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SUMMER 2018 ISSUE 66
18 Reserves 31 MGAs 61 Legacy
Has the well 2nd annual 2018 Legacy
run dry? MGA Review Barometer
WORTH
THE PRICE OF
ADMISSION?
With M&A valuations breaking
box office records, IQ evaluates
the frothy multiples for recent
blockbuster deals
The intelligent quarterly from the publishers of The Insurance Insider
1-43_IQ Summer 2018.indb 1 10/07/2018 16:03
If risks change
as ships sail,
shouldn’t
insurance
premiums too?
Minds made for reinventing
financial services
ey.com/FSminds
© 2018 EYGM Limited. All Rights Reserved. ED None
1-43_IQ Summer 2018.indb 2 10/07/2018 16:03
COMMENT
BLOWING AWAY
THE FROTH
G iven some of the eye-
watering multiples that have
characterised recent carrier M&A
Times, Thomas Buberl, CEO of the
acquiring company, said he had
anticipated the market’s negative
argue that they are all about adding
small-scale underwriting diversity,
characterised by low set-up costs,
deals, it seems like a good time reaction, adding that it would flexibility, agility and speed to
to query whether some of these probably take 12 to 18 months market – all via a vehicle that is
acquisitions are worth the price paid - to convince investors the XL eminently scalable.
both in terms of the accretive value to purchase was the right decision. MGAs face none of the
the acquirer and whether, crucially, But in an era when companies headaches experienced by
the resulting combined entity will increasingly view the barriers purchasers of unwieldy (re)insurance
prove to be a good fit. to entry via traditional Lloyd’s GAVIN groups or companies, with their
In this issue of IQ, US managing or company market startups as BRADSHAW troublesome legacy systems, cultural
editor of The Insurance Insider, prohibitively high, and face a Editor differences and expensive headcount.
Insider Quarterly
Anthony Baldo, assesses what shrinking pool of acquisition targets, Indeed, the burgeoning MGA
lies behind what he describes the prospect of aligning themselves sector could see even more traffic
as the “frothy” multiples with an MGA/MGU instead might as carriers seek to put their capacity
generated by some of these seem ever more attractive. In our behind a more cost-effective
M&A deals. MGA Review supplement on page solution to acquiring that necessary
A point raised by one of his 29, proponents of the MGA model diversification.
interviewees – Miles Wuller, But let’s not get ahead of
COO of Ryan Specialty Group ourselves. Before we position MGAs
Underwriting Management as the saviours of an increasingly
– caught my eye. Making ponderous, ever-consolidating
the case for expanding the (re)insurance market, let’s note The
company’s portfolio of MGUs, Insurance Insider’s analysis of Willis
Wuller says: “We’re paying fair Re’s mid-year renewals report.
prices [for acquisitions], but London market MGAs in
really seek to win on cultural fit.” particular are likely to come under
The point about cultural fit is an greater scrutiny in the near future,
apposite one for underwriters. One given that the sector’s expansion
oft-heard criticism of XL Group’s “owes much to a period where top-
merger with Catlin in 2015 was line growth has been favoured over
that the absorption of a classic pure underwriting profitability”, The
entrepreneurial London market Insurance Insider recently wrote.
business by a highly corporate global Doubtless, all MGAs/MGUs
carrier was unlikely to be a happy will tell you that underwriting
marriage. profitability is absolutely their
The jury might still be out on the focus. However, the truth of those
success of that relationship, but there assertions, and the putative cost-
will have been more eyebrow-raising effectiveness of the MGA model,
when the merged entity subsequently is inevitably going to be put to the
came under the hammer - eventually test. All of which, according to The
selling to French-headquartered Insurance Insider, could see this
multi-national carrier Axa in March period of growth come to an end,
this year. As one London market “and a likelihood of some failures or
broker told me recently. “Allianz I distressed sales”.
could understand, but Axa?” Possibly at less frothy multiples
In an interview with the Financial than (re)insurance companies…
www.insiderquarterly.com 03
1-43_IQ Summer 2018.indb 3 10/07/2018 16:04
INSIDE CONTENTS
IN THE SUMMER 2018 ISSUE
MANAGING DIRECTOR
Mark Geoghegan mark@insuranceinsider.com
EDITOR-IN-CHIEF
Adam McNestrie adam@insuranceinsider.com
IQ/FEATURES EDITOR
Gavin Bradshaw gavin.bradshaw@insuranceinsider.com
EDITOR
Laura Board laura.board@insuranceinsider.com
MANAGING EDITOR, US
Tony Baldo tony.baldo@insuranceinsider.com
US EDITOR
Ted Bunker ted.bunker@insuranceinsider.com
MANAGING EDITOR
Charlie Thomas charlie.thomas@insuranceinsider.com
NEWS EDITOR
Catrin Shi catrin.shi@insuranceinsider.com
SENIOR REPORTERS
Fiona Robertson fiona@insuranceinsider.com
Rachel Dalton rachel.dalton@insuranceinsider.com
Lucy Jones lucy.jones@insuranceinsider.com
REPORTERS
John Hewitt Jones john.hewittjones@insuranceinsider.com
Bernard Goyder bernard.goyder@insuranceinsider.com
Sofia Geraghty sofia.geraghty@insuranceinsider.com
RESEARCH ANALYST
Iulia Ciutina iulia.ciutina@insuranceinsider.com
COMMERCIAL DIRECTOR
Sajeeda Merali sajeeda.merali@insuranceinsider.com
SALES DIRECTOR
Rob Hughes rob@insuranceinsider.com
BUSINESS DEVELOPMENT MANAGER
Benjamin Bracken ben.bracken@insuranceinsider.com
10
SALES EXECUTIVE
Annie Lightholder annie@insuranceinsider.com
HEAD OF EVENTS AND MARKETING
Jennifer Lord jennifer@insuranceinsider.com
MARKETING ASSISTANT
Claudine Conteh claudine.conteh@insuranceinsider.com
MARKETING EXECUTIVE
Beatrice Boico beatrice.boico@insuranceinsider.com 03 Comment: upwards trend, writes John Hewitt-
