the best solution in each case. both technological advance and perhaps Amazon – that have the Of course, this is particularly true of the intervention of skilled skills to out-compete us. complex major loss claims where it is professionals. The reputation It comes down to a never- essential to get the right technology in of insurance providers will ending story, based on evolution the hands of the loss adjuster on the depend on balancing these new and renewal, but always ground. solutions to the satisfaction of dependent on choice. their clients. This is how the poet, Robert The human factor Frost sums up the question of With every choice there’s the risk of Happy ending choice and deciding: taking the wrong path. The strategy My experience in the claims industry Two roads diverged in a wood, MARK GROCOTT must be to enhance the overall service tells me to rely on people because is chief digital and I— with technology and not impair it. they tell stories better than machines. officer of the I took the one less traveled by, Other strategies – such as simply The use of technology in claims is Davies Group And that has made all the difference. www.insiderquarterly.com 4545 INSIGHT: ASBESTOS UNDER THE MICROSCOPE Charles Pickles examines and manage its presence. dangerous levels of airborne asbestos The decision to manage ACMs is fibres. asbestos in the workplace not necessarily a bad one as asbestos The Health and Safety at Work Act and how to manage in good condition can be safe as long 1974 says: “It shall be the duty of the risk effectively with as its presence is known about and every employer to ensure, so far as the material is maintained. is reasonably practicable, the health, reassurance air monitoring However, for those responsible for safety and welfare at work of all maintaining buildings where asbestos employees.” is known to be present, the crucial More specifically, the Control question is how it can be dealt with of Asbestos Regulations 2012, safely? Regulation 4.8, (Duty to Manage) In cases involving potential The hazard is potentially the Asbestos, mandates that a personal exposure to asbestos fibres presence of asbestos in a building, determination of the risk from any in buildings, the need to consider but the risk to occupants is when the asbestos known to be present is “materially increasing risk” means asbestos fibres become airborne and made. that the detailed analysis of asbestos can be inhaled. An asbestos survey Moreover, it says: “The regulation fibres provided by scanning electron identifies the hazard, but on its own is designed to make sure anyone who microscopy (SEM) offers much rarely identifies the risk present to a carries out any work in non-domestic greater levels of clarity compared to meaningful level. premises and any occupants of the standard techniques. premises are not exposed to asbestos Even though asbestos has been HSE responsibilities from ACMs that may be present.” banned in construction materials There are strict Health and Safety This responsibility falls to since late 1999, and a huge amount Executive responsibilities for the duty holder, who removed from buildings over the property owners that are aimed at is usually the years, there are still many properties reducing the risks to health that person or of all types where the decision asbestos poses, and there should has been made to leave asbestos- no longer be any excuse for anyone containing materials (ACMs) in situ being exposed to potentially

4646 www.insiderquarterly.com INSIGHT: ASBESTOS

organisation that has clear quantified to very low levels, typically whether the employer had materially responsibility for the maintenance achieving lower limits of detection increased the risk of harm to the or repair of the premises. The duty to 0.0005 fibres/cm3 and below, claimants. holder is required to assess and compared to the 0.01 fibres/cm3 With asbestos fibres there is usually manage the risks from asbestos to capability of standard phase contrast a time interval of decades after employees and others, and must microscopy (PCOM). SEM can any exposure before the onset of ensure that anyone who is likely also distinguish between different disease. For the person responsible to work on, or disturb, asbestos is asbestos fibre types and other non- in law for the provision of a safe provided with information about its organic fibres. working environment, the prospects location and condition. Current analysis using standard of civil litigation arising at some Government policy considers PCOM has a limit of detection that is time in the future from a very small that asbestos that remains in good wholly unsuitable for risk assessment contribution to the asbestos exposure condition and unlikely to be damaged in an occupied environment and is of someone who subsequently or disturbed is not a significant risk only really valid for asbestos removal develops mesothelioma should not be to health as long as it is properly monitoring. overlooked. managed. Only when ACMs are disturbed or damaged is the risk of exposure increased through the release of airborne fibres. Air monitoring using SEM enables actual and direct asbestos Rigorous systems of asbestos " management are therefore needed risk measurements to be made in specific building locations. to prevent staff and the public disturbing ACMs that are accessible This in turn can be used to prioritise risk and target spending to them. This involves the careful on remedial works monitoring and management of building materials at all times. Regular inspections and checks by the duty holder of the condition of In such circumstances, SEM’s " As a result, if potential liabilities ACMs are essential and this should ability to more accurately determine are to be avoided or defended, it will include details of any precautionary whether asbestos fibres are present often be necessary to demonstrate or safeguarding measures that are means it can better identify the level that airborne asbestos concentrations needed. As part of this requirement of any risk that might be present did or did not significantly exceed an assessment of the risk associated – and what remedial actions are background levels. with each identified occurrence of required. To be relevant, the sampling asbestos is required. Used in this way, air monitoring needs to coincide with suitable and using SEM enables actual and direct representative site activities and Effective risk management asbestos risk measurements to be conditions – however, the impact of Against a background of growing made in specific building locations. false positives associated with the public concern over the potentially This in turn can be used to prioritise inclusion in samples of non-asbestos harmful effects of asbestos in risk and target spending on remedial fibres can be considerable. buildings, modern air monitoring works and provide the reassurance In such circumstances, PCOM will and analytical techniques now have that those present in the building are give only a total fibre concentration the capability to detect much lower not being exposed to harmful fibre rather than an asbestos fibre concentrations of any asbestos fibres levels. concentration, so the ability of SEM present. to discriminate between asbestos and This means that the periodic A future defence non-asbestos fibres can provide a monitoring of air samples is now This is particularly important in true reading. much more relevant and realistic bolstering any defence against Nobody should be complacent rather than simply monitoring a potential future legal claim about the health risks conditions after building repairs or where the duty holder will need associated with asbestos. asbestos removal work. to demonstrate that the best Workplace air sampling and In particular, a formal programme available practicable technique analysis utilising SEM can of reassurance air monitoring using was used to enable a suitable ratify the effectiveness of existing powerful SEM can more effectively and sufficient risk assessment to asbestos management techniques measure occupational exposure be made. and prove that asbestos fibres levels concentrations for asbestos in In particular, the Fairchild v CHARLES are not elevated – providing vital PICKLES is workplace premises than other Glenhaven Funeral Services Ltd chief technical reassurance that anyone present techniques. (2002) case specifically identifies that officer of Lucion is not being exposed to potentially SEM enables asbestos in air to be the appropriate test of causation is Services harmful asbestos fibre levels. www.insiderquarterly.com 4747 TECHNICAL BRIEFING: TECHNOLOGY

