Insight and Intelligence on the 2016 Reinsurance Rendez-Vous de Septembre

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Asia Capital Re and Shenzhen Qianhai agree deal in principle sia Capital Re looks set to secure biggest gathering, the broking sources said proposal at one stage, but from very early Aa $1bn sale to Chinese provincial they believed that management would still on in the process it was clear that it would government-owned entity Shenzhen be targeting full completion ahead of the be most highly prized by Chinese capital Qianhai Financial Holdings, The Insurance crucial 1 January renewals. looking for a mature vehicle that would Insider can reveal. allow it to bypass the growing pains of a Details of the proposed deal are being Underbidders start-up phase. closely guarded, but sources said that they Underbidders in the sale process, which Shenzhen Qianhai Financial Holdings is believed that an all-cash transaction valuing was superintended by Morgan Stanley, are a state-owned financial holding company Singapore’s biggest reinsurer at 1.25x-1.3x understood to have included Hong Kong- founded by the authority of the Qianhai trailing book value had already been agreed listed property and finance business Mason Shenzhen-Hong Kong Modern Service in principle, with an announcement believed Financial, Sirius owner China Minsheng Industry Cooperation Zone. to be imminent. Investment and Chinese conglomerate The state-owned vehicle has already It is understood that the price and terms Fosun. concluded a joint venture with HSBC to enter for the $791mn-equity business have been Most observers in the sector will consider the banking space, and is believed to have negotiated, with financing for the deal in the valuation a rich multiple for the other interests or prospects in insurance and place. c.$750mn-premium business which has asset management. Broking sources speculated that the delay failed to deliver a return for its financial in the announcement of the proposed backers in the decade since its inception. Strategic bidder transaction may reflect the need for some However, since Fosun founded Peak Re Having had its operations overshadowed Asian regulators to grant approval for parties in 2013, reinsurance assets have become at times by question marks about the to formally agree an M&A deal. increasingly sought after in and around intentions of its consortium of financial Throughout the formal auction process, China, with a flurry of new reinsurers backers, Shenzhen Qianhai Financial will ACR has stressed in private discussions including Asia Pacific Re and China Taiping mark a shift for the firm given its long-term with clients that it would look to resolve Re founded, and other Chinese money interest in maintaining exposure to the the question of its ownership ahead of seeking access to the space via the takeover space. the Monte Carlo Rendez-Vous, with an of western businesses. Shenzhen Qianhai Financial is one of the announcement originally scheduled to take ACR did attract interest from western founding investors in Chinese reinsurer place during the summer. (re)insurers keen to build their market Qianhai Re, providing 20 percent of its 3bn And, although the deal may not have been presence in Singapore, with Hannover Re inked in time for the reinsurance industry’s understood to have made an indicative Continued on page 3

04 Cyber JV 08 Zurich 19 Honours Neon and Barbican's White Carrier looks to protect The Insurance Insider celebrates its launch cyber venture against earnings volatility fifth annual awards at Old Billingsgate INSIDE 06 RSA 13 M&A 29 Casualty First bids on the table The market comments on Reinsurers look for further for legacy book deal potential for 2016 stabilisation at 1 January

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MC_DayRubix Advert 1.indb Sept15-AW.indd 2 1 10/09/201605/09/2016 13:3515:12 COMMENT

A Hit! ho would have thought it? It turns Hamilton has a capacity problem. A nation and vice versa. Hamilton is likely to be one Wout the worlds of theatre and of more than 300 million wants to see it and of those shows and if it does that it will reinsurance have many similarities. only a few thousand a week can physically become a global brand. Once everyone in Both are businesses involving high levels get in to enjoy the show. How about that for the world has had a chance to see it, either of volatility, risk and finite amounts of rationing supply? in person, or live-streamed to a movie capacity. It is surely no coincidence then, Hamilton needs more capacity and it is in theatre, a movie version will be made and that they both also have major global the process of scaling up. There is a Chicago everyone will go to see it again, buy the centres in New York and London. branch, a tour is planned and a London souvenir DVD and watch it a third time on There is clearly something about these production is coming in October 2017. Amazon Prime or Netflix. places that allows risk businesses to be Does any of this sound familiar? It might This is distribution at its sweetest and puts financed. And of course, it has always been the creativity of even our best and most the wealthiest in the business community The truest definition of an ingenious global brokers in the shade. that have been the biggest patrons of “ Reinsurers are currently off Broadway, or the arts – almost any major exhibition or ultra-hard market is when on the fringe waiting the be rediscovered. refurbishment of a historic venue is heavily even good customers are There are some interesting experimental sponsored by a global corporate or a major having to be turned away productions being cooked up there. Of business tycoon. We were made for each or have their orders only these original works, some will fail, but other. some will rise the be the next Phantoms of Take Hamilton, a new musical set in the partially placed the Opera, Les Mis and Hamiltons of their American revolution. It is setting new ” day. records on Broadway and has wiped the not, because we in the reinsurance business What every producer off Broadway or on floor at the prestigious Tony awards. It is may have forgotten this, but there are times the London fringe does is dream big and in the hardest market imaginable. Go to that just like a hit show, our capacity cannot never give up - and that’s what reinsurers Hamilton the Musical’s website and try and be accessed for neither love nor money. need to remember to keep doing. buy a ticket – you can’t. The truest definition of an ultra-hard For just as every man needs entertainment And I’m not just talking the cheaper seats market is when even good customers are and enlightenment, he also needs – and I use that term loosely because the having to be turned away or have their insurance. cheapest face value ticket for the show is an orders only partially placed. eye-popping $139 and prices rise to more Like in insurance, in theatre a show isn’t a than $500 for the best views. global hit unless it is running simultaneously There isn’t even any pre-booking to 2017 on Broadway and in London’s West End. A Mark Geoghegan, or beyond. The only way of buying a face big enough hit on either side of the Atlantic Managing Director, The Insurance Insider value ticket is by entering a lottery for the will nearly always transfer successfully. Think chance to pick up returns. of London as a massive sidecar to New York [email protected]

yuan ($449mn) capital base for the start-up, Shenzhen Qianhai Financial seems to fit deliver a return for its shareholders. In the which secured regulatory approval in March. into the other category of Chinese buyer, as nine month to 31 December 2015, following Other backers include China Post Group and a cash-rich state entity with access to major an accounting period change, the firm investment firm SZ Capital. backing if it can find the right opportunities. delivered a negative return on equity of 1.4 Until late last year there was a perception The Insurance Insider revealed in April that percent. This compares to a return on equity that Chinese money would make very rapid ACR’s owners had appointed Morgan Stanley of 3.0 percent in 2013/14 and 2.4 percent in inroads into the specialty insurance and to run a formal sales process after informal 2014/15. The business also endured a torrid reinsurance space internationally, as other attempts to offload the business in the 2011 as rating pressure in the wake of an conglomerates looked to follow the trail previous autumn came to nothing. outsized loss from severe flooding in Thailand blazed by Fosun and Angbang. The auction process was launched less than forced it to raise an additional $200mn of However, since the temporary six months after the ACR board parachuted equity. Nevertheless, ACR offers a potential disappearance of Fosun chairman Guo in former Paris Re CEO Hans-Peter Gerhardt buyer an established franchise, complete Guangchang in December – who was to head up the company, with founding CEO with underwriting staff, client base, and – assisting authorities with unspecified John Tan exiting the business. crucially – the investment float that has been enquiries – the tide has gone out on Chinese built up over its decade of underwriting. M&A. Angbang has come in for intense Regional reinsurer If the takeover is concluded, ACR’s sale to scrutiny around its ownership structure, ACR was launched a decade ago as an Asia- Shenzhen Qianhai Financial will be the first creating scepticism on the part of sellers only reinsurer with backers that included $1bn deal agreed in the reinsurance sector in about execution risk, with Fosun forced into a sovereign wealth funds Khazanah Nasional 2016 following a preceding 12-month period partial sell-down of Ironshore less than a year Berhard and Temasek, and UK private equity in which a string of major specialty insurance after it closed the takeover of the Bermuda- firm 3i. Japanese trading house Marubeni and reinsurance M&A transactions came to domiciled insurer owing to its highly levered took a stake of roughly 20 percent in ACR in fruition. A spokesperson for ACR said: “It is not balance sheet. 2012. Since inception ACR has struggled to appropriate for us to comment at this time.”

DAY 1: SUNDAY 03

3_comment.indd 3 10/09/2016 13:51 NEWS

Neon and Barbican’s White found cyber JV artin Reith’s Neon and former the London market. offers massive growth potential, with PwC MBarbican underwriter Geoff White At Barbican he is understood to have forecasting a jump in premiums from have teamed up to found a new service controlled $110mn of premiums, including $2.5bn in 2015 to $7.5bn by 2020. company that will underwrite cyber business underwritten on behalf of Reith has overseen a massive overhaul of insurance risk, The Insurance insider can consortia partners. Neon since joining the business in October reveal. The Insurance Insider revealed last month last year, bringing in a raft of new senior Sources said that the new venture, that White had resigned his role as business staff and exiting underperforming classes headed by White, would initially group leader for cyber liability at Barbican. including general liability and medical underwrite 100 percent on the paper of White joined Barbican in 2013 to malpractice - the class on which the Neon syndicate 2468. spearhead the expansion of the Lloyd’s business had previously centred. In addition to cyber the syndicate will insurer’s cyber offering. He was previously The former Brockbank executive was underwrite technology liability risk. at Zurich where he ran the firm’s brought in by AFG to turn around a Lloyd’s It is understood that the new business, technology professional indemnity book unit that was severely out of step with the which will be co-owned by White, other and cyber practice. quality of its other assets and had proved staff and Neon, is on course to be up and The move represents something of a incapable of driving an improvement in running in time for renewals at 1 January. departure for Reith from the turnaround the broader business after it weathered In course, the business may look to strategy he has followed to date with the consequences of a disastrous foray into underwrite on behalf of additional American Financial Group’s (AFG) Lloyd’s Italian medical malpractice. Lloyd’s syndicates, but its initial growth is arm. A raft of hires at the rebranded Lloyd’s expected to be measured. Hitherto the Ascot founder has business include Ariel alumnus Darren Sources said that a recruitment process concentrated his efforts to rebalance the Lednor as CUO; turnaround specialist is currently underway which is likely to see old Marketform book in areas such as Ian Martin as managing director; Lloyd’s other underwriters join the business to property catastrophe reinsurance and enforcer Mark Stockton as head of support White. direct and facultative where he has a long underwriting performance; and XL Catlin’s White is one of the most prominent and and successful track record. Sharon Long as claims director. respected cyber liability underwriters in But the relatively immature cyber market Neon declined to comment. Sirius restructures for growth with $2.6bn Bermuda platform irius Group has confirmed the launch would provide the same level of “service, platform is expected to be ceded to the Sof a new Class 4 Bermuda-based flexibility and security” as it had previously, new Bermudian operating company. operating company with $2.6bn of said Waters. It is thought the new platform will also consolidated capital. The letter explained that from 1 January look to expand into other lines of business, The Insurance Insider reported back in 2017 Sirius Bermuda would write third with the potential for underwriting June that the China Minsheng Investment party reinsurance business from the personnel to be added in Bermuda. Corp (CMI)-owned (re)insurer was laying Americas. In a note assigning its ratings to Sirius the foundations for further expansion with The business will include a US property Bermuda, S&P said it expected the new the conversion of its Bermuda branch to a cat book currently written through the company would also assume a 25 percent separately capitalised operating subsidiary. group’s existing Sirius International quota share of business written by Sirius And in a communication to brokers Bermuda branch, which will transfer to the International. and clients seen by this publication, new balance sheet. Apart from the US property cat business the company said that Sirius Bermuda Sirius Bermuda will be run by Warren transferred to the new Bermuda company, Insurance Company (Sirius Bermuda) has Trace as president and CEO, while the Sirius Sirius International’s portfolio will remain been licensed to assume all classes of P&C International Bermuda branch team will unchanged, written from its Stockholm business and will serve as the top operating move over to the new entity. base, other branch offices and Lloyd’s company in the carrier’s group structure. In the US, Dan Wilson will head up a new Syndicate 1945. Sirius Group chairman and CEO Allan Sirius America Insurance Managers service The restructure comes after Sirius was Waters and his senior management team company which will house the (re)insurer’s bought by CMI from White Mountains in a said the expansion of the Bermuda platform New York and Miami production teams that $2.59bn deal that closed in April this year. would provide reinsurance clients access to were previously part of Sirius America. As previously reported, Sirius’ new owner a larger capital base. Sirius America’s largely A&H and property CMI views the carrier as a platform for With ratings agencies AM Best and insurance book is set to stay on the potential further insurance and reinsurance Standard & Poor’s affirming Sirius Group ground at the entity, but a portion of the acquisitions as it looks to expand its ratings at A and A- respectively, the carrier reinsurance business written through the presence in the sector.