CONFERENCE PRODUCTION MANAGER Blowing away the froth Jones
Matthew Sime matthew.sime@insuranceinsider.com
18 Running dry?
EVENTS PRODUCER
Sally Kramers
NEWS DIGEST Marcus Alcock finds the rate
sally.kramers@insuranceinsider.com 06 Around the world: IQ’s global and quantum of reserve releases
EVENTS AND MARKETING EXECUTIVE
Holly Dudden holly.dudden@insuranceinsider.com
market roundup has diminished, as carriers mull
PRODUCT MANAGER
08 A touch of class: Market whether to over-reserve or seek
Carlos Pallordet carlos.pallordet@insuranceinsider.com developments by class alternative solutions
DATA ANALYST 09 IQ PI: Market intelligence on the 22 What lies beneath
Khilan Shah khilan.shah@insuranceinsider.com
PRODUCTION EDITOR
QT Swiss Re’s reef insurance policy
Ewan Harwood ewan@insuranceinsider.com has highlighted the vulnerability
SENIOR SUB-EDITOR
Tim Peters tim.peters@insuranceinsider.com
FEATURES of the marine economy to climate
ART DIRECTOR
10 Worth the price of admission? change and storm damage, says
Paul Sargent paul@insuranceinsider.com With M&A valuations breaking Ted Bunker
MANAGING DIRECTOR, INSURANCE GROUP box office records, Anthony Baldo
Anthony Siggers anthony.siggers@insuranceinsider.co
3rd Floor, 41 Eastcheap, London, EC3M 1DT, UK
evaluates the frothy multiples for INSIGHT
Tel main: +44 (0)20 7397 0615 recent blockbuster deals 26 Lest we forget…
Editorial: +44 (0)20 7397 0618
Subscriptions: +44 (0)20 7397 0619 14 Treading water Martin Robinson and the Lloyd’s
Annual subscription – £2245+VAT/$3505
Tel +44 (0)20 7397 0615 Fax +44 (0)20 7397 0616 Despite first half large losses, the Motor Club remember the market’s
IQ@insuranceinsider.com All rights reserved ©2018 IQ
is published under licence by Euromoney Trading Ltd marine market has some way to fallen in the centenary year of the
Subscription enquiries Annie Lightholder
Tel +44 (0)20 7397 0619 Fax +44 (0)20 7397 0616 go this year before rates follow an end of the First World War
annie@insuranceinsider.com
404 www.insiderquarterly.com
1-43_IQ Summer 2018.indb 4 10/07/2018 16:04
INSIDE CONTENTS
10 WORTH THE PRICE OF
ADMISSION?
Anthony Baldo evaluates recent
blockbuster M&A deals
14 TREADING WATER
Marine market rates are still idling, writes
John Hewitt-Jones
22
14 WHAT LIES BENEATH
Ted Bunker assesses risk financing
options for the marine economy
44 MENA INSURANCE PULSE 2018
The market responds on insurance growth
in the MENA region
22 44
MGA REVIEW TECHNICAL BRIEFINGS and director Holly Shepherd tell
29 After the explosive growth of the 78 Getting agile Insider Quarterly about running a
MGA sector in recent years, what Aidan O’Neill on following the family business
lies ahead for the market? The best practice path to a cutting
Insurance Insider, the MGAA and edge claim user experience 86 Executive moves
other commentators review its 80 The W&I tool in M&A
progress. Neil Brown and Joy Tickler
highlight the increasing use
MENA INSURANCE PULSE 2018 of W&I insurance by M&A
44 MENA insurance markets have negotiators
benefited from continued rapid
growth at improving profitability, EXECUTIVE BRIEFINGS
according to this year’s report 82 C
ulture and capability
Ryan Specialty Group’s Miles
LEGACY Wuller details the growth of
61 The 2018 Legacy Review outlines RSG’s underwriting management
the sector’s growing value as a business
strategic capital management tool 84 Building for the future
Shepherd Compello chief
executive John Shepherd
www.insiderquarterly.com 055
1-43_IQ Summer 2018.indb 5 10/07/2018 16:04
NEWS DIGEST
THE
US production as a result of the quake, harvest contracts (MRC) and hail
Updated run-off including car makers Daihatsu, Mitsubishi
and Honda.
contracts, the FFA said.
FFA president Bernard Spitz
law in RI approved The quake did not trigger a tsunami and said insurers were working with the
local nuclear facilities were unaffected. government to modernise the natural
Legislation to amend Rhode Island’s run- More than 200 people were injured, disaster regime, with proposals expected at
off law has been forwarded from the state reports say. The fatalities included a nine- the end of the year. Flash flooding struck
legislature to Governor Gina Raimondo year-old girl and two elderly men. most French municipalities between 25
for final sign-off. The Japan Times said that although the May and 14 June, causing widespread
The Rhode Island Senate passed an quake was only of moderate magnitude, it damage and killing at least two people.
amendment to the state run-off law which is believed to have caused high-intensity
should make legacy transactions easier.
Bill H 8163 to amend the run-off
tremors because of its shallow epicentre.
There have been several smaller
EU
statute, Regulation 68, has already been earthquakes in Japan over the weekend. Lloyd’s agency
passed in an earlier form by the Rhode A 4.5-magnitude earthquake hit Chiba,
Island House of Representatives. which encompasses the eastern outskirts COOs back Brussels
The change in legislation is expected of Tokyo. And a 4.6-magnitude quake More than half of chief operating officers
to give a boost to run-off business in the shook Gunma Prefecture in central Japan. (COOs) for Lloyd’s managing agencies
jurisdiction because it will no longer would prefer to use Lloyd’s Brussels for
require that transferred business is put
through a commutation plan.
FRANCE EU business over local subsidiaries, as
carriers prepare for Brexit.
Some run-off professionals have Spring storm losses In a survey of 39 of the 55 managing
complained that Regulation 68 has agencies on Lime Street, 57 percent said
been hampered by the commutation at $500mn: FFA they favour the Brussels-based Lloyd’s-
requirement since it was enacted two Hail storms and flooding that caused owned insurer over local units. The other
years ago, with the result that no legacy devastation across France at the end of 43 percent said they would prefer to use
deals have been done since it was passed. May and in early June will cost insurers EU subsidiaries.
Oklahoma left out a commutation in the region of EUR430mn ($502.2mn), The survey found that managing
requirement in its similar law after it according to an estimate by the French agencies were most united on the issue of
faced insurance industry opposition. Insurance Federation (FFA). changing the way data is shared between
The trade body said insurers have so far coverholders and the Lloyd’s market.
JAPAN received 214,000 claims caused by water
and hail damage to homes, vehicles and
Delegated authority transformation
received the backing of 93 percent of
Earthquake shuts commercial property. COOs, who support simplifying the way
The storm conditions are understood to premiums and claims data move between
car factories have hit French farmers especially badly, MGAs and Lloyd’s capacity providers.