HAPPY BIRTHDAY TO YOU! Aidan O’Neill celebrates the recent Going live Docosoft was responsible for two It’s hard to believe that the ground- carriers implementing as early second birthday of the launch of breaking, message-based technology, adopters – Faraday and Talbot. The Write-Back, which has enabled London which allows the IT systems of implementation was smooth and market insurers to interact fully with London market insurers to interact within the deadlines that were set, and fully with the market’s central claims so began a new era in London market the market’s central claims systems systems, ECF2, went live only two claims transformation for our carrier years ago. clients. The actual go-live date was Saturday At the time, Lee Elliston, the LMA’s 17 October 2015 and I remember the senior executive, claims, said: “It’s nerves we felt at Docosoft – one of the hard to overstate the importance of Where has the time gone? software provider midwives present at this. Write-Back represents the biggest Just over two years ago in July 2015, the birth of Write-Back – as it entered technological change for claims since the Lloyd’s Market Association the world. ECF was launched in 2006.” (LMA) in partnership with a handful Write-Back was the result of Lee’s optimism has since been of managing agent early adopters intensive and successful market validated by the huge benefits unleashed its Write-Back operating collaboration over a period of 18 provided by this London market system onto the world. months between a number of software technology innovation success story. Two years on, Write-Back is going providers and Lloyd’s and London stronger than ever. So, let’s look market carriers. The high level of Write-Back benefits back at Write-Back’s achievements co-operation during the development Write-Back now provides market over the last 24 months, the greatest phase, sponsored and overseen by carriers with greater flexibility benefits realised so far from the claims the Associations’ Administration in managing claims; it removes management system, and what lies Committee, was followed by 15 weeks duplication and inefficiencies, and ahead. of intensive testing, which led to a offers enriched data and management successful delivery. information by providing near real-

4848 www.insiderquarterly.com TECHNICAL BRIEFING: TECHNOLOGY

time claim notification. non-Write-Back carriers were – and CMS – close to 25 percent of Lloyd’s The new functionality increases still are – experiencing. managing agents. the degree of interaction markedly, As word went round the claims The plaudits have rained in, letting broker data flow into a carrier’s community that Write-Back was a with one head of claims at a large system within seconds, and enables winner, more carriers started to come managing agent telling me that the the carrier to build its own “view” of a on board. result is a system that will help them claim. The carrier can then respond to In June 2016 it was the turn of revolutionise the way they handle the claim, sending data back into the Markel to go live with Docosoft’s claims. market’s central systems, enhancing Write-Back solution, followed by Modesty prevents me from divulging how an electronic claim is handled MAP shortly after in July 2016, and the name of the head of claims who and managed. then by Starr and Aegis London. Starr said that. But it doesn’t stop me from The primary objective was to went live in October 2016, while Aegis mentioning that our Write-Back- introduce functionality that offers received an upgrade of its existing enabled CMS version has now picked carriers the ability to review and Docosoft claims management system up three awards in the last 10 months respond to a claim in their own system (CMS) to the Write-Back iteration – a London market technology which, in turn, would offer flexibility in November that year. Then, as of initiative award, a national Irish to carriers in managing claims January 2017, all systems were “go” at Times Fintech Innovation Award and electronically. Axis as it also went live. a global Acord Case Study award for The system now provides the I won’t bore readers with the full list Business Process Improvement, which following benefits: of Lloyd’s managing agents that have we gratefully received at the annual adopted the system but, suffice to say, Acord global conference in Boston in c Savings in effort and cost through it’s a lot! October this year. a single operating model (London An Acord award is a prestigious and non-London) Competitive advantage honour recognised throughout c Removal of duplication of effort Our experience has been that, the insurance industry worldwide. caused by working across multiple typically, an adjuster would have 18 These awards are presented to those systems different actions across seven different organisations and individuals who c Reduction in restrictions to central systems and eight different processes have demonstrated outstanding systems working hours to handle one claim. achievement in implementation in the c Insulation from risk of central With the help of Write-Back we were past year. systems performance issues and able to combine a large proportion unavailability of those processes into a single The story continues c Reduction in effort and system. Claims handlers can now So, what is the future for Write-Back? simplification of claims handling do their job in real time so they are Its capability to deliver enhanced c Improvements in access to claim recording quality claims data that data analytics is certainly very data and information we can use for analysis, performance promising. To take advantage of measurement and for freeing up time the data insights in an organisation Award-winning technology for other customer service-focused requires new ways of automatically Within months of the launch, it was requirements. organising, classifying and labelling clear that Write Back’s market-wide The five key steps to competitive documents and data. Using advanced implementation had been a success. advantage that the claims machine learning techniques, we At the end of 2015 the LMA, via ECF management system can provide believe that the data analytics on our Write-Back, was awarded London include: Write-Back-enabled CMS will do just market “Technology Initiative of the this. The new technology can take Year” by a publisher I will refrain c Up to 50 percent reduction in hundreds of thousands of claims and from mentioning in Insider Quarterly claims handling turnaround time policy documents and data as inputs magazine, but readers can probably c Estimated £350,000 saved for a and outputs their hidden thematic guess which organisation I am small team of claims handlers structure and relationships, which referring to! c 625 days saved, based on 30,000 leads to actionable insights such as This followed Write-Back’s Business claims processed a year improvements in compliance, cost Process Improvement Award for the c 10 minutes minimum saved structures and competitiveness. LMA at Acord’s annual conference in per claim It will then be possible for this Florida the previous month. c 24/7 access claim response new machine-learning technology That was excellent news at a London ability to crunch petabytes of data more market level. And at Docosoft we were efficiently and make sense of a delighted to discover that our clients There has been impressive market- complicated claims world. loved the security and ability to work wide take-up of the technology. There is much to look forward to for AIDAN through central systems performance Twelve market carriers are now O’NEILL, Write-Back, which is only at the start issues and unavailability that other live on the Docosoft Write-Back CEO, DOCOsoft of its journey. www.insiderquarterly.com 4949 TECHNICAL BRIEFING: TECHNOLOGY