04 DAY 1: SUNDAY

4 News.indd 4 12/09/2016 14:59 NEWS

Ariel process down to final two as Fidelis bows out TG Pactual’s efforts to sell its 50 the conclusion of a deal ahead of the Monte Bpercent stake in Ariel are in their final Carlo Rendez-Vous as it looks to protect its M&A on Lime Street stages, with binding offers submitted renewal book, but that timeline looks to Year Takeover target Buyer Price Multiple earlier this month and only two bidders have slipped. Sources have said that sell-side 2016 ANV AmTrust $218.7mn Unknown 2016 Amlin Mitsui £3.47bn 2.36x still in contention, The Insurance adviser Evercore has been pushing interested 2015 Brit Insurance Fairfax £1.22bn 1.59x Insider can reveal. parties for bids of between $325mn-$350mn, 2015 Catlin XL £2.70bn 1.61x Richard Brindle’s Fidelis, considered by equivalent to around 1.45x-1.5x book value. 2014 Sportscover Hamilton N/A N/A many as the frontrunner to buy out BTG, The valuation sounds heady, but with the 2014 Ariel Re BTG Pactual Undisclosed Unknown is understood to have dropped out of the Abu Dhabi Investment Council set to remain 2014 Antares Qataris c.£180mn >1.4x process for the $225mn book value business. after the deal, the goodwill for an acquirer 2013 Canopius Sompo c.$1bn 1.5x Sources said that legacy-to-live player would only be $50mn-$62.5mn. 2013 Ark Syndicate Ian Beaton and $420mn 1.55x Enstar is one of the parties that made it If Enstar did come away with the business Management management through to the final round, although the – an outcome which looks unlikely at this 2013 Jubilee ANV Undisclosed Unknown Managing New York-listed carrier is believed to be stage – it would round out its live operations, Agency the underbidder. It is understood that the which already include global specialty 2013 Cathedral Lancashire £266mn 1.6x preferred party and high bidder is a financial insurer StarStone and Names-backed Lloyd’s 2013 Sagicor AmTrust £56mn 1.35x firm rather than a trade player. insurer Atrium. Intriguingly, the deal would 2013 Atrium* Enstar/Stone $183mn N/A The identity of the bidder is not known, also bring Ariel, the most traded asset in the Point but at various points in the process hedge (re)insurance space, back full circle by uniting 2013 Equity Red Star Aquiline £87mn 0.67x fund Elliott Management has been linked by it with former sister business Atrium. 2012 Omega Canopius £164mn 0.88x sources with a move for Ariel. Ariel has an enviable track record when it 2012 Flagstone ANV $49.7mn 1.2x (excluding Elliott owns Paraline, the entity which comes to operating performance. However, FAL) controls Icat – a business which in turn owns the profitability of the book has been heavily 2012 Hardy CNA £143mn 1.53x a third of Ariel’s turnkey managing agency driven by property catastrophe reinsurance, 2011 Broadgate** Torus £11mn N/A Asta. Paraline chairman Bruce Schnitzer is an increasingly commoditised line of (excluding FAL) also chairman of Asta and will know Ryan business which has suffered swingeing rate 2011 Asta Tawa/Icat/ Undisclosed N/A Mather and the rest of Ariel’s management cuts and which now delivers single digit (Whittington)*** Skuld team as a result of the association, as well as returns in a normalised loss environment. 2011 TSM Prosight Undisclosed Significant having a closer insight into the value of the In addition, the business has witnessed raft discount business than most outsiders. of senior management changes since the 2011 Jubilee Ryan Specialty c.£35mn Between 2x and 3x Elliott, however, is considered by most BTG Pactual deal in 2014, with co-CEOs Tom 2011 Chaucer The Hanover £313mn 1.26x investment bankers to be a parsimonious Milligan and Tom Hulst leaving the firm and 2010 Brit Insurance Apollo and CVC £880mn 0.96x bidder for insurance assets. syndicate 1910’s active underwriter Darren 2008 Advent Fairfax £94mn 1.00x Private equity fund Apollo is also Lednor decamping for Neon. 2008 Heritage Argo £136mn 1.56x understood to have made an early bid for Ariel, Elliott and Apollo could not 2007 Kiln Tokio Marine £442mn 1.90x Ariel, but its own proposal is believed to immediately be reached outside of normal *Atrium is primarily an asset management business; a PE multiple is therefore more appropriate **Asta is a services business; a book value multiple is also inappropriate have been characteristically keenly priced. business hours. Enstar and Fidelis declined to ***Corporate member acquisition, so book value multiple not applicable Ariel’s management had been targeting comment. Source: The Insurance Insider UK Treasury targets 2017 for ILS legislation he UK Treasury has confirmed it will in reinsurance.” working with the government to ensure Tput forward the final regulations for He went on to say that the government successful implementation of the UK’s new implementing the London insurance- would continue to work with the sector ILS framework as soon as possible in 2017. linked securities (ILS) framework early to ensure that London had the regulatory He continued: “The government recognises next year despite fears that there would environment needed to innovate and both the importance of the ILS project in be delays following the vote for Brexit. compete in the global marketplace. Draft making the UK and London even stronger In a letter to the London Market Group regulations are due to be completed this in the global reinsurance market, and they (LMG) seen by The Insurance Insider, Simon autumn, with a view to being put before clearly value the contribution made by Kirby, economic secretary to the Treasury, parliament early next year. Malcolm Newman and others on the task said that the role that London plays as a “The ILS project remains a priority for the force in getting the project to where it is global hub for specialist insurance and Treasury and I look forward to working with today. reinsurance was an important part of the you and London market colleagues to ensure “The ILS taskforce has contributed exporting strength in the UK’s financial successful implementation of the UK’s new tremendous expertise and a wealth of sector. ILS framework in 2017,” Kirby concluded. experience to develop the detail behind “Given the increasing importance of Nicolas Aubert, chairman of the LMG, some of the proposals... This is a great first alternative risk transfer techniques, the ILS said he was heartened to hear that the ILS step towards the success of our wider work project aims to provide London with the project remained a priority for the Treasury. in creating a better business environment for framework it needs to remain a world leader He added that the body looked forward to us in response to changing market needs.”

DAY 1: SUNDAY 05

MC_Day 1.indb 5 10/09/2016 13:35 NEWS

Generali Lloyd’s start up pushed back again

uropean insurer Generali has yet to line up on 1 January. imprimatur of Lloyd’s key executive body Emake a final decision on the fate of In May Donnet appointed Frédéric de when it runs the rule over his business plan, its potential Lloyd’s start-up pushing Courtois, CEO of Axa Italy, as head of a clearing the path for the Asta-managed the earliest possible go-live date for newly created global business lines and syndicate to commence operations on 1 the project back to 1 April 2017, The international division at Generali. January. Insurance Insider understands. De Courtois, who will play a key role Lloyd's syndicate start ups As previously reported, Generali has in determining the future shape of the Year Lloyd’s vehicle (turnkey Syndicate Capacity been on course to commence operations Lloyd’s project, only started in his role at provider) (£mn) at Lloyd’s on 1 July, but postponed its the beginning of the month, explaining the 2016 Everest Re (Asta) 2786 71 targeted launch date following the exit of delay in Generali’s decision-making. 2015 Probitas (Capita) 1492 18 group CEO Mario Greco earlier this year. The Insurance Insider first revealed 2015 Standard Club 1884 ca.60 Philippe Donnet, previously country Generali’s Lloyd’s start-up ambitions in 2015 China Re (Catlin) 2088 119 manager for Italy, was named as Greco’s September last year. 2014 Vibe 5678 5 replacement and opted to place all major Sources said that the proposed entry of 2014 Axis (Asta) 1686 119 projects – including the Lloyd’s start-up – the insurer’s big ticket segment Generali 2014 Duncan Dale (Asta) 1729 75 under review as he looked to put his stamp Global Corporate & Commercial reflected a 2014 Acapella (Pembroke) 2014 45 on the business. desire to grow in the space by leveraging 2013 Nephila (Asta) 2357 72 There had originally been an expectation the Lloyd’s market’s network of licences. 2013 R&Q (R&Q) 1991 77 that a decision on the future of the project While Generali has been delayed, other 2011 Sirius (Asta) 1945 66 would be taken in time to allow third-party Lloyd’s projects are indeed advancing. 2011 Scor (Asta) 2015 75 2011 Skuld (R&Q, now Asta) 1897 60 managing agent Randall & Quilter to pilot Former Cathedral CEO Peter Scales, 2010 Chubb 1882 42 the start-up through the Lloyd’s process in who has teamed up with a number of 2010 TSM (Argenta) 1110 53 time for a 1 January start. his erstwhile colleagues including John 2010 Allied World (Capita) 2232 100 However, with the key Franchise Board Hamblin to found a rival Lloyd’s business, 2009 Beazley 3622 7 meeting in September now set to go will go before the Franchise Board again in 2009 Beaufort 1318 35 ahead without Generali having made a September. 2009 WR Berkley (Asta) 1967 55 determination, the Trieste-headquartered Having secured favourable notice back in Source: The Insurance Insider insurer will no longer be in a position to July, Scales is widely expected to secure the Excludes special purpose syndicates First bids on table for £600mn RSA legacy book SA is pressing ahead with bringing its looking to bring the book to finality, which Given the size of the book, there are only a R£600mn ($800mn) UK legacy portfolio has dragged on its balance sheet at a time select number of legacy carriers that will be to finality with the first round of bids due when management is trying to streamline able to take it on. to be submitted next week, The Insurance the business. Swiss Re and RiverStone have already Insider understands. However, it has been slow to bring the executed large UK EL transactions, with Swiss According to the carrier’s annual report, portfolio to market, with the clean-up Re having written a reinsurance deal for RSA’s legacy book contains disease, asbestos process disrupted somewhat by Zurich’s Aviva’s £1bn legacy portfolio and RiverStone and abuse claims from its old employers’ failed takeover of the UK-listed firm in working on bringing its acquisition of Axa’s liability (EL) and public liability businesses. September last year. £1.1bn portfolio to completion. In August, this publication revealed PwC It is also understood RSA holds its legacy Berkshire Hathaway and Enstar, two of had been appointed as the adviser in the liabilities on a discounted basis, meaning it the other sector heavyweights, always look sale process. may be more difficult to get an attractive at sizeable transactions but are said to be Likely bidders for the sizeable portfolio, sale price. relatively reluctant to take on books with which has £600mn of net reserves, would There has been a string of UK EL legacy UK asbestos exposure owing to the huge include Armour, Berkshire Hathaway, sell-offs in recent times, with some £6bn of uncertainty around ultimate payouts. Catalina and Enstar. reserves being brought to market in the past Last July, Catalina announced that it had Other frontline legacy carriers, such as 18 months. signed a definitive agreement to acquire Swiss Re and RiverStone, may be dissuaded The market is still waiting patiently on the The Hartford’s £477mn UK legacy book, with from throwing their hats in the ring having disposal of Zurich’s bumper £2bn legacy the transaction due to close in the fourth already taken on sizeable similar exposures book, which also contains UK EL exposures. quarter. in previous deals. Moves to sell the book were put on ice Catalina was said to have been the It is not clear whether carriers are being after Zurich changed its leadership and underbidder in the auction process, but invited to submit bids for a reinsurance brought in Mario Greco as CEO in March. was handed the deal at the 11th hour when transaction, a transfer or a type of However, some legacy sources have negotiations between The Hartford and rival combination deal. questioned whether legacy carriers’ appetite legacy firm Armour fell through. It has long been known in the legacy for UK EL exposures will have been sated by RSA said it would not comment on market sector that the UK-listed carrier has been the time the book comes to market. speculation.