A 6.1-magnitude earthquake killed at least destroying “several thousand hectares” of The system, part of the Target
three people in Japan, causing widespread vineyards, according to the FFA. Operating Model (TOM) market
damage around Osaka and Kyoto on the A range of field crops including modernisation process, is referred to as
island of Honshu, according to reports. rapeseed, wheat and barley have also been Delegated Authority Data Standards.
The Nikkei Asian Review reported affected by flooding. This agricultural Haggie Partners conducted the poll on
that several manufacturers suspended damage is covered by multi-risk on- behalf of the Lloyd’s Market Association.
06 www.insiderquarterly.com
1-43_IQ Summer 2018.indb 6 10/07/2018 16:04
Hosted by
SUNDAY 21 OCTOBER 2018
Venue: Kongresshaus, Baden-Baden Registration: 16:00
Symposium: 16:30 – 18:30 Cocktail reception: 18:30
BACK TO THE PAST: A RETURN
TO GLOBAL COMPOSITES
Join us at the 2018 Guy Carpenter Speakers include:
Baden-Baden Reinsurance Symposium Pina Albo, Chief Executive Officer,
for the opportunity to hear from leading Hamilton Insurance Group
industry executives as they present Charles Goldie, CEO, Property &
their views on the latest trends and Casualty, PartnerRe
developments in the reinsurance markets. James Nash, President, International
Division, Guy Carpenter
Final speaker to be announced shortly.
For more information on the event or to book your place, please contact
Jennifer Lord on jennifer@insuranceinsider.com / +44 (0)20 7397 0619.
www.gcbadenbadensymposium.com
1-43_IQ Summer 2018.indb
BB-2018_ad.indd 20 7 10/07/2018 11:14
03/07/2018 16:04
NEWS DIGEST
Global market updates
by class of business
Marine Crop Cyber
AmTrust is set to pull out of cargo, The US House of Representatives passed Annual cyber premiums will be worth
hull and marine liability business a bill to re-authorise federal agricultural $4bn by 2021, according to Aon’s data
written through its syndicate 1861 at programmes after weeks of internal and analytics division Inpoint.
Lloyd’s. wrangling over other provisions in the Premiums in the class of business have
The carrier’s decision to exit the class measure, particularly consumer food expanded by 23 percent per year since
followed a warning from the Lloyd’s subsidies. 2013.
corporation that syndicates must reveal Action on the so-called Farm Bill, HR 2, Aon Inpoint CEO Michael Moran said:
the worst-performing 10 percent of their has now moved to the Senate. “As we look ahead, we are seeing a broad
business by the end of June. The bill, if passed in both houses, would shift of companies putting a greater value
AmTrust previously reported a re-authorise crop insurance and other on intangible assets, such as cyber and
£11.7mn ($15.6mn) loss across its cargo, programmes set to expire at the end of intellectual property.
marine excess of loss and treaty book September, extending them for five years. “There are multiple reasons for the
driven by claims from hurricanes Harvey, House Agriculture Committee leaders increased focus and increased premiums,
Irma and Maria for the 2017 year of noted that the final bill makes minor ranging from financial statement
account. changes to strengthen crop insurance, protection due to a business interruption
An AmTrust representative confirmed a programme which it said farmers and to the constantly evolving global regulatory
it was exiting the above lines of business rural business operators broadly support. environment including the European
following “a strategic review”. Union’s General Data Protection
Regulation.”
Kidnap & ransom
D&O Footballers and their families took
UK brokers have identified data breaches hundreds of millions of dollars in kidnap Workers’ comp
as a key threat for directors’ and officers’ and ransom cover ahead of the World Workers’ compensation rates are
(D&O) insurers and their clients, Cup, according to data from Beazley. falling across the US, a long-running
according to research from law firm Beazley said it estimates that around trend that has finally caught up with
BLM. $25mn of kidnap, extortion and California, the nation’s largest market,
In the BLM survey, 85 percent of disappearance risks was set to be insured while deepening in others, such as New
respondents said data breaches were per team. York.
the key risk for UK companies and With 32 teams competing in Russia, In California, State Insurance
directors and officers, with another that leads to an estimated $800mn Commissioner Dave Jones called for a
56 percent identifying Brexit and political of cover in place across the whole rate rollback based on a cost benchmark
instability. tournament. of $1.74 per $100 of payroll expense,
A further 43 percent of brokers polled Footballers’ wives and girlfriends are arguing that employers in the state are
also referenced regulatory investigations among those who bought the kidnap paying 28 percent more than they should
and prosecutions as a concern for the year insurance, offered by a number of Lloyd’s be.
ahead. syndicates. Rates on average have been falling
More broadly, the BLM poll identified The Lloyd’s insurer said: “Kidnap, across the US for years, according to
a sense of unease around the poor take- extortion and disappearance risks are AM Best, although it said premiums
up of D&O insurance among small and significant for players’ partners, families hit a record high of $58.5bn in 2016 as
medium-sized enterprises. and the team entourage.” employment rose.
808 www.insiderquarterly.com
1-43_IQ Summer 2018.indb 8 10/07/2018 16:04
NEWS DIGEST
Market intelligence on the QT
Life of Bruce
“He’s not the chairman of Lloyd’s; he’s a very naughty
boy.” So might have quoth Mandy Cohen, aka Terry Jones,
mother of the eponymous hero in Monty Python’s Life
of Brian, upon learning that the 1979 movie was
Bruce Carnegie-Brown’s favourite. In an interview in
The Sunday Times in May, came the less surprising
intelligence that the Lloyd’s chairman schooled at
Cheltenham College, graduated from Exeter College,
Oxford, and grosses a cool £1.5mn from his Lloyd’s job and
additional roles with Moneysupermarket and Santander.
Having been at pains to stress his diversity credentials,
Carnegie-Brown was judged by some to have tripped over
his own feet when he described a female former boss as
“terrifying”, however.
Hold the line
IQ PI is in charitable mood once more, as we report that
Willis Towers Watson staff have been risking life and limb in
support of the Silver Line.
A team from the broker, which included Great Britain head
Nicolas Aubert, abseiled from the top of the ArcelorMittal
Orbit in the Queen Elizabeth Olympic Park to raise funds for
the charity, which operates the only confidential, free 24/7
helpline for older people across the UK.
Silicon Valley it ain’t
It appears that the InsurTech development venture set up
by one FTSE 100 insurer has suffered something of a
setback. The carrier’s ‘digital garage’ project in painfully
trendy Hoxton Square is said to have been vacated by a
clutch of tech geeks hired from the likes of Google/Facebook
to “do” InsurTech. The rumour is that many quit after
less than six months after realising that working for an
insurance company isn’t exactly Silicon Valley.