INNOVATION AT A SNAIL’S PACE Standardisation and automation of littered with inefficiencies, including what Brexit will bring? significant manual effort and multiple The message for change has been straight-through data processing will hand-offs between several parties echoing its way around the London boost regulatory compliance and client that generate a lot of duplication and market for many years, and once again satisfaction, but greater engagement rework. at the quarterly gathering for ACORD New processes that allow members the same message was is needed to increase the rate of a coverholder to submit risk repeated by Tom Hamill of the Lloyd’s change, says Malcolm Snow information electronically, via a Market Association (LMA). common data standard, straight into It’s a message that is being third party providers’ systems and that reinforced time and time again and, immediately identify any issues with although the London market Target the bordereaux are indeed available. Operating Model (TOM) is making When I started work in For anyone working in operations, this progress, it still feels like there is the insurance industry in the 1980s, kind of straight-through process is the significant resistance to engagement. laptops, email, mobile phones and optimal way of working. But it is also Workshop attendances do not equate even facsimiles were all future not something that is implemented to being “engaged”. technology. When you needed to overnight. The approach feels too carrier- use a computer, you had to go to a Standardisation and automation of driven. If you look to other providers dedicated room; if all were busy you market data delivers confidence that of successful products and services had to wait until someone finished. the market is meeting its regulatory – e.g. Amazon, Apple etc – they are Oh, how things have changed! But requirements. Regulation has certainly consumer-orientated. are they moving fast enough? Faster contributed to the requirement of It could be the issue is the cost of and new technology seems to be out risk level data for carriers; increased implementing new processes, or that there, but is it being embraced? regulation is inevitable, and there people are simply too busy doing We all know – in fact, I shudder to will be further pressure on carriers their day jobs to realise what can be realise we are still being told – that to prove that they are aware of the achieved. Cost will always be a factor the market process for submitting risk risks facing them and that they are and some vendors will not make information on binding authorities is adequately capitalised. Who knows system changes they do not have to

5050 www.insiderquarterly.com TECHNICAL BRIEFING: TECHNOLOGY

make unless they are paid. are not cheap, and the market smaller broker is that the solution I personally sat in on several must remember there are other will just arrive. There is invariably no conversations with US vendors when players – the much more numerous budget to have an in house retained attending a meeting of the American organisations churning away in their IT team to even look after their own Association of Managing General particular niche. devices, let alone focus on process Agents a couple of years ago, and the Should we understand what data improvement. The lack of substantive question they all asked was “Who is our clients are holding? Many have IT knowledge – which in these brokers paying for the changes?” sophisticated and complex data means the high-level promises of Surely, where the client, coverholder capture systems and others simply rely “platforms” and “automation” – is the or MGA is sophisticated enough to on old technology that serves their differentiator between them and the already deliver data efficiently, we purpose, but should we know what larger broker. should embrace these and look to they capture and hold prior to making In many cases, the smaller broker adopt a similar model with likeminded decisions on what we wish to receive handles a disproportionately large organisations, while retaining the less and how and when we receive it? amount of risk level data through sophisticated organisations, virtually I remember a conversation had economies of scale in multiple binder at least, at the table. during Project Tomorrow, where we contracts. But should third party My point, therefore, is: “Are we were looking to change the delivery binders really still be processed as post looking to solve the solution in the process from monthly Excel files and boxes in this day and age? right area?” looking to receive weekly XML. I There are Lloyd’s brokers that have The focus has always been on questioned why weekly – why should already taken the necessary steps to protecting the London market, but we not receive the data daily or even automate processes with their clients, who keeps the London market going? in real time? receiving electronic data weekly, Is it not, in fact, the many clients Effectively, I was looking at replacing daily and even in real time. But they who are looking for an insurance the current bordereaux cycle with an are then having to convert this into product? If we were to concentrate on alternative method of receiving the a monthly Excel spreadsheet for these clients and not place so much data. distribution to the carrier market, emphasis on looking at solutions The validation of the data is critical slowing down the distribution. for the carrier market, then we may and it can be carried out prior to any At Morning Data, we are already actually achieve something. outbound bordereaux being created looking at solutions to receive or This may seem a very blunt – thus the carriers and even brokers extract client data and create the statement, but without the client we would receive pre-validated data that necessary outward bordereaux for the do not exist. Yes, there are initiatives should be easily consumed into their carrier market. out there looking at how to make it systems. The work has already been done to easier for the client’s business to be The validation should be rigorous voice the concerns of the SME broker placed into London, but should we and fit for purpose, based on and MGA – to sell the story that more try to understand what the clients individual contract specifics. Data is better when it comes to data, and currently can and cannot provide quality can slow the process down that aggregating up is easier than before planning, developing and tremendously after all, and we really splitting down. implementing solutions that may do not want query loops. One example is the use of B2B in fact make it more difficult and Educating clients into keying data portals to capture the data at source expensive for them. that is both accurate and correct and drop clean validated data down My involvement with “Project for the London market is therefore to NOVUS, the brokers’ back office Tomorrow” gave me first-hand critical. system. experience and insight into some of Working at Morning Data has made For the MGA, the use of NOVUS the challenges the market is trying to me realise that the brokers in the means data is stored and sent out at solve. London market really do know their the most granular level as required, During this initiative the client, and clients and have their part to play with checks and balances that mean in particular their system provider, in obtaining and transmitting risk sanctions checks, policy periods, played a pivotal role in achieving level data in a more efficient and states, counties, countries and straight-through processing to the effective way. currencies are all captured at the carrier market. Implementing an In some cases, however, they start. ACORD standard and levels of data haven’t seen a practical method The TOM promises some validation culminated in data transfer to accomplish this without big changes, but the progress to the carrier market, where little or disrupting the processes of their is barely at a snail’s pace. As I no further validation was required. clients – nor indeed have they the engage in NOVUS presentations The client was already capturing time to implement a solution – so they MALCOLM and demonstrations to interested SNOW is much of the data to be submitted, it wait for someone else to provide the subject matter companies, I can see the market is was simply the mechanism of transfer answer. specialist at not going to be willing to wait while that changed. But these initiatives The assumption across the niche Morning Data deliberations move slower than Brexit! www.insiderquarterly.com 5151 HOW TO SEIZE GROWTH IN A POST-HIM LANDSCAPE 8 FEBRUARY 2018 51 Lime Street, London, EC3M 7DQ