06 DAY 1: SUNDAY

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Cyber_BadMC_Day 1.indb guys_8,5x11 7 zoll.indd 1 10/09/201610.08.16 13:3515:29 NEWS

Zurich looks to earnings reinsurance cover in 2017 urich Insurance Group is weighing up when appropriate,” Beer said. “Our ultimate aim is to ensure long-term Zfurther reinsurance options to protect “We will equally access traditional and access to solid, sustainable and reliable against earnings volatility in 2017, the alternative external sources of capital sources of capital that will help us build our carrier’s global head of group reinsurance depending on the relative efficiency of those target underwriting and large risk capacity, Juan Beer told this publication ahead of markets.” whilst protecting our balance sheet and the Monte Carlo Rendez-Vous. Zurich buys a global umbrella catastrophe earnings and achieving capital efficiency,” The carrier already significantly lowered programme, as well as four regional treaties. Beer concluded. its risk retention for US wind and European None had reached their attachment point Zurich expanded its global cat treaty by perils and expanded its global catastrophe ahead of Monte Carlo. $250mn at this year’s renewal to provide treaty during this year’s renewal. The carrier took around a $200mn hit in $750mn of limit, with varying trigger points Beer said that Zurich would be seeking Q2 from large catastrophe losses, including for four key regions. to further streamline and consolidate the the Canadian wildfires, European storms Separate regional treaties provide lower- number of its global placements in 2017, and Texas hailstorms. It has also begun a lying cover for these four zones, but the differentiating between strategic group- wider drive to cut costs and reduce top line carrier took diverging approaches to wide reinsurance and tactical purchases to premium under new CEO Mario Greco, in renewing these this year. The European all- support specific business units. response to a downturn in results. perils treaty more than halved to $433mn, Business-specific initiatives could include Broadly speaking, Beer said that the firm while $50mn was added to each of the US other remedies such as re-underwriting or expected pressure on reinsurance pricing to quake and US other perils towers. de-risking actions, the executive noted. continue in 2017, albeit in a less pronounced A $105mn cat swap for US wind risk was “As in the past, we will continue manner. also added, possibly partly compensating for to leverage our capital position and Tension between high levels of capital and the decision last year to drop a cat bond. participate in the underlying risks through deteriorating reinsurer returns was creating The retention for the regional treaties fell meaningful self-retentions and through uncertainty over the market outlook, he from $850mn to $500mn for US wind, and co-participations in excess layers, as and added. from $570mn to $472mn for European perils. Reinsurers resist aggressive buying tactics: Guy Carp

id-year renewals have revealed present, insurers are facing difficult market dropping in the mid- to low-single-digit Mreinsurers are increasingly pushing conditions and chronically weak investment range and capacity also falling. back against shorter-term aggressive returns, putting immense pressure on Multi-year policies were greeted with buying strategies from primary carriers, earnings,” he explained. even greater resistance as the amount of according to Guy Carpenter. Chris Klein, Guy Carpenter’s head of Emea multi-year coverages offered by reinsurance In a briefing note released ahead of strategy management, highlighted recent carriers fell. the annual Monte Carlo Rendez-Vous, the renewals in Asia Pacific as an example of New offerings were particularly impacted broker claimed reinsurers were resisting how the difficulties facing primary carriers by the changing attitudes as market primary carriers seeking to consolidate were impacting the reinsurance market. sentiment increasingly leans towards the and centralise their reinsurance buying, as He said: “On property cat, clients belief that prices are nearing the bottom evidenced by slowing rate declines and a responded to the ongoing challenging and are poised to stabilise in the near future. fall in surplus capacity. direct market by continuing to focus on Klein explained: “There simply isn’t a The intermediary’s CEO of Emea reducing overall reinsurance spend, with a willingness to lock in current rates for a operations, Nick Frankland, said reinsurance trend towards further treaty consolidation number of years.” buying was now perceived as part of and deductible increases for programmes The broker also identified a notable carriers’ long-term strategic decision with significant exposure growth or losses.” recession of the surplus capital that has making, with the concurrent rationalisation But Klein said reinsurers, particularly those impacted rates throughout the duration of in buying habits reducing overall writing catastrophe business, were now the current soft market. reinsurance buying. more willing to reduce their participation on Authorised capacity in excess of actual He said while insurers could be expected programmes or decline business altogether business written declined from 26 percent to take full advantage of attractive rates in if they deemed buyers’ demands to be too at the 2014 1 July US property reinsurance the market, reinsurance buying overall had onerous. renewals to 17 percent for the same period declined. Klein added that US mid-year renewals in 2015 and 16 percent in 2016. “We are dealing with conflicting forces had shown a notable moderation in the Klein said this reflected reinsurers’ and while pricing is highly attractive at price decreases in property lines, with rates willingness to resist pressure from buyers.

08 DAY 1: SUNDAY

MC_Day 1.indb 8 10/09/2016 13:35 MC_Day 1.indb 9 10/09/2016 13:35 NEWS DIGEST

RSA’s Hancock to replace Bolt specialty lines Chris Leisz will lead the Kayll to head up Jon Hancock, the managing director of UK financial institutions and management THB marine team commercial at RSA, has been named the liability business on an interim basis until a new director of performance management replacement is found. Amwins’ London-headquartered at Lloyd’s, The Insurance Insider revealed on 9 international broker THB has hired September. PartnerRe appoints Beedle Toby Kayll as managing director of Lloyd’s CEO Inga Beale said: “Jon is a man James Beedle is to join PartnerRe as head of its marine division, The Insurance who has lived and breathed insurance Asia Pacific from 1 January. Insider can reveal. his entire working life and understands Beedle joins from Willis Re, where he was He will join the company upon instinctively the challenges facing the senior managing director for Asia Pacific, completion of his notice obligations at market and how we should respond to based in Singapore. current employer Integro. them. He had previously served as chief THB refreshed its marine team “It says everything about the attractiveness operating officer of Willis Re Australia and earlier this year, while the position of of the Lloyd’s brand that Jon wanted to CEO of Willis Re Japan. managing director has been vacant for come here after a career at RSA where he the past 18 months. has held senior positions in the UK, Asia and CCR launches CCR Re The intermediary will now try to the Middle East.” France’s state-owned reinsurer Caisse build a marine team around Kayll. Centrale de Réassurance (CCR) has launched Kayll founded Integro’s London Gable chairman resigns a new subsidiary for its open market marine and specie operation in 2009. Non-executive chairman Jost Pilgrim has reinsurance business. Prior to that he served as a resigned from the Gable board in the latest From 1 January, the carrier’s open market facultative marine cargo and specie in a series of departures from the troubled operations will be transferred to CCR Re – a broker at GCFac. Liechtenstein-based insurer. separate legal entity owned by CCR. The executive built the marine team In a London Stock Exchange statement CCR Re will write around EUR400mn at Integro after the broker acquired released on 9 September, Gable said CEO ($450mn) in premiums across 50-60 markets, a substantial portion of the assets of William Dewsall had been appointed and has a solvency ratio of 200 percent. Lloyd’s intermediary London Market executive chairman on an interim basis Insurance Brokers Ltd (LMIB) in 2010. following the move. Barbican restructures Under the deal approximately a The beleaguered carrier has suffered a raft Syndicate 1955 leadership dozen specialist marine staff headed of resignations in the past few months after Lloyd’s carrier Barbican has revamped its by LMIB managing director Dan Lott the company revealed Solvency II capital leadership structure to establish divisional and their portfolio of business joined shortfalls and large losses following its heads for its underwriting lines within Integro. failure to publish its 2015 annual accounts in Syndicate 1955. due time. David Slade will be divisional head of StarStone COO to exit property, with Olivier Decombes named Cooper Gay rebrands to Ed head of energy, power and utilities and Patrick Tiernan, group COO at Cooper Gay has rebranded itself to Andy Caldwell appointed head of specialty. StarStone, is leaving the company, Ed as CEO Steve Hearn continues his Caldwell will continue in his role as deputy The Insurance Insider has learned. transformation of the broker, the firm active underwriter in addition to his new Sources said Tiernan would remain announced on 9 September. responsibilities. until the end of the year. It is thought The move comes less than a year after the he is heading to Aviva for his next role, former Willis group deputy CEO took over R&Q acquires RLGI although the details are not known. the reins from Toby Esser. Legacy-to-live carrier Randall & Quilter (R&Q) Tiernan had been COO at StarStone Hearn said in a statement: “All around has acquired The Royal London General since 2014, but has 16 years of us, the world is changing. Ed is the Insurance Company Ltd (RLGI), a UK non-life insurance industry experience. He embodiment of that change in the world of insurer in run-off, for £11.9mn ($15.8mn). spent 10 years at Zurich, where his wholesale broking.” In a statement released on 9 September, most recent role was CEO of the the company said the purchase price group’s centrally managed businesses. CNA FI chief Kubursi represented a discount to RLGI’s net assets Net income from StarStone, Enstar’s leaves unexpectedly of £13.5mn at year-end 2015. live underwriting platform, more than CNA’s senior vice president of financial The deal will be financed by R&Q’s group trebled in 2015. institutions and management liability Ziad bank facility and cash at hand. The formerly Torus-branded unit’s Kubursi has stepped down unexpectedly net earnings before non-controlling after just over a year in the role, The Former Guy Carp interest increased from $4.3mn Insurance Insider revealed on 9 September. MD joins Litmus in 2014 to $20.8mn last year. And In a message to brokers, seen by this Tom Gleis has joined Litmus Analysis as StarStone also returned to a full-year publication, CNA Specialty’s president and head of market development, it announced underwriting profit as its combined chief operating officer Mark Herman said on 11 September. ratio improved to 98.6 percent. Kubursi would be resigning “to pursue other Gleis has more than 35 years’ experience, opportunities”. most recently as a managing director at Guy CNA’s chief underwriting officer for Carpenter.

10 DAY 1: SUNDAY

MC_Day 1.indb 10 10/09/2016 13:35 VISION ACTION

SCOR LAUNCHES ITS NEW STRATEGIC PLAN Thanks to its accelerated development in Life and P&C reinsurance, SCOR now belongs to the top tier of global reinsurers. The Group’s premium income will reach around EUR 13.7 billion in 2016, an increase of 34% since 2013. Shareholders’ equity reached EUR 6.3 billion at 30 June 2016, up 33% over the strategic plan, after the distribution of EUR 781 million in dividends. SCOR’s development has focused on the twofold objectives of profi tability and solvency. All the targets of the “Optimal Dynamics” plan, which has come to an end, have been achieved. With the upgrade of its rating in 2015, SCOR is now rated AA–(1). Plan after plan, the SCOR group demonstrates its ability to fi nd solutions to all the challenges posed by a diffi cult and shifting economic and fi nancial environment. SCOR absorbs loss event shocks thanks to its active, state-of-the-art risk management policy. Today, SCOR launches its new three-year strategic plan, “Vision In Action,” which is fully aligned with “Optimal Dynamics.” Over the next three years, SCOR will pursue its dynamic combination of growth, profitability and solvency with ambition and determination, serving its clients and benefi tting its shareholders.