However, the fussball/babyfoot tables, treadmill desks,
and conference bikes are reported to be in use by a bunch
of “old school” suits shipped in to make the most of the
space.
www.insiderquarterly.com 909
1-43_IQ Summer 2018.indb 9 10/07/2018 16:04
INSIDE M&A
WORTH THE PRICE
OF ADMISSION?
With M&A valuations In the insurance sector currently, Lifting the bar
several factors are affecting the Two deals set the tone early in the
for carriers swelling this calculus. year. Brian Duperreault continued to
year, Anthony Baldo Carriers face a plethora of remake AIG, deciding to pay $5.56bn
looks at what’s behind challenges. Coming off the worst year for Validus Holdings, in January.
on record for catastrophe losses may Then, in early March, Axa agreed
the frothy multiples for have caused what has been a very soft to buy XL for $15.3bn. The Validus
recent blockbuster deals pricing cycle to go astray a bit, but deal was done at 1.6x book value, or
and asks whether they now the soft market has resumed its almost 1.8x tangible book, while the
former leaden gait, and a hard market Axa deal for XL was for 1.5x book, or
are likely to continue is still way off in the distance. 2x tangible book.
That circumstance means carriers All of a sudden, says one
have to be ever more mindful of investment banker, “you had a couple
I
their cost containment efforts and of of traditional alpha players out of the
new ways to grow, in order to keep market come back, in AIG and Axa”.
their shareholders happy – especially At the start of the year, there
n their separate ways, activist since abundant capital exists in was a clearer sense of the effects
investor Carl Icahn and some the insurance sector – to keep of tax reform, 1 January renewals
insurance company chieftains have rivals fortified enough to keep their and industry pricing, especially
not been shrinking violets when it competitive juices flowing and, thus, after 2017’s historic catastrophe
comes to valuations. keep pricing low. experience. At that point, says Wells
Icahn launched a crusade this “The success we are going to Fargo Securities senior property and
spring to save AmTrust shareholders need in the future requires cheaper casualty analyst Elyse Greenspan,
from what he believes is too low a capital, more efficient systems, better companies on both sides of any M&A
price for a take-private deal, while access to data, far fewer people and transaction would have a better
several CEOs have begged off doing a more diverse workforce,” said understanding of what they’d need to
M&A deals because of valuations they one reinsurance executive at The pay “and what their franchise value
believe to be too frothy. Insurance Insider’s London 100 would be”.
Which camp is right? roundtable in late May. In that vein, deals of about $5bn to
Naturally, valuations are in the eye “Those, I think, can be motivating $6bn seemed like they would be the
of the beholder. And what’s of value factors of M&A which probably norm, she said.
to one person – or company – can weren’t present five or 10 years So when Validus went for $5.56bn
differ sharply from another. ago.” – right in the sweet spot – Greenspan
10
10 www.insiderquarterly.com
1-43_IQ Summer 2018.indb 10 10/07/2018 16:04INSIDE M&A
"
While Icahn and Arca have embraced the current
state of valuations in the industry, many insurance
CEOs have blanched at what it means for their own
deal-making ambitions
was not taken aback.
“I was surprised it was AIG,
to the Delaware courts.
But while Icahn and Arca have
" noted that when it learnt the target’s
board was pushing for more than $50
though,” she added. “I get why embraced the current state of per share, it retired. Axa paid $57.60,
because of the talent they acquired. valuations in the industry, many or $2bn more than it may have had
But it surprised me they’d take on insurance CEOs have blanched at to.
reinsurance exposure.” what it means for their own deal-
Then Axa-XL lifted the bar – making ambitions. Chubb’s Evan …or over-valued?
significantly. Greenberg, Markel’s Richard Whitt Still, Greenspan believes that
But what was really eye-opening and Everest’s Dominic Addesso multiples for Validus and XL could
was the multiples the two deals were were among those disavowing any have been higher. “If the reinsurance
done for. Both Validus and XL went M&A aspirations. The Hartford pricing opportunity had been better
for the same or more than the 1.8x CEO Christopher Swift said he was at 1 January, Validus and XL could
tangible book Ace paid for when not interested in diversification into have sold for more,” she explains.
closing its $29.5bn deal for Chubb reinsurance. The expectations set so early in
in early 2016, when it also took the Greenberg, in particular, was the year, however, may have been
target company’s name. pointed in his comments, asserting overwrought. Some auctions started
Now 2.0x tangible book and $11bn after announcing Chubb’s first- since the beginning of the year have
– the market capitalisation of XL quarter earnings that “prices paid for not gotten real traction, though it is
when Axa agreed to buy it, are the recent transactions may make sense hard to say valuation is to blame.
benchmarks, and high ones at that. to others, but they don’t for us”. For example, the auction for Aspen
But Axa CEO Thomas Buberl, has rolled on but has disappointed.
Under-valued too, had discounted interest in a “Aspen is peculiar to Aspen and is not
No wonder Icahn made noise at transformative deal roughly a year indicative of the rest of the insurance
AmTrust. As of March 31, AmTrust’s before he made one. Questioned in market,” said the investment banker.
book value was $3.9bn, yet Karfunkel February 2017 about Axa’s possible And Greenspan notes that “there’s
and Zyskind families were to take it interest in Generali, Buberl dismissed a difference between a company
private for $2.7bn. Icahn eventually small and very large acquisitions being shopped and someone making
got them to increase it to $2.95bn, being in the insurer’s future. overtures.”
which won shareholder approval. But What may make Buberl’s reaction Nor is Aspen the only auction
another AmTrust shareholder, Arca then more compelling is a belief that has yet to produce a winner.
Capital, still believes the company is he may have been bidding against The Hanover has been shopping its
worth much more – perhaps $5bn himself for XL. Early on, Allianz was Lloyd’s business Chaucer, and Enstar
to $6bn – and said it will take its fight a rival for XL, but a proxy filed by XL Continued on page 12
www.insiderquarterly.com 11
11
1-43_IQ Summer 2018.indb 11 10/07/2018 16:04INSIDE M&A
and Stone Point have done the same 65 percent after 1992’s Hurricane in cost-containment efforts but its
with two companies they jointly own Andrew – the most ever, Wells use has in no way peaked. Drinker
– Atrium and StarStone. Maiden Fargo’s Greenspan said, adding: Biddle’s Halsband underscores
Holdings retained Bank of America “There’s just so much capital now.” the point when it comes to small
Merrill Lynch to review strategic Faced with a pricing dilemma, commercial business insurance
options for its $800mn diversified insurance chiefs had to rationalise applications that need to be filled
reinsurance business, with no results their businesses and increase their out. Seven different carriers have
yet. focus on cost-cutting. That trend will seven different forms. With artificial
Other possible linkups, meanwhile, only continue. “Hanover is selling intelligence today, technology may
collapsed. In late May, Swiss Re and Chaucer because you have a CEO in take over much of the task. “And that
SoftBank agreed to end discussions Worcester, Massachusetts, asking: will take points off the expense ratio,”
over the Japanese technology firm ‘Why should we have a London he says.
taking a minority investment in the operation?’” says the investment The same goes on the underwriting
reinsurer. After almost four months banker. side, where data from sensors can
of talks, they reportedly could not help insurers better assess risks.