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ISUK-2018 ad_final.indd 9 13/12/2017 12:30 TECHNICAL BRIEFING: TECHNOLOGY

CALL TO ACTION InsurTech was the market buzzword of 2017, but when it comes to using that technology to drive progress it’s time to turn words into action, says Paul Latarche

nsurTechI is set to redefine the attended The Insurance Insider’s way the insurance industry operates InsiderTech event in New York in and the sector has seen hundreds of December, as a panel member for millions of pounds in investment over We need to get" the capital to the discussion on the relationship recent years. where it can most effectively between InsurTech and the Fears that these disruptors will traditional (re)insurance model. change the way the market operates deliver its value, and that brings The conversations at the event have blighted the thinking of the with it the need for the market were interesting and enlightening, traditional markets. It is clear that and what struck me was that it was the market is fearful of where it finds to speed up and streamline its attended by many InsurTech firms itself and believes it is in a precarious distribution channels which, while they have received tens position. of millions of dollars of investment in It was with great interest that I " Continued on page 54 www.insiderquarterly.com 5353 TECHNICAL BRIEFING: TECHNOLOGY

order to create a new and innovative the responsiveness of underwriters front end, have little on the back end and their ability to communicate to support this high-tech facade. new policy information or changes I believe that in the year ahead The ability to "deliver attractive to existing policies quickly InsurTech start-ups will need to and innovative front end systems across its distribution channels. move from conception to reality – Fundamentally, it is designed to and towards proving the premise is one thing, but we have to bring together insurers’ intellectual on which they attracted their ensure that the systems behind and financial capital and allow them investment. to be accessed in ever more efficient However, the market needs to that front end are able to fulfil way, including these new customer understand the fundamentals of the their part of the process with experiences. changes that have to happen in the It highlights the fact that the industry to drive relevance and, as the same speed and innovative impact of InsurTech has yet to we have seen in recent weeks, meet approach be fully recognised, and while the the demands of the regulators. potential benefits that many of the new start-ups are saying they will Connecting capital with risk deliver is huge, the proof of much of For me, the issue for the market is " this will be when these firms roll out the need to drive greater connection cannot get appropriate cover or pay the systems they have been working between the capital and the risk. more for services than they should, it so hard to create. We need to get the capital to where can impact on their ability to operate it can most effectively deliver its and grow.” Continued evolution value, and that brings with it the He added: “Brokers play an The ability to deliver attractive and need for the market to speed up and important part in the wholesale innovative front end systems which streamline its distribution channels. insurance sector, ensuring clients will face the customer is one thing, This is not to say that we get appropriate coverage at good but we have to ensure that the are heading towards an era value. However, following significant systems that are placed behind that of disintermediation, but changes in the sector, we are front end are able to fulfil their part intermediaries are also facing a looking at the dynamics to ensure of the process with the same speed challenge that will put the way competition is working well.” and innovative approach. they operate under the regulatory The market is on the cusp of microscope. Cutting costs significant change both in how it In the UK the Financial Conduct The section which will obviously communicates with its customers Authority (FCA) has said it will concern Moore Stephens’ wholesale and how the business is operated. launch an enquiry into the wholesale broking clients is the issue of It is highly unlikely that insurance insurance market. It noted that the whether customers are paying more will see some sort of Uber “Big Bang” London insurance market is one than they should. type of moment, when rapid and of the world’s leading centres for The moves to modernise the fundamental change occurs. large-scale, complex commercial London market have been predicated Instead, we will see a continued and specialist risks, controlling on the fact that it recognises that the evolution from the traditional more than £68bn in gross written frictional costs of doing business in insurance approach to a new model premium. the City are high. that will have technology and the The wholesale sector has also It is clear the FCA will be asking “Internet of Things” at its heart. undergone what the regulator wholesale brokers what value they Many of the current headlines believes are “significant changes” in bring to the transaction between revolve around InsurTech launches recent years, with brokers developing capital provider and client and how for personal lines business, but new services and business practices. they justify the costs of that value. the specialty and large commercial The FCA said it wants to explore Clearly, technology will play markets are driving change – albeit how competition is currently a part in the reducing the outside of the blaze of publicity working and whether it could work market’s costs, and at Moore that is part and parcel of building better. Stephens in the past year our a brand recognisable to the wider Christopher Woolard, the FCA’s RuleBook system and RuleBook public. executive director of Strategy and hub have continued to gather At Moore Stephens we view the Competition, said that: “Given the traction, with 25 percent of the year ahead as an exciting time for size of the wholesale insurance London market now utilising the the industry and one in which the sector and the type of large-scale system and $10bn in premiums PAUL RuleBook system and RuleBook LATARCHE risks it covers, the way it functions passing through it. is head of hub will play an increasing role in can have a wide-ranging impact on It delivers technology throughout Insurance for speeding response and reducing the broader economy. If businesses the transactional process, speeding Moore Stephens transactional costs.