› 2016–2019 TARGETS ›

HIGH RETURN ON EQUITY OPTIMAL SOLVENCY RATIO ROE ≥ 800 basis points above the Between 185% and 220% five-year risk-free rate over the cycle(2) of the SCR(3)

(1) Standard & Poor’s and Fitch Ratings. (2) Based on a 5-year rolling average of 5-year risk-free rates. (3) Solvency Capital Requirement.

scor.com

SCOR_PUb_FI_215,9x279,4_InsuranceInsider.inddMC_Day 1.indb 11 1 06/09/201610/09/2016 14:3713:35

BIG QUESTION: M&A

2016 may not have had any mega-deals to speak of, but a steady stream of acquisitions has trickled through nonetheless. Here, we ask the market what its expectations are for the remainder of this year, and what impact Brexit has had

If 2015 was the year of the mega-deal, earnings expectations for 2016 and 2017 Kiln: This year hasn’t been quiet on deals, how would you characterise 2016 in are less favourable. it’s just the type of deals we have seen terms of M&A? have been significantly different. Last Rafal Walkiewicz, CEO of Willis Capital year we saw many mergers of equals in Andrew Beecroft, head of M&A advisory, Markets & Advisory: The global economy the insurance world but 2016 has been GC Securities, a division of MMC is also slowing down somewhat. So there characterised mostly by global insurance Securities (Europe) Limited: Against is a lot of dialogue, the deals take a little companies looking to shed non-performing a backdrop of soft pricing and excess bit longer to do and people are just more parts of their businesses. capital in specialty (re)insurance markets, cautious. The mega-deals come and go M&A continues to play a vital role within and it’s easy to look at the total volume of Torsten Jeworrek, member of the board corporate strategy. The intense activity in insurance M&A in 2015 and say, well, it was of management at Munich Re: One 2015 acted as a release valve for some of a huge year. But if you take out the two reason for the lower level of activity may the pent-up consolidation pressure, but largest deals it was an average year and we be the price level in the market. We are also 2016 has returned to more “normal” deal expect this trend to continue. seeing divestments by companies which volumes. Most of the action is in smaller are (re)focusing their business model. Also So far, 2016 can be best characterised transactions and bolt-ons, things that global, political and economic changes will by the role of corporate partnerships as really drive people’s strategy, that are not likely impact transactions significantly, for a means of tapping into underwriting necessarily transformational but help them example reactions to Brexit and global trade expertise and distribution. This spans grow in a difficult sector, particularly the agreements remain to be seen. strategies embracing specialised expertise reinsurance market. I suppose consolidation will continue within the Fintech sector to the Special for some years, while I expect strategic Purpose Arrangements and coverholder Amit Kumar, vice president and a senior rationale to prevail over size considerations. “start-ups” featuring established global analyst at Macquarie Group: I would In the reinsurance sector, consolidation (re)insurance enterprises and partners in describe 2016 as the year when a rising is taking place mainly among smaller emerging markets. tide lifted all boats, i.e. buoyed insurers’ companies, so there will be stronger market valuations. P&C continued to serve as a players in the future. Mark Kociancic, CFO Scor Group: safe haven in the volatility within banks, In 2016 we have a different dynamic life insurers and other diversified financials. What’s causing the relatively small than in 2015, as some of the multiples While the safety trade raised multiples, amount of M&A this year? (driven by perceived expense and capital it detracted from M&A opportunities. In synergies) were very high and benefited addition, concerns surrounding Brexit led Mike Krefta, CUO for Hiscox Re: There will from favourable equity and credit market to a pause in activity as both buyers and always be space in the market for the multi- dynamics, low interest rates and a low nat sellers awaited clarity on the issue. line behemoths and the nimble specialists. cat environment. As such, 2015 enjoyed What’s not clear is whether there’s room for a favourable net income environment Roger Bickmore, group strategic which is probably not sustainable. Forward development director at Tokio Marine CONTINUED ON PAGE 15

DAY 1: SUNDAY 13

MC_Day 1.indb 13 10/09/2016 13:35 BIG QUESTION: M&A

ExpErtisE you can rEly on

CCR Caisse Centrale de Réassurance @CCR_Reassurance CCR Caisse Centrale de Réassurance

www.ccr.fr

CCR ™ - Caisse Centrale de Réassurance - 157 boulevard Haussmann 75008 Paris - France Tél. : +33 1 44 35 31 00 - http://www.ccr.fr - Société Anonyme au capital de 60 000 000 € - 388 202 533 RCS Paris

MC_Day 1.indb 14 10/09/2016 13:35 BIG QUESTION: M&A

a business model that sits in between and Bickmore: Yes, we probably are in a price at the beginning of last year and some risks being both sub-scale and high cost. bubble. The valuations for MS Amlin prove people said the prices moderated a little bit. Some of the mergers we’ve seen may just that prices are high at the moment. However, there is still a lot of demand for end up in that challenging place. insurance assets, particularly coming from Karl: The pricing bubble on M&A, if any, Asia and this is driving pricing up. I can’t see Walkiewicz: If you think about the seems to be confined to Lloyd’s syndicates. any bubble, certainly not more so than in insurance industry overall there is obviously 2015. a number of sub-sectors and the M&A Kociancic: Valuation in the Lloyd’s market market in general is volatile, but this and in traditional reinsurance deals in 2015 How successful has the integration work volatility is somewhat smoothed out by was very high, and appeared to be at a been on 2015 tie-ups? Will M&A deals some sub-sectors being more active than peak. achieve promised gains? the others. For instance, we see much more dialogue in life insurance deals right now Kumar: There has definitely been evidence Kociancic: It is too early to say as it takes than in prior years. So there are pockets of a pricing bubble this year. Many insurers two or more years to see the full value of of activity that are still very active and are view themselves as candidates with the lens integration synergies. The difficulty with perhaps even more active than they were in of an HCC takeout multiple. And perhaps a the 2015 acquisitions is that since then the 2015 and before. reality check is needed. sector has been navigating in an even softer P&C pricing environment. This will put Kumar: 2016 has seen M&A activity The MS Amlin valuation set pressure on the promised synergies. decelerate for a number of reasons. “ Moreover, 2015 was a very benign nat cat First of all, P&C insurers have relatively a precedent for price, and year, and one could expect the conditions outperformed in recent years which has, since then all other potential on both the nat cat side and the interest in some sense, created a double–edged deals are looking expensive rate side to deteriorate in 2016 compared sword. On the one hand, insurers are doing ” to 2015, putting additional pressure on the well, allowing them to continue to build expectations resulting from the 2015 M&A capital for acquisitions, but on the other The higher multiples have created a gap deals. hand sellers are expecting higher multiples. as to what a buyer might be willing to In addition, the current rate environment pay versus what a seller might accept. The Walkiewicz: If you look at the large has not helped. While this has led the bubble leaves buyers having to justify any transactions like Ace/Chubb or XL/Catlin urgency of M&A to stagnate, I expect to dilution or face negative reaction which and if you look at, in general, the quite high see more consolidation in the long term, might make the deal even more dilutive, tangible book value dilution in these deals whether that consolidation stems primarily while leaving the sellers continuing to they are designed for long-term success. It from overlap opportunities or a play on operate barely exceeding their cost of would be premature to judge what happens excess capital. capital. However, this status quo will not after a year. persist indefinitely. Kurt Karl, managing director and head Kumar: The buyer always has to deal with of Swiss Re’s Economic Research and Beecroft: Transactions in 2016 have asymmetric information and consequently Consulting: Basically, the market valuations reflected current competitive market the benefits apparent on day one might of most (re)insurers are still depressed – conditions while seeing a tapering of end up remaining on paper only. Although clustering around price-to-book ratios valuations, given the non-blue chip status near-term M&A deals might promise certain of 1.0. This is an unattractive price for of the targets acquired. It is evidence that gains, this can only be viewed over a five- sellers, and takes a huge payment over not every asset can achieve the book to-10-year timeframe. I am a natural sceptic current valuations for buyers to get a seller multiples that made the headlines in 2015. of rosy projections. Although the numbers ExpErtisE interested. Thus, both sides have trouble can be delivered, history has proven to be a bringing their shareholders to the table. Krefta: But is there a bubble? The insurance less than optimistic indicator. sector is really following the rest of the Bickmore: Valuations have been high, market here. I don’t think it’s specific to Bickmore: I would argue that it’s the you can rEly on especially in the Lloyd’s market. The MS us at all, except for the fact you’ve had a acquisitions which have produced the Amlin deal valuation set a precedent for largely unconsolidated market in a market most successes compared to the mergers. price and since then all other potential where you have to work hard to be truly The problem with some of the high-profile deals are looking expensive. On top of distinctive. So M&A in a capital-rich industry mergers is that there has been quite a bit this there is a fair amount of political was largely predictable. of internal political fallout resulting in a loss uncertainty with the fallout from Brexit of talent. This has benefited companies that and the US presidential elections still to Walkiewicz: The market has tailed off have wanted to hire senior talent to branch come. I imagine a lot of deal-making may a little bit since the peaks of 2015 and into new business lines. be postponed until some of the dust has the M&A market follows the pricing of Many of the mergers have also happened settled politically. assets overall. I wouldn’t say that we had a to create cost savings and in some cases CCR Caisse Centrale de Réassurance @CCR_Reassurance CCR Caisse Centrale de Réassurance consistent increase of prices over the last these have not been realised. On the flip In 2015 there were concerns that we were three years and that we are approaching side, most acquisitions took place to create www.ccr.fr approaching a pricing bubble – has there the levels that are not sustainable. revenue synergies and on the whole this been evidence of that in 2016? There was a little bit of a peak perhaps Continued on page 16 CCR ™ - Caisse Centrale de Réassurance - 157 boulevard Haussmann 75008 Paris - France Tél. : +33 1 44 35 31 00 - http://www.ccr.fr - Société Anonyme au capital de 60 000 000 € - 388 202 533 RCS Paris DAY 1: SUNDAY 15

MC_Day 1.indb 15 10/09/2016 13:35  BIG QUESTION: M&A

has been successful. catastrophe risk. Larger players are also Contributors able to get better placements and terms What will the landscape look like in 2017 and conditions, perhaps even better prices, Andrew Beecroft following the multi-line (re)insurance in exchange for a whole range of services, Partner, head of M&A juggernauts created in 2015? Will the including training, underwriting support, advisory, GC Securities, a reinsurance landscape be the preserve of market insights etc. division of MMC Securities the large, all-line behemoths? (Europe) Limited Has Brexit put a pause on M&A for the Beecroft: The recent strong wave of new rest of the year? capital from the ILS market continues Roger Bickmore to be a disruptive factor in property Bickmore: Probably. I think everyone group strategic (re)insurance markets. While the flow of will want to stop and observe how the development director at capital has slowed as relative value return landscape lies in the short-medium term. Tokio Marine Kiln opportunities have fallen, it represents a It would be cavalier to rush in and start permanent restructuring of the reinsurance making deals without knowing the political market that will drive innovation and and regulatory structure that is likely to partnerships between the capital markets change dramatically in the next 24 months. and (re)insurance firms. That said, there could be some aggressive Torsten Jeworrek This dynamic also gives the large multi- overseas players looking to take advantage Member of the board of of a subdued pound and negotiate a management at Munich Re line reinsurers an opportunity to play a more dominant role, driven by their ability healthy discount to account for the to deploy capital at low expected returns, geopolitical uncertainty. supported by their ability to diversify risk. Kociancic: Although we’ve seen a few big Kociancic: There is still a movement opportunistic deals outside the insurance towards more consolidation in multi-line sector, a pause seems to be the case for Kurt Karl primary insurance, so this trend should M&A at Lloyd’s and M&A with dominant UK Managing director continue to create larger insurance players. activities. However, we believe it will have and head of Swiss Re’s The dominant global reinsurers have a limited impact on M&A for (re)insurance Economic Research and natural role to play in the industry and companies with little UK exposure. Consulting they have a competitive advantage over smaller players that are not sufficiently Walkiewicz: Change is good for M&A but scaled or diversified by geography or lines uncertainty is bad for M&A. It will certainly Mark Kociancic of business. impact the volume of transactions in the CFO, Scor Group short term but I don’t think it will impact Walkiewicz: It depends how one would the volume of transactions in the long term. define a truly large company. I think people It can actually facilitate M&A going forward would agree that if you want to build a – so looking medium to longer term. diversified global reinsurance company, it People are looking at what is happening, is difficult to do it with a billion dollars of the market doesn’t like uncertainty, so Mike Krefta equity. But it’s hard to comment whether businesses are more cautious. However, CUO, Hiscox Re the sweet spot or threshold is $2.5bn to again, change is good for M&A markets. $7bn of equity, it depends how you value When we actually know what is going to the business and which lines you focus happen it might facilitate a number of upon. transactions. I think that the market proved that the monoline reinsurance model is very difficult Kumar: Brexit is a mixed bag. On the one Amit Kumar to pursue in the world we live in with hand, there are companies that are mostly Vice president and a senior easy access to capital, third party money opportunistic but not necessarily in the analyst at Macquarie flowing into insurance and softer pricing. market as a buyer or a seller and these Group But outside of that it’s very difficult to make companies might be on the sidelines an argument that across the board for all following Brexit, at least until the new reinsurance business and lines you need passporting rules come into effect. This further meaningful consolidation. I think it may also similarly impact the Lloyd’s depends on the business models that are names and put any consolidation plans Rafal Walkiewicz being pursued. on the backburner for a while. However, CEO of Willis Capital the US/Bermuda/international names are Markets & Advisory Karl: The current market favours larger not expecting a significant impact from reinsurers. The pricing is very challenging, Brexit and will continue to evaluate the so any major cat losses will severely marketplace, as this is not a game changer affect smaller players which specialise in per se.