"
agree on a price or the size of the “That efficiency will be felt, and all
stake. these components will drive M&A,”
There are so many things attacking Halsband notes.
Capital overhang the insurance industry value chain, Certainly this is being seen in the
What makes M&A valuations and the world of MGAs, managing general
state of play even more stark thus far from too much capital to InsurTechs underwriters (MGU) and specialty
this year is how they compare to what and MGAs that are becoming insurers. Technology is playing
was a slumberous 2017 for insurance an increasing role, according to
sector deal-making. increasingly efficient, that carriers David Helms, managing director
Uncertainty over what tax reform just cannot put their heads in the at Waller Helms, who advises
would mean was a major factor in mostly sellers in MGA and specialty
2017 being so quiet for M&A activity. sand” insurer transactions. Expertise and
"
A rough year for cats also led carriers relationships still drive his clients, he
to believe that organic growth, in says, but “then they use technology to
the form of a harder pricing market, execute.”
was in the offing. So M&A was not Attacking the value chain
considered a must-do. There are so many things attacking The MGA/MGU route
But the solid financial footing of the insurance industry value chain, To be sure, carriers are realising
the industry made the cat experience from too much capital to InsurTechs more and more that, when it comes
more than survivable. Problem was, and managing general agents (MGAs) to increasing its business lines, the
it also meant that significant price that are becoming increasingly better way to go is aligning with
increases were not going to stick. efficient, that carriers just cannot put MGAs and MGUs. The reason is
As a result, said Morgan Stanley their heads in the sand. clear. At a time when keeping a lid
analysts in a May report, “the “All those influences are on costs is paramount, a one- to
somewhat disappointing 1 January converging,” according to Michael two-year buy-in isn’t optimal, says
renewals may have contributed to a Halsband, a partner at Drinker Miles Wuller, the COO of RSG
recent wave of reinsurance M&A” – Biddle & Reath. “Things will only Underwriting Managers (RSGUM),
namely the Validus and XL deals. heat up at the carrier level when it a unit of Ryan Specialty that owns
That the worst cat season in history comes to M&A.” 22 MGUs that provide 80 lines of
did not alter the 1 January renewal Deals are often spurred by what business.
season is largely attributable to the carriers need most now – to cut costs As Wuller explains, a carrier has
immense capital overhang in the and add or expand business lines. to invest in talent and the platform,
insurance sector. Several Bermuda “The ability to bring two put infrastructure around it, and
reinsurers were started in 2001 after companies together is one reason then has to cover those costs until
the September 11 terror attacks in they are pursuing a deal and because the books comes to scale. MGAs
New York and the sector was able to of inorganic growth, one plus and MGUs offer a more efficient
raise rates. In 2005 came another one equals more than two,” says approach, by hiring by hiring top
opportunity, thanks to seven 2004- Greenspan. people, bearing the full start-up costs
2005 cats, though the price jumps Most of the time the insurers are and charging carriers a commission
were not like those of 2001. marrying because of “the ability to on the premiums brought in, thus
Yet property cat prices only rose reduce headcount” and because they eliminating the fixed-cost overhang at
5 percent between the cat events “are assuming complement[ary] carriers.
of last year and the renewal season businesses”, she adds. “We can be more nimble and
– the least ever – compared to the Technology is having a big role react faster,” he says. “With carrier
12
12 www.insiderquarterly.com
1-43_IQ Summer 2018.indb 12 10/07/2018 16:04INSIDE M&A
support, we can have a new product and private equity firms are all in the
"
up and running within weeks.” MGA acquirer mix. “That creates a lot
The augmented use of MGAs by of demand.”
carriers to help fill their efficiency and AmWins, Ryan Specialty and CRC The augmented use of MGAs by
product gaps has, itself, contributed Swett are larger national players carriers to help fill their efficiency
to a valuation burst for that segment known to the market to have boosted
of the insurance sector. the profile of specialty distribution. and product gaps has, itself,
RSGUM, for example, recently From carriers, too, there’s been contributed to a valuation burst
acquired Irwin Siegel Agency, based significant interest.
in Rockhill, New York, and the In general, when carriers buy for that segment of the insurance
Johnstown, Pennsylvania-based MGAs, it’s been a single line. They sector
"
Interstate Insurance Management, try to capture a profitable book of
but it looks at 60 to 70 acquisition business. With Ryan and AmWins,
candidates a year. The process has it’s a mix of things – MGAs and
become more complicated. “Now programmes. “That’s a different sector has seen a surge in run-off
there’s a measurable uptick in things proposition,” Helms says. acquisitions. From June 2017 until
going to auction,” Wuller says. the end of April, sister publication
Valuations, as a result of the Legacy surge The Insurance Insider found the
demand, have risen materially since Carriers’ need to become more number of known large legacy deals
2010. “We’re paying fair prices, but efficient has also led them to shed at various stages stood at 23.
really seek to win on cultural fit,” legacy assets and liabilities, which All the activity in the various
Wuller explains. has sparked more deal-making for corners of the sector has created some
Because MGA and MGU deals are prospective buyers of those books of concern over where valuations now
mostly private, industry participants business. sit.
reckon that large, multi-line entities Last year, Arch and Kelso & Co “Quite modest business which used
with strong growth prospects now formed Premia Re, a Bermudian to trade at 8x or 9x Ebitda are now
go for 12x to 14x Ebitda, or almost run-off vehicle. This year so far, regularly trading at 12x or even 14x
double the 6x to 8x eight years ago. Apollo Global Management and Ebitda – personally I find that very
Sellers in the MGA and specialty Renaissance Re have bought equity worrying,” said one M&A adviser at
space have a better understanding stakes in another Bermudian run-off London 100 roundtable. “We are at
of the market because of the higher buyer, Catalina. Legacy manager the top edge of pricing here.”
level of activity, according to Armour was acquired by investors led Even with those hefty multiples,
Waller Helms’ Helms. In the past by Aquiline Capital Partners. Arch, the M&A script may still be far from
six months, the firm has run sale Validus, Axa and Allianz have all complete. Morgan Stanley research
transactions one-on-one as well as sought exposure to the space via joint shows that almost 60 percent of
broad auctions. ventures, investments, the creation of reinsurance deals since 2009 were
“It’s a much broader buyer their own run-off vehicles or assumed announced during hurricane season,
universe,” Helms says, explaining that reinsurance. which started on 1 June.
strategics, wholesalers, retail brokers With more buyers, the legacy Reinsurance underwriters and
brokers have reported a “depressing”
property catastrophe 1 June renewal
M&A trends for property and casualty as oversupply has held pricing close
Property and casualty transactions
to flat.