5454 www.insiderquarterly.com SAVE THE DATE Essex House, 160 for the Trading Risk Awards 2018 – Central Park South moving to New York 14 June 2018

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TRA-2018_save the date ad.indd 1 13/12/2017 15:07 TECHNICAL BRIEFING: CAPITAL FILLING THE GAP Heneg Parthenay and Simon Richards look at trade finance and the opportunity for insurers to exploit the $1tn short-term funding gap of global businesses

The low-yield environment has Figure 1:Many Many suppliers suppliers faceface a a funding funding gap gap led many insurers to expand their investment portfolios and reconsider Goods Goods Costs their risk budgets in order to achieve Buyers/ Supplier Suppliers, employees, their investment return targets. customers production costs They are increasingly considering Cash Cash non-mainstream fixed income asset classes, which can offer higher yields Timing gap than more traditional assets due to Source: Insight Investment. For illustrative purposes only a complexity or illiquidity premium, Source: Insight Investment. For illustrative purposes only without adding significant credit financial crisis, higher capital and requirements. risk. One such opportunityMany suppliers is trade face aliquidity funding requirements gap have led them Trade finance consists of offering finance. to de-lever their balance sheets and funding to businesses to help them Goods curtailGoods certain activities. accelerate payments to suppliers or Costs What isBuyers/ trade finance? Estimates from the Asian to fund working capital. It typically Supplier Suppliers, employees, customers Businesses often face a mismatch Development BankSupply inproduction 2015 chain suggested costs financing falls into two distinct types: between when they expectCash to receive the withdrawalCash of banks from this Supply chain financing – providing payments from their clients, and space has created a potential $1tn funding to the suppliers of a large 1. Goods Goods when they need to pay their own gap between demand and supply for corporate; Costs Timing gapBuyers suppliers or spend money elsewhere trade finance. Suppliers Receivables financingSuppliers, – employees,providing Source: Insight Investment. For illustrative purposes only (e.g. retailer) production costs (see figure 1). This gap creates an opportunity fundingCash to a supplier, secured by Banks have traditionally bridged for institutional investors to step in receivables from its customer base. this gap by providing “trade finance”, and to benefit from exposures which and continue to do so. But since the can be tailored to meet their credit2. CashSupply to purchase chain receivables financing at a discount 3. Cash Supply chain financing allows suppliers to receive payments Figure 2: Supply chain financing Bank/institutional Supply chainCredit financing risk to the bank/ investor earlier than contractually agreed institutional investor with a buyer under their standard 1. Goods Goods payment terms, and allows them to Source: Insight Investment. For illustrative purposes only Costs Buyers better manage their working capital Suppliers Suppliers, employees, (e.g. retailer) production costs requirements (see figure 2). Cash The credit risk for the finance provider is to the end buyer, rather than the suppliers. The end buyer 2. Cash to purchase receivables at a discount is typically a large corporate with a 3. Cash Receivables financing credit rating issued by an external Bank/institutional 2. Goods/ credit assessment institution. Credit risk to the bank/ investor services Cash Costs Supplier/service Even if the suppliers do not have institutional investor Suppliers, employees, Customers provider the same access to financing as the production costs Source: Insight Investment. For illustrative purposes only end buyer, because supply chain Source: Insight Investment. For illustrative purposes only. Numbers illustrate typical sequence of activity finance is provided on the basis of 1. Cash to 3. Cash purchase receivables at a discount 5656 Receivables www.insiderquarterly.com Receivables collectionfinancing account Bank/institutional 4. Cash Credit risk to the bank/ 2. Goods/ investor returned institutional investor services Cash Costs Supplier/service Suppliers, employees, Customers provider production costs

Source: Insight1. Investment. Cash to For illustrative purposes only 3. Cash purchase receivables at a discount Receivables collection account Bank/institutional 4. Cash investor Credit risk to the bank/ returned institutional investor

Source: Insight Investment. For illustrative purposes only Many suppliers face a funding gap

Goods Goods Costs Buyers/ Supplier Suppliers, employees, customers production costs Cash Cash