16 DAY 1: SUNDAY

MC_Day 1.indb 16 10/09/2016 13:35 Aspen - Insider dailies 1.pdf 1 05/09/2016 11:08:13

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BigMC_Day questions 1.indb template.indd 18 1 10/09/201606/09/2016 13:3513:42 NEWS HONOURS Celebrate good times The Insurance Insider’s fifth Honours event saw more than 600 leading industry executives pack into the Big Top-themed Old Billingsgate on 8 September. Hosted by UK comedian Jon Culshaw, the evening was a huge success. And the Insider team was on hand to keep tally of the night’s winners

Marsh & McLennan Companies awarded underwriting initiative of the (MMC) dominated The Insurance year for it trade credit supply chain Insider’s fifth Honours event, held finance innovation, which created at Old Billingsgate on 8 September, a low-cost and highly innovative taking home three awards including working capital solution for UK mid- outstanding contributor of the year sized businesses. for CEO Dan Glaser. The carrier also won the inaugural MMC’s reinsurance arm Guy inclusion and diversity award, beating Carpenter collected the gong for a large number of competitors in the launch of the year, along with its process. client Flood Re, after the broker The Insurance Insider Honours is helped the UK flood scheme secure very proud to recognise the next one of the largest ever natural generation of talent coming through catastrophe reinsurance programmes. the market, in both the underwriting, And Marsh was recognised for its broking and claims sectors. cyber gap policy, which won the The young broker category went to broking initiative of the year award. Capsicum Re’s Joseph Lone, who was Launched in 2014 by Marsh’s energy highlighted for his entrepreneurial practice, the policy indemnifies clients ethos, which has helped to put his in the event of a cyber-attack, should firm at the forefront of product their existing policies’ exclusionary development for marine and energy. language not permit a cyber loss to The accolade for young underwriter be recoverable. of the year was given to Megan The hotly contested broker of McConnell, who has been active the year accolade, however, was underwriter at ICAT Syndicate 4242 presented to Price Forbes & Partners. since December 2013. At the time In the last two years, Price Forbes & this made her the youngest active Partners has gone through a period underwriter in Lloyd’s as well as the of significant growth, involving the youngest female active underwriter in hiring of new teams, expansion of the market’s history. product lines and investment in new And the young claims professional offices. of the year gong was awarded to MS Amlin and AIG both Hiscox London Market’s Kieran took home two awards Giddons, who at 26 has made apiece. MS Amlin saw a huge contribution at Richard Hextall his company, leading a named CFO of number of projects the year, while that have had a the acquisition of direct impact on Amlin by Mitsui the quality of Sumitomo was claims service chosen as M&A to Hiscox’s transaction of the insureds and year. brokers. AIG, meanwhile, was

DAY 1: SUNDAY 19

MC_Day 1.indb 19 10/09/2016 13:36 HONOURS 

MC_Day 1.indb 20 10/09/2016 13:36 HONOURS

The 2016 Honours Board

The Inclusion and Diversity Award Broking Initiative of the Year CFO of the Year AIG Marsh, Cyber Gap Policy Richard Hextall, MS Amin Young Broker of the Year Launch of the Year Outstanding Contributor Joseph Lone, Capsicum Re Flood Re and Guy Carpenter of the Year – Risk Young Underwriter of the Year M&A Transaction of the Year Ian Beaton, Ark Underwriting Megan McConnell, ICAT Syndicate 4242 MS Amlin Outstanding Contributor Young Claims Professional of the Year Broker of the Year of the Year – Distribution Kieran Giddons, Hiscox London Market Price Forbes & Partners Dan Glaser, Marsh & McLennan Companies Risk Carrier of the Year MGA of the Year Lifetime Achiever Pool Re CFC Underwriting Michael Butt, Axis Underwriting Initiative of the Year Cuthbert Heath Award (Claims and AIG, Supply Chain Finance Losses) – Gard UK

Awards honour Glaser, Beaton and Butt

The outstanding contributor of the and diversified, and now writes more than Insider’s highest accolade, the lifetime year awards for distribution and risk $450mn in gross premiums. achievement award. were presented to Dan Glaser and Ian MMC’s Glaser was cheered for guiding He was praised for unselfishly promoting Beaton respectively, with Michael Butt his firm to long periods of organic growth the industry’s engagement with the named as this year’s lifetime achiever. and high margins, despite a severely scientific and governmental communities The judges praised Beaton, who is challenging market. through international organisations such now in his second decade of senior And finally, Butt, who boasts 49 years of as the Geneva Society and for the decades management in our sector. Under his industry experience – latterly as chairman of work he has dedicated to promoting leadership, Ark Underwriting has thrived at Axis, was honoured with The Insurance the Bermuda marketplace.

DAY 1: SUNDAY 21

MC_Day 1.indb 21 10/09/2016 13:36 Photo: Gettyimages

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MC_Day 1.indb 22 10/09/2016 13:36 Q&A

The interview: Nick Frankland

How have reinsurers fared relative to Fort McMurray are difficult to anticipate space are already depressed due to low primary carriers following the nat cat and and therefore to price. As the science oil prices and a lack of investment? major man-made loss events that have of catastrophe modelling evolves, It is our expectation that the loss will have been seen in the first half of 2016? the industry’s ability to quantify and a steadying impact on pricing levels for Initial signs are that losses resulting from price these unpredictable events will reinsurance layers potentially hit by the loss. the Japanese earthquakes in April and the improve. Reinsurers’ appetite will always However, of more importance is whether recent European floods will predominantly have more to do with risk understanding the loss will lead to a hardening of the be borne by the insurance industry, with and pricing adequacy than layer exposure. original energy insurance market. only minor cessions to reinsurers, mainly In addition, carriers will often be The falling level of premium in this market through quota share agreements. required to write lines across all layers of has significantly reduced the available By contrast, the Canada wildfire, as well a programme rather than single layers in margin for both insurers and ultimately as recent US tornado and hail losses, will isolation. This makes it important for them reinsurers, and the sector has seen several result in greater cessions to the reinsurance to consider the whole programme price other significant losses. As these start to industry. In aggregate, the first-half losses rather than that of any particular layer. be paid the willingness of underwriters to are not material for the (re)insurance sector, provide further reductions could be severely and it is our expectation that their impact tested. on loss ratios will be less than 2 percent. What is unique about However, in the current soft market, this still “the Canada wildfire event Much of the media focus on loss quantum has the potential to feed through to lower is the large percentage has centred on property losses, but have year-end earnings expectations. there been major events in the casualty What is unique about the Canada wildfire of the overall loss ceded market that we ought to be covering too? event, which would not be considered a to the reinsurance and Large casualty losses, such as the train peak peril, is the large percentage of the retro markets crashes in Italy and Germany and the overall loss ceded to the reinsurance and ” Sempra Energy loss, have contributed to a retro markets, including the insurance- poor first half 2016 for the P&C market. linked securities space via sidecars and What issues have been thrown up However, as is the way with the long-tail some industry loss warranties. around a major reinsurance and retro classes of business, it is often the losses loss like the Jubilee oil field, where the that are still developing that can make the Fort McMurray has been described by business interruption component leaves biggest impact. some as a shock loss given the C$5bn uncertainty around the quantum for This is why we are carefully monitoring quantum from a wildfire event. What months? situations such as last year’s Volkswagen lessons can be learned in terms of the The traditional marine and energy directors’ and officers’ loss and the Samarco need to price the unpredictable events? reinsurance market (rated paper) is very mining loss in Brazil for their potential Will the wildfires have much of an impact experienced in dealing with uncertainty to develop into much larger losses than on the Canadian market? And were of losses through renewal. Many of the currently realised. carriers ill-advised to write such low market’s significant losses have taken time attachment points? to develop and have been at inconvenient Fort McMurray has turned out to be the periods in the renewal cycle. Superstorm largest insured catastrophe in Canadian Sandy hit the northeast of the US early in history, with some estimates putting the November 2012, causing significant marine overall loss figure in the range of C$4bn- losses, but the vast majority of affected C$5bn. The majority of the loss will be borne reinsurances were successfully renewed one by local reinsurers and Lloyd’s, so at renewal month later. we expect the focus to be on the low-to-mid Likewise, the Costa Concordia loss loss-affected layers, with rate increases on developed over a prolonged period, with these layers reflecting the level of impact. reinsurers and retrocessionaires adapting to There remains some uncertainty the quantum of loss as it developed through surrounding issues such as smoke damage, more than one renewal period. clean-up, toxicity, business interruption and Generally energy losses, due to the additional living expense costs, which may complexity of the events involved, take time also impact pricing at 1 January, as well to settle. However, reinsurers generally take as having contract implications for hours a pragmatic approach that enables them to clauses. Due to the non-modelled peril work with brokers and clients to complete aspect of this event, there has also been renewals. some discussion surrounding top layers. However, reinsurer capacity is anticipated to Also, what is the likely impact of this Nick Frankland be robust at renewal. event on the market given that it has CEO, EMEA operations, Guy Carpenter By their very nature events such as come at a time when (re)insurers in the

DAY 1: SUNDAY 23

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MC_Day 1.indb 24 10/09/2016 13:36 Q&A

Striking the underwriting balance Jon Godfray, group chief operating officer of Barbican Insurance Group, discusses how fee-based underwriting helps firms fully leverage the potential of their balance sheets and enables smaller companies to compete more effectively with the larger players