Price-to-book value multiples While better than last year’s 1 June
renewals, the rates have not met
60,000 2.50
expectations.
Aggregate deal value ($mn) Average P/BV
50,000 That may make hurricane season
2.00
Aggregate deal value ($mn)
a busy one for dealmakers, no matter
Average P/BV (x)
40,000 where valuations are.
1.50
“A further deceleration at 1
30,000
June renewals could challenge the
1.00
20,000 long-term property cat reinsurance
business mode – reinsurers get
0.50
10,000 payback in higher prices after losses,”
said Morgan Stanley in a recent
0 0.00
report. “This could push more boards
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
and managements to rethink their
long-term business strategy and lead
Source: Deloitte
to more industry M&A.”
www.insiderquarterly.com 13
13
13
1-43_IQ Summer 2018.indb 13 10/07/2018 16:04SECTOR PROFILE MARINE
TREADING WATER
sailors on board were accounted for,
the fire took two weeks to extinguish.
These two high-profile marine
losses have helped shape an already
pressured market landscape.
Despite some large losses in the first half of 2018, the Underwriters have begun to take
marine market has some way to go before rates follow action on rates in response to a
a steady upward trajectory, writes John Hewitt-Jones gradual tightening of the screws over
the preceding nine months.
F rom the bridge of a 74,000-
tonne cargo ship, the horizon of
never-ending blue visible through
pumps to douse the flames.
For shipping conglomerate
Maersk, concerns about the
effectiveness of these procedures has
Hull: a mixed picture
The recent Maersk disasters have
contributed to hull underwriters’
concerns at a time when rate
movement on even loss-hit accounts
towers of stacked containers creates a developed a worryingly familiarity have been relatively muted and the
certain feeling of vastness – but when in 2018, following fires on board global macro-economic outlook is
fire strikes it feels like the smallest the Maersk Honam, a vessel with offering shipping multinationals little
place in the world. cargo capacity of 15,252 twenty-foot confidence or stability.
Once a fire is discovered on board equivalent units (or TEUs), and the Market sources canvassed by IQ
it is the ship’s master who takes 6,188 TEU Maersk Kensington. were swift to characterise the marine
charge. Alerted to the danger, the The Maersk Honam fire, which market as being under siege; a
master must assume responsibility began on 6 March, took more than a segment of specialty insurance that
for immediate decisions that will month to extinguish and killed five has suffered for more than a decade
determine the survival of the crew out of the 27 sailors on board. and faces pressures the likes of which
and the fate of the vessel’s hull and Sources speaking to Insider were not seen in the last soft market.
cargo. Quarterly say the containership has One source says they had seen
International protocol states that an insured value of $102mn and some upward movement in hull
the crew first meet at a muster point that cargo lost on board the Honam pricing over the last four months but,
to be split into firefighting teams was likely to result in a pay-out of aside from the odd uptick “non-loss
and tackle the blaze if at all possible. between $150mn and $200mn. affected accounts are generally flat”.
Floating in the middle of the ocean it Then, on 16 March a second Statistics collected by the
can be hours – sometimes a matter of Maersk vessel, the Kensington, International Union of Marine
days – before a relief ship arrives with suffered a similar blaze. While all 26 Insurers (IUMI) show that the
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14 www.insiderquarterly.com
1-43_IQ Summer 2018.indb 14 10/07/2018 16:04SECTOR PROFILE MARINE
frequency of total losses within the that since the beginning of the year $105mn Sunsail insured by marine
global fleet has stabilised at 0.13 they have seen the majority of hull mutual Norwegian Hull Club, has
percent over the last three years. The accounts renew at terms varying forced a number of insurers to stop
frequency of serious casualties has between flat and an increase of writing the class of business.
increased since 2014 but appeared to between 5 percent and 10 percent on In November last year managing
be stable between 2016 and 2017. non-loss hit accounts. general agent Falvey shut its yacht
While increased safety standards Meanwhile, global head of marine business after reporting losses
and advances in marine technology at Starstone Simon Schnorr says that of $70mn to Lloyd’s from the
have reduced the frequency of losses, in the past few months the carrier hurricanes.
the marine market has been hit by has seen a general uptick in the Shortly after, in December 2017,
a double whammy of depressed oil number of non-loss affected accounts Sirius Syndicate 1945 closed its
prices and devaluing assets. renewing without rate rises, adding: marine book of business, and later
As Mark Edmondson, chair of “The downward pressure on rates that in May ArgoGlobal withdrew from
IUMI’s ocean hull committee and we’ve seen in recent years seems to all yacht business at the Lloyd’s of
head of marine at Chubb Global have abated somewhat.” London market.
Markets, highlights: “The global “We are now seeing a degree of
premium base has been eroding The yacht club upward rating pressure in the yacht
year-on-year as a result of reduced Carriers are also looking further afield market and some elements of the
asset values, reduced activity in some in a bid to expand the premium pot, general hull market, partly spurred by
sectors, and reduced premium rates.” pushing into niche geographies and the impact and severity of last year’s
Edmondson underscores the sub-classes such as cover for coastal catastrophe losses on the class of
difficulties caused by the spiralling and inland trading vessels in Latin business on the whole,” says Schnorr.
values of new risks as vessels become America and Southeast Asia. Another marine source has told
larger and more complex as well as The hull market has also IQ that, in addition to rate hikes of
the drip-drip of smaller hull losses been influenced by a significant between 20 and 30 percent on non-
that eat away at the total premium deterioration in the yacht market, loss-hit yacht risks, premiums have
pot. which has witnessed a torrid 12 in some cases doubled for insureds
“Although the financial impact of months punctuated by significant claiming on their policies.