Timing gap

Source: Insight Investment. For illustrative purposes only

Supply chain financing

1. Goods Goods Costs Buyers Suppliers Suppliers, employees, (e.g. retailer) production costs Cash

2. Cash to purchase receivables at a discount 3. Cash

Bank/institutional Credit risk to the bank/ investor institutional investor

Source: Insight Investment. For illustrative purposes only TECHNICAL BRIEFING: CAPITAL

the end buyer’s credit rating, the suppliers could receive cheaper Figure 3: Receivables financing financing as a result. This provides Receivables financing another incentive for suppliers to seek out this particular method of 2. Goods/ services Cash Costs trade finance. Supplier/service Suppliers, employees, Customers provider For the same credit risk, a finance production costs provider can typically achieve a higher yield through providing 1. Cash to supply chain finance than if it 3. Cash purchase provided finance direct to the end receivables at a discount buyer through, for example, the bond Receivables market. collection In order to implement the process account Bank/institutional 4. Cash investor Credit risk to the bank/ efficiently, technology can play a returned institutional investor major role with an efficient electronic platform for the buyer to record Source: Insight Investment. For illustrative purposes only. Numbers illustrate typical sequence of activity invoices, to assess whether they meet the agreed specification for payment, Source: Insight Investment. For illustrative purposes only and to submit them to the finance short-maturity (30-180 days) Managing the risks provider (in this case the insurer) underlying credit exposure. The As with other forms of private for payment. investor typically needs to secured credit, to exploit the commit to providing a facility for complexity and illiquidity premiums Receivables financing a minimum period, e.g. one to on offer, access to extensive expertise Receivables financing allows four years, even though the term – beyond that needed for traditional companies to receive early of the underlying assets is much fixed income investments – is payment on a pool of their shorter. necessary. customer invoices (see figure 3). However, the agreement would Specialists can help institutional Investor exposure is to the HENEG normally incorporate early investors to consider key issues underlying customer base, which is PARTHENAY termination triggers covering the around trade finance, including the is head of typically well diversified. The investor Insurance performance of the underlying following: would have the ability to define at Insight pool of receivables, the supplier’s upfront the criteria that would apply Investment insolvency, change of control, and so c How to structure the exposure to the receivable to make it eligible to on). to achieve the most appropriate be part of the facility. Historical losses in short-term regulatory treatment; Revolving financing facilities for trade finance portfolios have c How to negotiate financing terms trade receivables typically have been very low (Source: ICC and structural protections; quality and concentration limits Trade Register Report 2016), c The appropriate currency of and dynamic triggers to provide and returns typically have low the permitted assets and how incremental credit enhancement, correlation to other financial currency hedging is achieved; which may include additional assets. c The time horizon of the protections to shield investors in These characteristics mean investment and the maximum times of stress or seller/servicer risk. SIMON that trade finance is potentially maturity of any individual loans; RICHARDS more attractive than short-dated c The targeted average credit Potential benefits is head of government and corporate bonds, quality of the portfolio and Insurance which currently offer yields at close restrictions on individual loans; for insurers Solutions Trade finance can offer the potential at Insight to or below zero in some developed c The targeted yield and what this for attractive yields with relatively Investment economies. means for credit risk; c The need to agree appropriate concentration limits by issuer, sector and geography. Estimates from the Asian Development Bank in 2015 suggested the withdrawal" of banks from [providing We believe that an appropriately structured investment in trade trade finance] has created a potential $1tn gap finance can achieve attractive between demand and supply risk-adjusted returns for insurers, while achieving an efficient capital " treatment. www.insiderquarterly.com 5757 TECHNICAL BRIEFING: LEGAL

Prior to calls for a delay, in the UK at least, the IDD had been positioned as an evolution of the rules rather than a revolution. In its consultation papers, the UK Financial Conduct Authority (FCA) repeatedly stated that a good deal of the changes should not have too significant an impact, as firms are expected to already be compliant with existing FCA rules, principles and guidance (such as the Responsibilities of Providers and Distributors for the Fair Treatment of Customers). Our view is that the IDD, together with wider regulatory changes over the next year – most notably under the Senior Managers and Certification Regime (SM&CR) – will represent significant change for those involved in the distribution of insurance (including insurers and wholesale intermediaries). There are clearly going to be practical and systems changes required (for example, in product governance and development, and customer communications) but there will also be potentially fundamental changes to the market in terms of business models, competition and culture. Where are we now? Over the past few weeks there have been calls, most notably from Europe but echoed and supported here in the UK (by, for example, the Managing General Agents’ Association and the Association of British Insurers), to delay the application of the IDD. It now seems likely that the IDD will apply to firms in October 2018 – which is the recommendation of READY, STEADY…WAIT? the EU Parliament’s Economic and Monetary Affairs Committee, but is still awaiting approval from the Calls to delay implementation of European Commission. the Insurance Distribution Directive Here in the UK, support for the reflect the market’s concern about Up until fairly recently, delay appears to stem from two it was settled that the Insurance views held by market participants. its readiness for such a fundamental Distribution Directive (IDD) would Firstly, that the rules are not change, say Jonathan Charwat be implemented throughout Europe sufficiently final and that there is not on 23 February 2018. It now seems sufficient guidance and, secondly, and Robbie Constance likely that, due to the significance of that firms would not have enough the changes and a combination of time to properly prepare anyway – the market and regulators not being particularly as the FCA still needs prepared, the application of the IDD to release its final rules on two of will be delayed until later next year. its consultation papers (which are