Does the continued rise of fee-based In contrast, for smaller to mid-sized able to capture, secure and retain business income for many carriers mean that all organisations that operate from a more then to a degree all underwriters fall into underwriters will eventually become constrained capital base, such fee-based the category of producers to a greater or managing general agents (MGAs)? income provides a mechanism to extend lesser degree. The overall attractiveness of the MGA the potential of their capital base. It creates Finding an underwriter in today’s market structure is very much dependent on a more favourable footing when competing that does not have to attract and produce the particular lines of business you are with larger players, as it provides the ability their own business, to some extent, operating in. MGAs are generally better and flexibility to respond proactively to would be very difficult. I do not believe suited to shorter-tail lines that offer a higher market opportunities when they arise. that generating fee-based underwriting degree of predictability and a quicker income significantly changes the role of the outcome, rather than, say, longer-tail underwriter, it simply expands the potential casualty lines, where the potential returns I do not believe that of that role. can take many years to develop. “generating fee-based The commission structures that underpin underwriting income Does reliance on fee income leave carriers MGAs are reliant upon the speedier vulnerable to takeover by the capital on turnaround afforded by shorter-tail classes, significantly changes the role whose behalf they are underwriting? so their overall appeal will be greatly of the underwriter, it simply If companies leave themselves influenced by the business profile of the expands the potential of that overexposed to a single carrier or capital particular carrier. role provider, they can leave themselves open At Barbican, we carefully analyse all ” to a potential takeover or the potential our lines of business to identify where repercussions of that particular carrier being the potential for conducting fee-based Should carriers always write in parallel taken over. underwriting exists alongside the on their own balance sheet alongside the It is important to seek a range of capital underwriting we carry out against our third party capital they are representing? providers and not become over-reliant on own balance sheet. Our aim has been to Once again, this will very much be a single carrier. We have, within our MGA focus on classes which offer the potential influenced by the structure of the business Castel, formed capital provider for consistent, steady fee income and this organisation itself. The potential afforded “clubs”, where we can benefit from having approach has worked well for us to date. by working on your own balance sheet access to numerous carriers, while the alongside third party capital providers will companies themselves also benefit from What do you feel is the optimal balance be driven by the business model, and in the opportunity to assess a broad spectrum of fee-earning business versus own particular the risk appetite and the strength of risks and match these against their own balance sheet business? How has this of the balance sheet. particular appetite. proportion changed in the last five years? If, for example, you possess the We see a healthy balance of fee-earning underwriting acumen for a particular line business alongside your own balance sheet of business in a specific region but lack the business as being very positive. The optimal financial robustness to withstand more balance between fee-earning income than one or two major losses in a particular and underwriting income generated from year, then securing the backing of third your own balance sheet should always be party capital opens up that opportunity, determined by the organisational structure generates fee income and removes the need and risk appetite of the individual company. to carry the whole risk yourself. Fee-based business provides an For Barbican, achieving the right balance opportunity to generate greater income between fee-based income and risk-carrying from your balance sheet while working underwriting income is fundamental to our within the parameters of your available overall business objectives. We see it as a capital. However, one of the drawbacks of means of fully leveraging our underwriting such business is that it tends to renew on capabilities and ensuring that we capitalise an annual basis, placing more pressure on on the breadth and depth of expertise carriers to ensure that they can continually within our team. maintain this income stream. For organisations with larger balance Does doing fee-based work change Jon Godfray sheets, fee-based income can be less underwriters into producers? Group COO, Barbican Insurance Group attractive given its more transient nature. If by “producer” we mean someone that is

DAY 1: SUNDAY 25

MC_Day 1.indb 25 10/09/2016 13:36 FRESH NEW LOOK.

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MC_Day 1.indb 26 10/09/2016 13:36 45813IGI Insider US Letter AW.indd 1 01/09/2016 09:55 OPINION

London ILS is key to closing terror reinsurance gap: Enoizi

he recent tragic attacks in Nice, is considered to be high could go a long purchase of an insurance policy represents a Tsouthern Germany and elsewhere way to ensuring that those economies juncture at which communication can occur provided yet another reminder of how are able to rebound from major incidents, with businesses about the contemporary brutal and unpredictable the terrorist protecting what are often nascent or fragile threat and how to manage the risks most threat has become. Managing and democracies. effectively. mitigating this threat is likely to become The UK is already a world leader in the The UK’s recent vote to leave the European more challenging and require innovative development of innovative reinsurance Union has undoubtedly created uncertainty public/private solutions. structures that allow insurers to underwrite in both the insurance sector and industry Terrorist groups have become increasingly business that would otherwise be too risky. in general. (Re)insurers must play their adept at exploiting the deep and dark web This expertise can be further developed. part in responding to the new context and are masters at using social media to The creation of a dedicated international and identifying requirements that could further their aims. Individuals are being terrorism reinsurance vehicle could provide arise from the uncertainty. The London radicalised into perpetrating relatively the confidence for a market to develop, market has the expertise to establish a unsophisticated attacks using knives, guns while at the same time allowing London reinsurance vehicle that could encourage or vehicles, as well as more complicated insurers to build new revenue streams and investment into challenging environments, and potentially more sinister means. We are help close the terrorism insurance gap and the proposed ILS legislation could allow now living in unprecedented times for our that is emerging as a result of the evolving alternative structures to be adopted to security services. Insurers and industry more nature of the threat. maximise its attractiveness to both insureds broadly can support their efforts. To do so, and investors. we need a range of response options to The creation of a dedicated The international and dynamic nature of match the evolving nature of the threat. “international terrorism the terror threat and the increasingly global In the past, the government was almost emphasis on UK trade mean the country’s solely responsible for countering the risk reinsurance vehicle could insurers and Pool Re are well placed to not posed by terrorists. Today, businesses of all provide the confidence for a only drive cooperation, but also act as a types are integral to our response. As the market to develop conduit for the building of new trading UK’s terrorism reinsurer, Pool Re plays its ” relationships with countries like Egypt and part domestically. By setting out a strategy The introduction of insurance-linked Tunisia, potentially sharing the risk with the to incentivise companies across the UK securities (ILS) legislation in the UK presents insurance markets of old friends such as to take greater responsibility for their an opportunity to develop such vehicles. Australia and France, among others. own security, we have been able to lower This legislation has been developed jointly Along with promising international premiums and improve resilience. This between the London Market Group and HM initiatives such as the Insurance is good for the insured, the insurers, the Treasury, and is focused on bringing in new Development Forum, which is focusing on government, the economy and the wider capital to underwrite alternative reinsurance natural disaster risks, Britain is uniquely community. But I believe that more could structures. In the future it could allow for placed to bring nations together to fight be done. the development and issuance of fully terrorism by enabling opportunity. That is In a globalised economy, British companies collateralised terrorism or political violence not a responsibility we should ignore. and those of our allies have international bonds to sovereign governments. exposures. Britain has always been a global Beyond London’s insurance expertise, the leader in the fight against international UK is also well placed to co-operate with terrorism. The London market has a depth our partners on how to share information of knowledge in the insurance of both with companies on the terrorism threat terrorism and political violence that sets it and how it can be mitigated. We already apart. It is not only the historic relationships share counter-terrorism information with built around Lloyd’s and London market Australia, Canada, New Zealand and the US, (re)insurers, but also the network of legal, and we have strong security relationships actuarial and financial experts that makes it with European partners including France a global centre. All this could be mobilised and Germany. to benefit those nations fighting terrorism Pool Re already works across those around the world. countries with equivalent organisations to By offering our insurance expertise, we itself, many of which are structured along could help businesses trade more easily in similar lines. There are inevitably sensitivities areas considered at risk, thereby promoting regarding the sharing of intelligence, but stability. Reawakening or cultivating there are benefits to more effectively Julian Enoizi insurance markets in countries where the communicating appropriate risk CEO, Pool Re threat of terrorism or political violence information with businesses. The

DAY 1: SUNDAY 27

MC_Day 1.indb 27 10/09/2016 13:36 Partnership starts with a conversation.

partnerre.com

MC_Day 1.indb 28 10/09/2016 13:36 CASUALTY

Casualty reinsurers look for further stabilisation at 1.1 asualty reinsurance underwriters more excess of loss-focused European “But the holes may get bigger,” said a Cgathered in Monte Carlo this week market at 1.1 and 1.7, however, and in reinsurance source. “Some reinsurance will be holding onto the hope that Australia there was evidence of improving markets are starting to cut back their evidence of stabilising pricing conditions ceding commissions on pro-rata deals for lines or not play ball. We’re hoping ceding in 2016 will extend to 1 January, buyers. commission will start trending down, but signaling an end is in sight to the soft And despite a floor on pricing – or a it’s hard because which ceded re buyer is phase of the cycle. ceiling for cedes – looming in the US going to want to be the first to give in?” But with many moving parts impacting casualty market, there are a broad range Consolidated casualty placements tend demand and supply, a market-wide of buying habits influencing demand that to be easier for reinsurers as they “price out outcome for the key renewal will be tough make 1 January predictions challenging. better”, with deals unique depending on to call, with individual experience ranging For those cedants with large global how they have been structured. widely by client and line of business. And there are hopes from underwriters Data on the last few key renewal dates We’re hoping ceding that they can exert pressure at 1 January supports the view that in the US at least “commission start trending to begin chipping away at ceding the ceiling on ceding commissions for down, but it’s hard because commissions – although they do not expect proportional placements has been reached. consolidated deals to be deconstructed and While US motor liability quota shares which ceded re buyer is placed as separate treaties. continue to offer a wide range of cedes going to want to be the first The economics of quota shares are such – with -3 points to +3 points at mid-year to give in? that a buyer of the scale of CNA came to 2016 reflecting volatile loss experience ” the market at 1 July to place an excess – commissions on general liability and Senior reinsurance executive casualty cover for the first time in years on professional liability appear to have a book of middle market business in an plateaued, according to broker Willis Re (see portfolios spanning multiple lines of opportunistic play that will allow it to grow table). business there are opportunities to the portfolio. That’s after several renewal periods where consolidate placements from a siloed But there may be further fresh demand most buyers were able to take advantage of structure to a multi-class combined from companies that are not looking soft reinsurance conditions to considerably programme to take advantage of the to purchase opportunistically or from a improve the economics of their deals. benefits of diversification. positon of strength. US professional liability, which led the The Insurance Insider revealed earlier this AIG – which had previously been an way, peaked at the 1 January 2014 renewal, year that both Liberty and Aspen were advocate of the centralised, consolidated with cedes up 5 to 7.5 points on average, looking to take this approach on casualty buying model – has placed several new while general liability proportional treaties placements for autumn renewals that casualty treaties in the market in the last saw commissions up 2 to 7.5 points later should prove a bellwether of the market’s year and is currently ceding a portion of its that year. appetite to write them. book to Swiss Re under a two-year quota The improved deals meant that for many Senior underwriting sources have share. insurers, the percentage received for ceding suggested that consolidated professional And in specific distressed lines of business to reinsurers had increased from liability placements at 1 July had renewed business, such as trucking and commercial the mid-20s to mid-30s in only three years. “with holes in them”. auto, there has been fresh demand for In its 1 July renewals report, Willis Re said The economics of professional liability reinsurance. that in US professional liability, reinsurers’ combined covers tend to be more On the supply side of the equation, the view of gross loss ratios was not allowing challenging for reinsurers, but despite gaps market will also be closely monitoring the further meaningful softening of quota in programmes clients have been willing to progress of TransRe’s joint venture with share reinsurance economics. take any unplaced portions net because of GenRe in North America – a move which “Ceding commission levels appear to be the high cedes they have still been able to could bring significantly more capacity to reaching a ceiling given putative loss ratios achieve. some casualty placements. and moderating appetite from reinsurers…” the firm observed. US casualty cede increases flatten out A similar picture had emerged in general Pro rata commission liability, where original rates were not keeping pace with loss trends, leading to Business line 1 Jan 2013 Mid-year 1 Jan 2014 Mid-year 1 Jan 2015 Mid-year 1 Jan 2016 Mid-year 2013 2014 2015 2016 deteriorating loss ratios on the underlying business. US – general 3rd +0.36% 0% to +1% +1% to +2% to +2% to +1% to 0% to 1.5% 0% to +1% party liability +3% +7.5% +7% +3% Meanwhile, excess of loss rates in a range of plus 10 percent to minus 10 percent US – motor 0% 0% to +4% +1% to +1% to 0% to +5% -3% to -4% to -3% to +3% +4% +3% +2% +3% reflected differentiation by reinsurers between clients based on their quality and US – professional 0% to 0% to +5% to +5% +2% to +2% 0% to +3% -1% to liability +3.75% +1.5% +7.5% +5% +1% loss experience. Soft market conditions prevailed in the Source: Willis Re

DAY 1: SUNDAY 29

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MC_Day 1.indb 30 10/09/2016 13:36 Q&A