major casualties was modest recently, losses from Hurricanes Harvey, Irma “Over the last five years we saw
increasing values of single risks bear and Maria (HIM), and the withdrawal some syndicates behaving recklessly
the potential risk of new record of carriers from the class of business. and leading a charge to the bottom
losses, and attritional losses are a A spate of yacht losses caused by over rates,” the source says.
growing concern,” he says. the hurricanes, The beginning of 2017 saw
Sources speaking to IQ indicate including a Continued on page 16
www.insiderquarterly.com 15
15
1-43_IQ Summer 2018.indb 15 10/07/2018 16:04SECTOR PROFILE MARINE
syndicates including MS Amlin stop market have underscored market might reconsider their participation
underwriting yachts below a value of hopes of a meaningful rise in primary in the class of business as a result – is
$10mn and a movement away from cargo insurance rates. not yet clear, but one source says they
smaller risks in a scramble to trim The fires on board the Maersk set down clear marker points from
expense ratios and reduce losses. Honam and Maersk Kensington which cargo underwriters will start to
“Larger yachts can be a better risk also caused significant damage to push for the kind of rate rises seen in
to underwrite because they are able to their cargos and these are claims the Gulf of Mexico wind market.
move out of the way of storms more the market will have to absorb. A “We have to be very careful,
easily,” one source explains. “They general average has been declared for though, that what we create is
also tend to have a large crew and the Honam, meaning the estimated sustained pressure rather than a
experienced support team managing $150mn-$200mn loss will be shared sudden spike in the cost of renewals
the safety of the vessel.” equally by the owners of the cargo. that then returns to the status quo,”
Of most recent concern to the the source says.
Cargo capacity thinning cargo market, however, is the number
The turn of the year has seen a of stock throughput losses that struck Liability benefits
toughening of terms offered by Latin America in recent months. Marine liability is one pocket of the
Totalbut
underwriters, losses: 2001 –rate
so far reported 2017 At the beginning of June a fire market that has recorded a more
increases Ashave
a percentage of worldfor
far from accounted fleet (Vessels
gutted a>pharmaceutical
500 GT) storage dynamic movement of rates in the
HIM0.4%losses. facility belonging to the pharmacy past 12 to 18 months, with senior class
“Initial market expectations for chain Pacheco. underwriters imposing unilateral rate
what the impact of the hurricanes of While the risk is insured in Brazil’s
in % of Vessels
rises of up to 10 percent on loss-free
last year might have on this segment
0.3% domestic market, sources have told accounts.
in % of GT
of the marine market were possibly IQ that the risk is reinsured into Capacity in the liability market
greater than what has actually been London, with an excess policy picked remains high, with cover led by the
achieved
0.2% to date,” says Schnorr. up by a Tyser’s cargo cover binder. International Group (IG) of mutual
RKH’s landmark Acqua cargo Sources say that underwriters are protection and indemnity (P&I)
binder did not renew capacity at expecting the Pacheco fire to cost clubs.
1 January,
0.1% which multiple market the market between $100mn and The standard of international
sources speaking to IQ cited as one $110mn. responses to oil spills and
illustration of the beginning of a Meanwhile, the cargo market is environmental disasters has increased
change
0.0% in sentiment. also set to absorb a second warehouse exponentially over the last five years,
Carriers writing cargo business are loss in Chile, which multiple market but so too have the accompanying
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
feeling the squeeze as the number of sources say is expected to result in a costs, which are ultimately borne by
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
claims reported
Source: in numbers:
IUMI / Fleet 2018 continues pay-out
Clarkson Research Services of around
/ Losses: $45mn.
LLI, total losses as reported in Lloyd’s List liability insurers in the market and
to rise. Losses at sea and significant What these losses will exactly mean the P&I clubs.
claims in the stock throughput for capacity – whether syndicates In November last year a Spanish
court ruled that insurers must pay
Tanker
Tanker totaltotal losses:
losses: 20012001– –2017
2017 the Spanish government $1.9bn
As a percentage of world tanker fleet (Tankers > 500 GT) – an unprecedented sum for a
As a percentage of world tanker fleet (Tankers > 500 GT) single disaster – to compensate for
environmental damage caused after
0.3% the Greek oil tanker Prestige sank in
in % of Vessels the Atlantic Ocean off the coasts of
in % of GT France, Spain and Portugal.
Of this, $1bn must be paid by The
0.2% London Club; a P&I club belonging
to the IG, which means the loss will
be absorbed by the group’s towering
reinsurance programme.
0.1% The cost of cleaning up
environmental spills has rocketed
as governments and international
bodies demand higher standards,
0.0% adding weight to the arguments
of underwriters pushing for more
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
significant rate rises.
Source: IUMI / Fleet numbers: Clarkson Research Services / Losses: LLI, total losses as reported in Lloyd’s List
The market prepared itself for
another claim in January this year
when Iranian oil tanker The Sanchi
16
16 Serious and total losses: 1999 – 2017 www.insiderquarterly.com
By number (Vessels > 500 GT)
1,200
1-43_IQ Summer 2018.indb 16 10/07/2018 16:04
Total loss
1,000Total losses: 2001 – 2017
As a percentage of world fleet (Vessels > 500 GT)
0.4%
SECTOR PROFILE MARINE
in % of Vessels
0.3%
in % of GT
collided with a Chinese cargo
ship CF Crystal while carrying Total losses:
0.2% Total 2001-2017
losses: 2001 – 2017
136,000 tonnes of ultra-light crude As a percentage of world
As a percentage fleetfleet
of world (Vessels > 500
(Vessels GT)GT)
> 500
condensate. The Sanchi burst into 0.4%
flames, killing all 32 sailors on board. 0.1%
Following the explosion, in % of Vessels
Steamship Mutual set reserves at 0.3%
0.0% in % of GT
$95mn for the P&I claim, below the
$100mn threshold required for the
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
reinsurance programme to kick in. 0.2%
The vessel also had $32mn of hull Source: IUMI / Fleet numbers: Clarkson Research Services / Losses: LLI, total losses as reported in Lloyd’s List
and machinery insurance, led by
Skuld, and its cargo was insured for 0.1%
$67.5mn.