5858 www.insiderquarterly.com TECHNICAL BRIEFING: LEGAL

expected to be issued in December customer will be required to disclose and January). information on their role and their The IDD, viewed together with relationship with other firms in the Wider regulatory change wider regulatory" changes over distribution chain, including how they It is important to consider the impact are remunerated. of the IDD against other regulatory the next year, will represent For example, a broker may need to change projects that are going to be significant change for those disclose that it receives commission required over the next 18 months – from an insurer which is calculated on most notably the SM&CR and also the involved in the distribution of the total premium, and an insurer may General Data Protection Regulations. insurance need to disclose that its employees SM&CR will introduce more receive bonuses based on the number individual accountability for of policies sold. compliance with regulatory rules than ever before in the insurance to go beyond the existing" “treating Practical changes market, while the IDD is (at least) a customers fairly” principle, which only These changes will result in practical codification of existing principles into obliges firms to pay due regard to a changes to systems and processes rules with which firms and senior customer’s interests. – for example, telesales will now managers will need to demonstrate include new content and take longer, compliance. The impact which will incur a cost (which the All of these changes coincide The impact of this rule will be greater FCA estimates at between £5,000 with the culmination of the FCA’s on some firms than others. Brokers and £560,000 for remuneration thematic reviews into the general acting as agents of the insureds disclosures). insurance market, the launch of already have a duty to act in their However, this does not factor in further reviews into pricing and clients’ best interests but wholesale the costs of potential customers not “value in the distribution chain” and brokers and insurers (not traditionally purchasing insurance products as a the recently announced market study in contact with the customer at result of the new information they into wholesale brokers. Next year will the outset) will need to consider receive. How customers respond to be a busy one for regulation of the this rule more carefully – including this new information could have a insurance market. balancing it against any duties (such significant impact on business models as a coverholder’s duty to its own in the distribution chain. The changes principal). All consumers (and some The IDD’s purpose is to improve The customers’ best interests rule commercial customers) will need to customer protection and ensure that pervades the other IDD rules be provided with a standardised all customers enjoy these protections on remuneration, product summary document called the regardless of the distribution method. governance and on what Insurance Product Information These protections start right from information is to be provided Document (IPID). The aim of the the beginning when a product is to customers and when. On IPID is to provide the customer a being designed and continue through remuneration, brokers and snapshot of the insurance product the customer journey, covering insurers selling direct to customers to compare against other products. the on-going targeted distribution must not be paid, or pay or assess What the IPID should look like strategy and ensuring that employees their employees’ performance in a way ROBBIE (length and formatting) and the CONSTANCE involved in the journey are competent that conflicts with the customers’ best is a partner and information it should contain is highly and understand the product. interests rule. financial services prescribed in the rules. That said, a Interactions with the customer will As a result firms may need to specialist at RPC major challenge for firms will be to be more heavily prescribed by rules reconsider their current variable pay determine the right level of detail aimed at improving a customer’s and sales practices and broker in each section, particularly when understanding of the insurance remuneration arrangements. dealing with complex insurance product and should ensure that the The regime around products. As a result of the customer has all the information they communications with customers IDD’s full product lifecycle and need on the firm selling the insurance will look quite different. Firms customer journey approach to product and its relationships not only need to consider revised insurance product distribution, (financial and otherwise) with other rules on what information should changes are clearly going to be felt firms in the distribution chain. be provided to customers on the throughout the distribution chain and To meet its objectives, a major tenet insurance products and about the JONATHAN firms will need to consider how best to of the directive is a new rule requiring firms in the distribution chain, CHARWAT demonstrate compliance with the new all firms in the distribution chain to but also when and how it should is an associate regime in a way that fits in with their in the corporate act honestly, fairly and professionally be provided – and always with the insurance team business model whilst bearing in mind in accordance with the customers’ best customers’ best interests rule in mind. at RPC the approach that their competitors interests. This rule is clearly intended Firms in contact with the are taking. www.insiderquarterly.com 5959 TECHNICAL BRIEFING: LEGAL

WINNING PERFORMANCE With a lack of objective data for sizing up relationships with their US legal counsel, London market clients are left with a subjective approach to measuring quality of service, says Dwayne Hermes

To paraphrase the founders of average legal fees per file, budget is often based upon friendships, social legal services firm Axiom Global, accuracy, evaluation accuracy and interactions and a general perception the relationship between clients average case life – the same general of value. and the legal industry is a broken response was forthcoming. For example, in Texas, where I marketplace. Even more troubling, Mostly, all of those with whom I practice, it can be socialising at this is a marketplace without any spoke acknowledged the benefit of the gun range that supports the insight into the extent to which it is having such “data” (the magic word of relationship. broken. the day, especially when coupled with If this is the state of affairs, is there In 2017, in my role as a US attorney “analytics”) and lamented the reality actually any measurement of quality serving the Lloyd’s market, I met that it was currently not available at all? When one considers the 26 managing agents, and when to them. To their credit, one of the amount of money that changes hands the conversation in these meetings 26 was beginning to take steps to within these relationships, can there turned to the topic of measuring the capture this data. be a valid argument that the “store is performance of their attorneys in the But would this lack of insight into being properly tended to”? States, all but one acknowledged that the quality of a service be accepted by If there is no measure of quality there was no objective measure being any of us in any other setting? that has a basis in objective fact, how applied. can there be a foundation on which The general sentiment was: “I have Subjective approach to pursue improvement? How can a good personal relationship with my With the lack of objective data upon one service provider be compared to attorneys and they have kept me out which to measure the relationship another? How can the buyer know of trouble.” with attorneys in the States, the when it is time to make a change? Is With further inquiry into key market is left with a subjective counsel selection determined solely performance indicators (KPIs) for approach to measuring quality. Thus, based on price, with little to no attorney performance – for example, a counsel selection process exists that accurate consideration of value?