The interview: Arndt Gossmann

The past 12 months have seen bumper to meet the market demand, diversify with all the operational and regulatory volumes of liabilities come to the market. their capital base and offer attractive and requirements – for many this is too big a Can we expect more in the 12 months to sound pricing. Over the past months we threshold. come? have seen structured solutions with several That is why Darag, via its PCC structure, Definitely, yes. So far, this year has been players involved. Of course, run-off insurers introduced R-pad last year in Monte Carlo. the best for run-off insurers. For 2016 we will benefit even more if they not only R-pad allows for easy investment access, had estimated a total volume of EUR4bn cooperate with private equity investors but efficient use of capital, ringfencing among in legacy books being transferred in the are able to employ and channel alternative the cells and the core, as well as flexibility, European non-life sector alone. Up until capital within their own structures. speedier set-up, cost efficiency and full today this volume is around EUR2.5bn compliance with Solvency II. Thus, the terms already, while the last quarter is, historically, of run-off based investments become easy the strongest one. Besides the increasing From a run-off perspective, and appealing, and comparable to equity run-off dynamic in northern European “the most crucial question is investments. The cell structure makes the countries, we expect that a big share of the asset class scalable in terms of size and risk growth will come from southern Europe how the new EU passporting exposure. This has been a market gap so far. where the market is still in an early phase. framework will be organised Since last year we have launched a first cell This is the rationale behind Darag’s most ” which is already approved, and by the end recent acquisition, Ergo Assicurazioni SpA, of 2016 we plan to set up a second one. in Italy. Will the influx of capital have an effect on the pricing of portfolios? What can legacy companies do to How might the UK’s exit from the EU Some recent price offerings are hard to stay relevant in this changed market affect the way the European legacy understand. But run-off is a complex dynamic? market does business? Could it affect and highly regulated business where Innovation is key. The run-off sector has liability volumes coming to market? competitive pricing is only one aspect of always fostered innovation and structural The Brexit will surely cause some the total offering. The selection of a run-off sophistication. Those who can adapt their restructuring in the set-up of international insurer by the seller is primarily dependent approach and instruments to the changing insurers, if the complexity of cross-border on trust and reputation. Most insurers will market needs will remain relevant. For business crunches profitability. But the scale not risk any default on the buyer’s side, Darag, innovation comes in many shapes of strategic realignment will heavily depend and thus are keen to accept the need for and forms. For instance, Darag has foreseen on how the future partnership of the UK a reasonable level of return. Following market developments and introduced and the EU countries will be shaped, which ongoing discussions among regulators, R-pad as a platform that allows us to reduce is unforeseeable for the time being. In the I expect that regulation will soon bring funding cost and consequently prices to the short term, we have seen and expect spurs an end to the high leverage some of the benefit of our clients. of volatility within the markets that could market players rely on. add additional pressure to insurers’ solvency ratios and pricing models. From a run-off How can smaller legacy players compete? perspective, the most crucial question is Will there be consolidation in the how the new EU passporting framework industry? will be organised. This will affect insurers’ While the number of players in the market decisions to maintain or exit certain lines of is more or less stable, the market potential business or regions by means of run-off. is undeniably growing. This is no typical environment for market consolidation. In Does the market regard alternative the past, many international players have capital as a friend or a foe? brought large portfolios to the market. There is a heightened appeal of run-off to In the future, we expect mid-size insurers third party investors. Run-off investments with medium- to smaller-size portfolios offer uncorrelated returns with low volatility to provide attractive opportunities on a – a sought-after strategy in the post-Brexit different scale. turbulence. This current investment trend correlates How can the legacy market make a long- positively with the run-off industry’s term business model attractive to fixed- constant need for funding and capital. The term investors? average transaction size has jumped from Run-off is a very attractive asset per se EUR20mn in 2014 to EUR200mn in 2016, but the surrounding investment while some single deals amount up to processes have been inflexible EUR1bn. In this environment, third party and complex at the same time. Arndt Gossmann capital is necessary for bigger and smaller So far, investors have had to buy CEO, Darag players alike in order for them to be able an entire portfolio or a company

DAY 1: SUNDAY 31

MC_Day 1.indb 31 10/09/2016 13:36 SHARE PRICES SHARE PRICES (Re)insurance stocks recover after jarring H1

he stock performance of global only, whereas global reinsurers were after the result the group was trading Treinsurers, Lloyd’s carriers and relatively in line with the beginning of 13.3 percent below where it was at the Bermudian carriers was tumultuous in the year and London-listed shares were beginning of the year. the first two quarters of 2016 but has underperforming with high single-digit Analysts began to digest the vote’s longer- returned to steady growth so far in the decreases in their share prices. term implications for P&C stocks, with third quarter. The Lloyd’s composite’s stock performance some arguing that Brexit would not pose a All three composites covered in continued to diverge from the other two significant threat to European (re)insurance, our analysis started the year with groups’ going into the second quarter, a while others predicted that macro- underperforming stocks as 1 January trend further accentuated by Q1 results uncertainty would hurt the industry’s capital renewals revealed ongoing rate cuts and bringing contrasting market reactions. and earnings. prompted investors to react defensively. But with stock levels normalising within In a note released at the end of January, Some argued that Brexit a couple of weeks, the market switched its Keefe Bruyette & Woods analyst William “ focus to second quarter results disclosures, Hawkins warned on the stock performance would not pose a significant as elevated catastrophes during the of continental and Lloyd’s reinsurers, threat to European reporting period were expected to pressure stressing their vulnerability to rate (re)insurance, while others companies’ earnings. softening and advising investors to focus on predicted that macro- However, most of the companies with underlying performance. significant cat exposures released pre- A few weeks later as 2015 year-end results uncertainty would hurt announcements of their expected losses, were being disclosed, shares for each of our the industry’s capital and which enabled analysts to adjust results composites were down by nearly 10 percent earnings estimates. for the year-to-date during the month of ” The second quarter catastrophes turned February. First quarter earnings showed increasing out to be less severe than anticipated, However, global and Bermudian reinsurers volatility as most (re)insurers posted allowing (re)insurance stocks to continue began to recover as the first quarter proved deteriorating performances in both on their upward-sloping curve throughout quiet in terms of catastrophes, which posed underwriting and investment, while natural August. limited threats to earnings. catastrophes in North America took centre Analysts’ views were quite optimistic at stage during the period. Biggest movers the time, highlighting the defensive nature Continental reinsurers suffered the biggest Among the companies within our analysis, of insurance stocks, which allowed investor share price drops following Q1 earnings global reinsurers took the largest share price confidence to be rebuilt. releases, while Bermudian and London- hit with Scor, Swiss Re and Hannover Re Kai Pan, analyst at Morgan Stanley, noted listed stocks began recovering. recording the largest share price decreases that investors were “seeking a safe haven But on 24 June, reinsurers found for the year to the end of August. in P&C as 10-year yield declines and capital themselves in a sea of red as markets were All three continental carriers displayed markets gyrate”, in a note released at the shaken by the result of the UK’s referendum double-digit stock slides, but the biggest end of February. on leaving the European Union. faller was French carrier Scor with a 17.6 At the end of Q1 there was year-to-date Perhaps unsurprisingly, Lloyd’s carriers percent drop from 1 January to EUR27.03 stock growth for the Bermudian composite took the biggest hit, and on the day per share.

Global reinsurersGlobal fail reinsurers to recover from fail Q1to andrecover Brexit from impacts Q1 and Brexit impacts

1.10 Bermuda Lloyd's carriers Global reinsurers 1.05

1.00

0.95

0.90 to 1 January 2016 0.85 1/1 renewals and FY2015 results Q1 results Brexit Q2 results

Indexed share price movements 0.80 04 Jan 18 Jan 01 Feb 15 Feb 29 Feb 14 Mar 28 Mar 11 Apr 25 Apr 09 May 23 May 06 Jun 20 Jun 04 Jul 18 Jul 01 Aug 15 Aug 29 Aug Source:Source: The The Insurance Insurance Insider Insider

Mixed YTD share price movements European stocks fall year-to-date 32 DAY 1: SUNDAY Arch 17.6% Validus 11.4% FTSE 100 11.3% MC_Day 1.indb 32 Allied World 9.5% 10/09/2016 13:36 Everest Re 6.8% RenaissanceRe 6.5% S&P500 5.5% Endurance 3.7% Lancashire 2.4% Bermuda 4.6% Beazley 2.3% Hiscox 2.2% Axis 1.7% -0.5% Lloyd's carriers -2.9% Aspen -8.9% Novae -9.1% Munich Re -3.7% Stoxx Euro 600 -10.4% XL -11.0% Hannover

-13.1% Swiss Re -9.4% Global reinsurers -20.7% Scor -21% -14% -7% 0% 7% 14% 21% -15% -10% -5% 0% 5% 10% 15% % change % change Closing prices as of 31 August Closing prices as of 31 August Source: The Insurance Insider Source: The Insurance Insider

Decreasing valuation trends in 2016 2.5 Year-end 2015 2.11x Q1 2.0 Q2 1.79x 1.77x 1.79x August 1.5 1.15x 1.05x 1.08x 1.08x 1.08x 1.03x 0.97x 1.0 0.96x