Market sources told IQ that these Tanker total losses: 2001 – 2017
recent losses have helped liability 0.0% As a percentage of world tanker fleet (Tankers > 500 GT)
underwriters force through rate
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
increases of as much as 10 percent on
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
a risk-adjusted basis for non-loss-hit 0.3%IUMI / Fleet numbers: Clarkson Research Services / Losses: LLI, total losses as reported in Lloyd’s List
Source:
accounts. This success in holding firm in % of Vessels
is accompanied by a gradual increase in % of GT
in the medium-to-long term risk that rate reductions in the hull following sustained pre-launch
profile of the industry, as a result of 0.2% Tanker total markets
and liability losses:simply
2001can’t
– 2017 losses in the niche space/satellite
increased safety standards and new As a continue.
percentage of world tanker fleet (Tankers >segment 500 GT) of the marine market, and
technology. The withdrawal of core yacht claims from last year’s third quarter
Statistics collected by IUMI markets comes amid further catastrophes, any assumptions this
indicate that the frequency of losses 0.1% murmurs that syndicates are is a market segment on the verge of
0.3%
for vessels over 500 gross registered reviewing their entire marine books in % change
of Vesselsseem premature.
tonnes has nearly halved over 20 of business – and alongside a severe in % ofLike GT a ship’s master, making calm
years, despite significant growth in warning from the Corporation decisions in the face of fire at sea,
0.0%
the size of the global fleet across the 0.2% of Lloyd’s that carriers must carriers must hold their nerve. For
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
period. improve or discontinue their worst brokers the soft market has not yet
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Environmental disasters arising lines of business, which includes run its course and the opportunity
from oil tanker losses present the Source: IUMI /both
Fleet the cargo
numbers: and yacht
Clarkson business
Research Services / Losses:to
LLI,navigate
total lossesrenewals
as reportedat
in flat orList
Lloyd’s even
most significant threat to the marine 0.1% segments. reduced rates still exists, leaving
liability market, but there is no doubt As the cargo market recoils from underwriters floundering in their
the frequency of such disaster events yet further losses in Latin America, wake.
has declined.
0.0%
IUMI figures show that the median
number of annual tanker losses stood
Serious and and
Serious totaltotal
losses: 1999-2017
losses: 1999 – 2017
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
By number
By number (Vessels
(Vessels > 500> GT)
500 GT)
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
at 34 between the years 2000 and
2005. This had more than halved to 1,200
Source: IUMI / Fleet numbers: Clarkson Research Services / Losses: LLI, total losses as reported in Lloyd’s List
15.5 for the years 2010 to 2015. Total loss
As Schnorr says: “Across the 1,000
Serious Ex TL
marine space, out of cargo, hull and
Number of Incidents
liability, results for the latter have Total
800
been somewhat more reliable in
Serious and total losses: 1999 – 2017
recent years, with the loss experience
600 By number (Vessels > 500 GT)
and rating pressures in the liability
segment arguably having been a little 1,200
more benign.” 400
Total loss
1,000
A market in flux 200 Serious Ex TL
Number of Incidents
The marine market currently Total
800
represents a mixed picture, with 0
disasters such as the Prestige, The
10
11
12
13
14
15
16
17
99
00
01
02
03
04
05
06
07
08
09
Sanchi, and the collision of the two 600
20
20
20
20
20
20
20
20
19
20
20
20
20
20
20
20
20
20
20
Maersk vessels this year helping
Source: IUMI / Losses: LLI, total losses as reported in Lloyd’s List
carriers show brokers and insureds 400
200
www.insiderquarterly.com 17
0
10
11
12
13
14
15
16
17
99
00
01
02
03
04
05
06
07
08
09
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
1-43_IQ Summer 2018.indb 17 10/07/2018 16:04
Source: IUMI / Losses: LLI, total losses as reported in Lloyd’s ListINSIDE RESERVES
RUNNING
Regulation Authority (PRA), sending refers to, as anybody with a passing
out a letter somewhat reminiscent interest will no doubt have gathered,
of the sort of missives sent up by its are the substantial increase in
DRY?
predecessor, the Financial Services prior years’ reserves by AIG and a
Authority, back in the Noughties. reinsurance contract at Allianz that
The PRA letter warned that drove a one-time reduction in prior
carriers are harbouring over- years’ reserves.
optimistic assumptions about reserves Digging deeper, the indications
Lies, damned lies…and and loss ratios, as well as about future are not exactly encouraging. For the
reserving? Marcus Alcock finds profitability when calculating their year-end 2017, AM Best estimates
regulatory solvency positions. that the P&C total net loss and loss
the rate and quantum of reserve This hubris is being played out adjustment expense (LAE) reserve
releases has diminished, as within a soft market where prudential deficiency for the US market was
carriers mull whether to risks are now feeding through into $35.4bn, consisting of a $22.8bn
carriers’ results, Sweeney’s letter deficiency on core reserves and
over-reserve or seek added. a $12.6bn reserve deficiency on
alternative solutions Meanwhile, in the US P&C market, asbestos and environmental (A&E)
G
some carriers already appear to be reserves.
showing signs of reserving strain Of the $22.8bn deficiency on core
and are going down the reserve reserves, $21.7bn is due to statutory
ather a group of strengthening route. discounting, which the rating agency
(re)insurance-minded folk in a room While not a significant P&C player, considers a deficiency from full-
at the moment and you can be sure of commercial auto specialist Atlas valued reserves.
the presence of one particular beast: Financial and its insurance operating The estimated deficiencies vary
the large-eared reserve adequacy companies nonetheless had their widely by line of business, with
elephant. ratings cut recently by AM Best, workers’ compensation and other/
After year upon year of reserve which cited a fourth-quarter 2017 products liability showing the
releases helping to prop up results, reserve charge that ate into surpluses. largest overall deficiencies, and the
the underlying question is just how Indeed, according to AM Best’s medical professional liability and
long these releases can really go on? latest ‘US Property/Casualty 2018 all other lines showing the largest
Especially after sustaining record Review & Preview’, everything in the redundancies.
losses in 2017 as a result of hurricanes reserving garden is not exactly rosy.
Harvey, Irma and Maria, the US The agency suggests that although Reserving deficit
wildfires and other large losses, surely the industry’s 2017 reported results The assessment of a market with an
there really cannot be very much left are expected to show an increase increasing reserving deficit was also
in the P&C reserve tank? in favourable development of loss shared by Morgan Stanley, which
Well, it would seem that the reserves, if prior years’ reserve recently suggested that the US P&C
regulators at least are starting to changes are adjusted for two unusual industry’s reserving deficit deepened
become a wee bit nervous, with 2016 events then this favourable to $4.3bn in 2017.
Anna Sweeney, director of insurance development will have declined. In its latest research report,
supervision at the UK’s Prudential The outliers that the rating agency Morgan Stanley noted that although
18
18 www.insiderquarterly.com
1-43_IQ Summer 2018.indb 18 10/07/2018 16:04You can also read