6060 www.insiderquarterly.com TECHNICAL BRIEFING: LEGAL

The intent of this commentary is not standard, the market will have law to chastise those who are selecting firm partners (pun intended) that counsel without objective insights. are collecting and reporting on the With the void created by the lack of The current "state of affairs relevant data and, in turn, the market data, what are claims professionals allows for, and even promotes, will be able to properly select and left to turn to other than subjective oversee its counsel. relationships? Even if they wanted to unhealthy professional and This benefit, in and of itself, is an base the buying decision on objective commercial relationships that lack adequate basis to merit this change. data, due to the structural and An additional, and potentially just reporting realities of the market, the transparency and accountability as impactful, outcome will be the necessary information is not available and therefore allow for opportunity for the market to enter to them, or at least is very difficult to into a relationship of continuous mine. complacency and stagnation process improvement. The continual In a time when all industries, all process improvement will be rocket- professionals and all commercial fuelled by a move to “value-based endeavours are expected to be “better, compensation” – but that is a topic faster, cheaper” (see “Tomorrow’s $75mn in legal fees. " for another day. Lawyers”, by Richard Susskind, After 15 years of practicing with one Oxford University Press, 2013; of the best defence firms in Texas, The path ahead “Living Through a Paradigm Shift,” I embarked on the path of starting You may ask, now that I have stated by William D Henderson, NALP my own firm. That firm became the my opinion on the state of affairs Bulletin August 2014; and “The Last 45th largest in Texas, with over 50 between the market and the providers Mile: The ‘Last Mile’ Problem and attorneys, over 100 employees and of legal services in the States, what the ‘Last Mile’ Solution,” by William hundreds of client relationships, and is the path to a better-performing D Henderson, Legal Evolution, 26 was well received by the insurance relationship? May 2017, originally published on industry. It had a successful run for The answer is an agreed-upon set Law.com) how can this sophisticated 15 years. of measures. To this end, the Lloyd’s market justify the inability, due to the Two-and-a-half years ago, I Market Association has initiated lack of data, to apply these principles participated in the voluntary a project to improve data on, and to the retention of legal experts? dissolution of that firm and started support the oversight of, experts. The current state of affairs allows what we believe is, or is in the process My firm is working with the Lloyd’s for, and even promotes, unhealthy of becoming, the first working model Market Association, Professor professional and commercial of the Richard Susskind-type law firm William Henderson of the Indiana relationships that lack transparency envisioned in “Tomorrow’s Lawyers” University Maurer School of Law and accountability and therefore (a statement made by some in the and other interested professionals allow for complacency and academic community). in the market, through a working stagnation. This current business vehicle is group focused on performance-based It impedes any hope of continual where the atypical nature of my measures, management information, process improvement and professional leaning has become more analytics and intelligence, in order to innovation. We know that “what gets public. The goal of myself and of my identify the opportunities to enhance measured gets done”, so the lack colleagues in this “next generation the legal service provider model via of measurement results in a lack of law firm” is to disrupt the way in technology and data. alignment around KPIs. The fact which law firms in the United States With these key measures, the that there is no return on investment operate and how legal services are next step will be capturing data measure for legal experts further measured and delivered. from actual performance and exacerbates the problem. A full embrace of legal metrics, benchmarking against these analytics and value-based measures. With that data, Tomorrow’s lawyers compensation is at our core. In relationships will need to be So, what is my professional the continuum of legal services reviewed and monitored. background upon which I rely to raise identified by Richard Susskind, Within a professional these questions? we are moving from “bespoke” relationship, friendship and By outside appearance, I am a to “systematised” through the objective measurements of typical insurance defence attorney use of process management, quality are not mutually exclusive, like all the others regularly seen in checklists, technology, knowledge and they are not necessarily the market. I have been practicing management and workflow. inclusive. Where deficiencies are law for over 30 years in Texas, one My belief is that what we are doing DWAYNE identified, efforts will need to HERMES is of the most litigious states in the should be the standard fare that the a partner with be undertaken to obtain better US. During my career, I have been market expects from its attorneys and founder of performance or to identify new responsible for originating over in the States. By instituting this Hermes Law providers. www.insiderquarterly.com 6161 EXECUTIVE MOVES

E V I M

T O

X The Ins and Outs of the E executive job market

Julian Samengo-Turner John Berger Joe Zubrestsky Julian Samengo-Turner, whose return to Ascot has hired John Berger The Hanover’s president and CEO Joe the facultative market at Willis Towers to lead its new Bermuda Zubretsky has left the company less than Watson was revealed in September, is reinsurance division. He will 18 months after he took up the roles in to head emerging markets facultative join Ascot Re in January, June last year. The executive has moved to business at the broker, covering Central pending immigration Medicaid and Medicare provider Molina and Eastern Europe, the Middle East, approval. Rival carrier Third Point Re Healthcare as CEO. Africa, Asia and Australasia. Samengo- announced Berger is to step down as its John “Jack” Roche, formerly head of Turner was formerly co-head of Integro’s chairman in December. Berger stepped the company’s personal and commercial international division, alongside Ron down as Third Point Re CEO in March, to lines businesses as president of Hanover Whyte. be replaced by Rob Bredahl. Agency Markets, was named as Zubretsky’s replacement. Thomas Götting Pina Albo XL Catlin’s insurance Hamilton Insurance Group has hired Jeremy Brazil operation has appointed Giuseppina “Pina” Albo from Munich Jeremy Brazil is planning to stand down Thomas Götting as country Re as its new CEO, with effect from 1 as underwriting director of Markel manager for Germany with February. She succeeds David Brown, International at the end of this year. Brazil effect from 1 January. He who was named interim CEO after the played a major role in the creation of replaces Dieter Goebbels, who is retiring. departure of Brian Duperreault in May. Markel International following Markel’s Götting joins from credit insurer Coface, Albo’s responsibilities at Munich Re acquisition of Terra Nova in 2000. He will where he was a regional commercial included the P&C business and operations continue to offer consultancy advice to the director. in Europe and Latin America. board and senior management team.

Torsten Leue Charles Philipps John Neal Talanx has appointed Torsten MS Amlin CEO Charles Philipps is Australian carrier QBE said Leue as its new CEO, while preparing to retire from the Lloyd’s CEO John Neal will step current leader Herbert Haas (re)insurer. The exact timing of his down at the end of this will move to its supervisory retirement will depend upon the year after five years in the board. Leue was previously appointment of his successor, with the role. He will be replaced CEO of Talanx International, and was executive set to remain in place until the by Pat Regan, who is currently CEO of a member of the group management search is complete. However, a departure the group’s Australian and New Zealand board responsible for international retail in late Q1 or early Q2 2018 is said to be operations and was, until September this business. likely. year, interim chief financial officer at QBE.

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