0.5 Price to book value multiple

0.0 Bermuda Global reinsurers Lloyd's carriers Source: Company reports, The Insurance Insider SHARE PRICES SHARE PRICES

The insurer’s stock took hits from the Q4 Meanwhile, BermudianGlobalGlobalGlobal carriers reinsurers reinsurers reinsurers saw their fail fail Montefail to to toCarlo recover recover recover Briefing lastfrom from from week, Q1 Q1 PaulQ1 and and Miller,and Brexit Brexit Brexit impacts impacts impacts 2015 results and 1 January renewals in mid- valuations rise during the period, ending head of insurance Emea at the company, 1.101.10 BermudaBermuda Lloyd'sLloyd's carriers carriers GlobalGlobal reinsurers reinsurers February and began a tentative recovery at August 1.10with an averageBermuda 1.08x price-to-bookLloyd's carriers noted thatGlobal “muted reinsurers activity” this year the beginning of the second quarter, only to multiple1.051.05 from 1.05x in January. reflected the sector’s strong share price sink again due to negative investor reactions High valuations1.05 and the perceived performance. 1.001.00 to its first quarter results. challenges1.00 of large-scale integration have “The low-yield environment has made Scor also traded down sharply in the checked0.950.95 major M&A this year, but the logic stocks with high dividend yields or high wake of Brexit as it dropped 6.8 percent on of consolidation0.95 in a fragmented industry capital returns – such as this sector’s the day of the result announcement, and will reassert0.900.90 itself in time, according to insurance companies – highly investable, 0.90 continued the downward lurch with a 5.5 Goldmanto 1 January 2016 to 1 January 2016 Sachs’ most senior insurance while the defensive and uncorrelated nature to 1 January 2016 0.850.85 percent decline the next trading day. investment0.85 banker in London.1/11/1 renewals renewals and and of the industry is also attractive to investors,” 1/1FY2015FY2015 renewals results results and Q1Q1 results results BrexitBrexit Q2Q2 results results FY2015 results Q1 results Brexit Q2 results Across the Alps, Swiss Re’s stock displayed SpeakingIndexed share price movements Indexed share price movements 0.800.80 at The Insurance Insider’s Pre- he said. Indexed share price movements 0.800404 Jan Jan 18 18 Jan Jan 01 01 Feb Feb 15 15 Feb Feb 29 29 Feb Feb 14 14 Mar Mar 28 28 Mar Mar 11 11 Apr Apr 25 25 Apr Apr 09 09 May May2323 May May 06 06 Jun Jun 20 20 Jun Jun 04 04 Jul Jul 18 18 Jul Jul 01 01 Aug Aug 15 15 Aug Aug 29 29 Aug Aug similar but less dramatic behaviour than 04 Jan 18 Jan 01 Feb 15 Feb 29 Feb 14 Mar 28 Mar 11 Apr 25 Apr 09 May 23 May 06 Jun 20 Jun 04 Jul 18 Jul 01 Aug 15 Aug 29 Aug Scor and took a 13.1 percent decline to Source:Source: The The Insurance Insurance Insider Insider Source: The Insurance Insider EUR82.95 per share from EUR95.5 at the Mixed YTD share European stocks fall beginning of the year. MixedpriceMixed YTDmovements YTD share share price price movements movements EuropeanEuropeanin the year-to-date stocks stocks fall fall year-to-date year-to-date Both carriers’ stock prices failed to fully Mixed YTD share price movements European stocks fall year-to-date recover from the referendum’s impact and ArchArch 17.6%17.6% traded below their 2016 opening levels for Arch 17.6% the year to August. ValidusValidus 11.4%11.4% FTSEFTSE 100 100 11.3%11.3% Validus 11.4% FTSE 100 11.3% At the other end of the spectrum, AlliedAllied World World 9.5%9.5% Bermudian (re)insurers were at the top Allied World 9.5% EverestEverest Re Re 6.8%6.8% of the chart with the leading share price Everest Re 6.8% increases for the first eight months of the RenaissanceReRenaissanceRe 6.5%6.5% S&P500S&P500 5.5%5.5% RenaissanceRe 6.5% S&P500 5.5% year. EnduranceEndurance 3.7%3.7% Arch was the standout performer Endurance 3.7% LancashireLancashire 2.4%2.4% Lancashire 2.4% compared to its peers, climbing by 17.6 BermudaBermuda 4.6%4.6% BeazleyBeazley 2.3%2.3% Bermuda 4.6% percent to $80.94 per share as it enjoyed Beazley 2.3% substantial growth in early to mid-August HiscoxHiscox 2.2%2.2% Hiscox 2.2% after a relatively quiet first half of the year. AxisAxis 1.7%1.7% The company’s share price was buoyed by Axis 1.7% -0.5%-0.5% Lloyd'sLloyd's carriers carriers -2.9%-2.9% AspenAspen -0.5% Lloyd's carriers market-pleasing second quarter results at -2.9% Aspen the end of July, and subsequently fuelled by -8.9%-8.9% NovaeNovae -8.9% Novae the news of Arch’s $3.4bn takeover of AIG’s -9.1%-9.1% MunichMunich Re Re -9.1% Munich Re -3.7%-3.7% StoxxStoxx Euro Euro 600 600 United Guaranty. -3.7% Stoxx Euro 600 -10.4%-10.4% XLXL The second highest share price increase -10.4% XL -11.0%-11.0% HannoverHannover was at Validus, at up 11.4 percent to $50.79 -11.0% Hannover as of 31 August. -13.1%-13.1% SwissSwiss Re Re -9.4%-9.4% GlobalGlobal reinsurers reinsurers The carrier showed a generally upward -13.1% Swiss Re -9.4% Global reinsurers -20.7%-20.7% ScorScor trend line during the period, interrupted by -20.7% Scor -21%-21% -14% -14% -7% -7% 0% 0% 7%7% 14% 14% 21% 21% -15%-15% -10% -10% -5% -5% 0% 0% 5% 5% 10% 10% 15% 15% decreases around its Q1 results and Brexit, -21% -14% -7% 0% 7% 14% 21% -15% -10% -5% 0% 5% 10% 15% % %change change % %change change from which it quickly recovered. % change % change ClosingClosingClosing prices prices prices as asof as31of 31ofAugust 31August August ClosingClosingClosing prices prices as as asof of 31of 31 31 AugustAugust August Closing prices as of 31 August Closing prices as of 31 August Source:Source:Source: The The TheInsurance Insurance Insurance Insider Insider Insider Source:Source:Source: The The Insurance Insurance Insurance Insider Insider Insider Valuations weaken Source: The Insurance Insider Source: The Insurance Insider Naturally, the global P&C stock sell-off also began to eat into price-to-book trading DecreasingDecreasingDecreasing valuation trends valuation valuation in 2016 trends trends in in 2016 2016 multiples. Decreasing valuation trends in 2016 The global composite entered the year 2.52.5 2.5 Year-endYear-end 2015 2015 Year-end 2015 2.11x2.11x trading at a premium with a 1.15x multiple, Q1Q1 2.11x 2.02.0 Q1 but by the end of August it was trading at a 2.0 Q2Q2 1.79x1.79x1.77x1.77x1.79x1.79x Q2 1.79x 1.79x discount 0.97x book value. AugustAugust 1.77x August A similar drop was noticed at Lloyd’s 1.51.5 1.5 carriers, which traded at 1.79x book value 1.15x1.15x 1.05x1.05x1.08x1.08x1.03x1.03x1.08x1.08x 1.15x1.08x1.08x 1.05x 1.08x 1.08x 1.08x0.96x0.96x0.97x0.97x last month on average, down from trading 1.01.0 1.03x 0.96x 0.97x at more than twice their book value with a 1.0 2.11x multiple at the beginning of January. 0.50.5 0.5 Nevertheless, London-listed insurers still Price to book value multiple Price to book value multiple held some of the highest valuations relative Price to book value multiple 0.00.0 to other peers in the industry and have 0.0 BermudaBermuda GlobalGlobal reinsurers reinsurers Lloyd'sLloyd's carriers carriers Bermuda Global reinsurers Lloyd's carriers been considered to fit the target profile of Source:Source: Company Company reports, reports, The The Insurance Insurance Insider Insider Source:Source: Company Company reports, reports, The Insurance The Insurance Insider Insider possible acquirers.

DAY 1: SUNDAY 33

MC_Day 1.indb 33 10/09/2016 13:36 EVENTS

2016 EVENTS

LMCC Breakfast Briefing Trading Risk New York The Xchanging London 28 September 2016 (08:00 – 10:00) Rendez-Vous Market Conference The City of London Club, Old Broad 4 October 2016 10 November 2016 Street, London, EC2N 1DS New York Athletic Club, New York, NY Etc venues, 155 Bishopsgate, London, 10019 EC2M 3YD Guest speaker: Paul Jardine, Executive www.trading-riskrendezvous.com www.xchanginglondonmarket Vice President & Chief Experience conference.com/ Officer, XL Catlin Speakers include: LMCC members only Scott Belden, Senior Vice President, Speakers include: Reinsurance, Travelers Andrew Horton, CEO, Beazley plc L100 Breakfast Briefing John Forney, CFA, President & Chief Julian James, President, Allied World 29 September 2016 (08:00 – 10:00) Executive Officer, UPC Insurance Europe The City of London Club, Old Broad Dirk Lohmann, CEO & Managing Shirine Khoury-Haq, Director, Street, London, EC2N 1DS Partner, Secquaero Advisors Operations, Lloyd’s Michael Millette, Managing Partner Sean McGovern, Chief Compliance Guest Speaker: Chris Moulder, at Hudson Structured Capital Officer, Head of Regulatory & Director of General Insurance, Management Government Affairs, XL Catlin Prudential Regulation Authority Paul Schultz, Chief Executive Officer, Kurt Karl, Chief Economist, Swiss Re L100 members only Aon Securities Malcolm Newman, CEO, Paris- #TradingRiskNY London Hub, SCOR #XLMC2016

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34 DAY 1: SUNDAY

MC_Day 1.indb 34 10/09/2016 13:36 OPINION A tale of two ILS quarters tale of two insurance-linked based protection. Nearly every transaction While we expect some sponsors to take Asecurities (ILS) quarters is the theme that has come to market during 2016 thus advantage of the improved terms, we of the first half of 2016 and highlights the far has included a structural “first” relative to are aware that some are not necessarily divergence of the ILS market this year. existing precedents. intending to renew their existing ILS In the first quarter GC Securities, a division Sponsors and investors continue to capacity. Therefore, we anticipate that of MMC Securities LLC, witnessed the most explore new conduits to the market, alternative capital end-investors and their active Q1 144A P&C catastrophe bond including private catastrophe bonds. ILS managers will be most concerned with market in history with $1.87bn of new Risk tranching is more popular than ever the redeployment of existing capital. issuance through seven transactions. before, illustrating sponsor and investor Sponsors who are flexible and able However, the second quarter saw 144A appreciation for structures that can more to recognise favourable ILS market P&C new issuance slow dramatically to efficiently fit into different, often more opportunities may achieve better-than- the lowest issuance for the period within nuanced investment strategies. market-average pricing and other terms and the past five years, and the second-lowest Importantly, the discipline of the ILS conditions, which can translate into overall issuance for Q2 within the past 11 years. investor base remains intact as investors savings. It is also notable that second quarter 144A continue to evaluate each new structural Responding to improving coverage terms P&C new issuance (based on aggregate feature or new perils, triggers or lines of in both the reinsurance and retrocession notional) comprised the lowest percentage business with a careful eye. Investors are marketplaces is critical for sponsors to (29.96 percent) of first-half calendar year not categorically easing terms and other increase usage of alternative capital. 144A new issuance activity since the conditions in exchange for additional Fortunately, investors are willing to embrace inception of the ILS marketplace. issuance. the needs of sponsors. One of the ways this The decline in second quarter issuance, The ILS marketplace continues to be is achieved is with improved indemnity coupled with $2.76bn of 144A P&C driven by sophisticated sponsors, investors and multi-line coverages (beyond property catastrophe bond maturities and and intermediaries who are able to strike lines), where we expect to see innovation redemptions, has resulted in a decline a balance between the need for efficiency over the next six months. in aggregate outstanding 144A P&C improvements and coverage value, with the catastrophe bond issuance to $21.07bn (as goal of providing a stable, long-term source of 30 June 2016). of risk transfer capacity. Reviewing additional activity in the ILS space, the private catastrophe bond market Looking ahead continues to grow, although recent growth Subject to the eventual level of catastrophe includes private cat bond issuances that losses in 2016, we expect all aspects of were previously completed in collateralised alternative capital (pricing, capacity and reinsurance format and/or were from issuers other terms and conditions) to remain that previously used only the 144A format. cedant-friendly for the remainder of 2016 Strong investor interest in new and into 2017. transactions was demonstrated over the Given the oversupply of available capacity first two quarters of 2016 but became more in all forms, the alternative capital market is pronounced in the second quarter, with already signalling a new round of premium investor demand continuing to increase. rate reductions (at least 5 to 10 percent) Cory Anger Investor capacity was plentiful as nearly all based on secondary pricing of outstanding Global Head of ILS Origination transactions either upsized relative to their ILS since May 2016. and Structuring, GC Securities* initial announced targets or easily could We expect one or two new primary have upsized given market demand. issuance transactions in the third quarter of Pricing was perhaps a more interesting 2016 and moderate new primary issuance in *Securities or investments, as applicable, are offered in story, as the investor base was reluctant the fourth quarter of 2016. the United States through GC Securities, a division of at the beginning of 2016 to continue to With current maturity trends of ILS MMC Securities LLC, a US registered broker-dealer and push risk spreads downward in line with expected to remain quite high through member FINRA/NFA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) the general pricing trend dynamic since the first half of 2017, it is unclear if new ILS 345-5000. Securities or investments, as applicable, December 2014. issuance will match the pace of upcoming are offered in the European Union by GC Securities, a However, in the second quarter the maturities. Approximately 36 percent of division of MMC Securities (Europe) Ltd (MMCSEL), which investor base showed new willingness outstanding 144A catastrophe bonds (as is authorised and regulated by the Financial Conduct Authority, main office 25 The North Colonnade, Canary for further reductions in risk spreads, as of 30 June 2016) will mature by the end Wharf, London E14 5HS. Reinsurance products are placed demonstrated by Q2 new issuance pricing of the second quarter of 2017. This is in through qualified affiliates of Guy Carpenter & Company, and secondary pricing of outstanding 144A addition to ordinary freed-up capacity from LLC, MMC Securities LLC, MMC Securities (Europe) Ltd catastrophe bonds. the collateralised reinsurance, sidecar and and Guy Carpenter & Company, LLC are affiliates owned Both sponsors and investors are embracing private catastrophe bond sectors, where by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of structural and process improvements to private catastrophe bonds tend to be mostly any offer to buy any security, financial instrument, enhance the value of catastrophe bond- one-year structures. reinsurance or insurance product.

DAY 1: SUNDAY 35

MC_Day 1.indb 35 10/09/2016 13:36 Profit from a Smarter Capital Strategy

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MC_Day 1.indb 36 10/09/2016 13:36 GC Ads_2016 Long_REV PRESS.indd 1 8/2/16 10:40 AM