Global programme market conditions more favourable for buyers

An influx of new players into the multinational insurance programme market has helped offset consolidation among key carriers in the space and price increases in the wider market to keep conditions more favourable for buyers, according to brokers and insurers. Following high levels of catastrophe losses in 2017 and 2018, the commercial insurance market has experienced a sustained period of price increases. According to Marsh’s quarterly pricing index, global commercial rates rose by nearly 6% in the second quarter of 2019. This is the seventh consecutive quarter of average pricing increases and the largest increase since the index was established in 2012. However, pricing pressure in the market for international insurance programmes has been more subdued, according to brokers and insurers. “We are seeing price increases but so far they are not drastic [for global programmes], due to a number of new players that have entered this space in recent years and are now writing primary global programme business,” said Karen Gorman, global services and solutions leader in the UK at Willis Towers Watson. Recent years have seen a big push into global programmes by Swiss Re and QBE, with the likes of AXIS, Hiscox, Liberty, MS Amlin and Aviva also looking to write primary multinational programme business. In March 2019, The Hartford launched the Hartford Global Insurer Network, a new network of insurance partners backed by an international technology platform. “We are seeing new players come into the global programme market, while at the same time demand for multinational insurance solutions is growing,” said Ms Gorman. New players typically start small, using partner networks to expand their footprint and targeting “plain vanilla” companies with risks in fewer than 20 countries, she explained. However, some of the more established new entrants are now able to provide more sophisticated global programmes for larger clients and captives, she said. Although there are a number of national insurers with some multinational capabilities, recent years have seen significant consolidation among the traditional large global programme primary insurers. This has reduced choice for buyers looking for carriers with a truly global footprint. In September 2018, one of the larger global programme providers, French insurer AXA, acquired global speciality insurer and reinsurer XL Group, which had built a sizeable global programme business. Similarly, in January 2016, another large programme provider ACE acquired US insurer Chubb. Initially, these companies kept their global programme capacity separate, but have since worked to combine their respective offerings, explained Ms Gorman. She argues that this recent consolidation is, however, good for the global programme space. “AXA, for example, has strong capabilities in Europe, while XL has fresh ideas and can write different risk. The combination of the two could be a positive for clients,” she said. But Helene Westerlind, global head of international programme business at Zurich Insurance, said the consolidation has reduced choice for some buyers, in particular large companies with a large diverse global footprint. “There is still a lot of competition around retaining and gaining customers, even within some co-insurance lines. But where there were previously more options for clients, now there are fewer truly global players in the global programme market. Buyers today don’t have too many global insurers to choose from, and depending on their exposure and footprint, their options could narrow down,” she said. Consolidation in the market has also led some companies to set up new captives to manage their global programmes, according to Ms Westerlind. “As consolidation has reduced choice for large corporates, some large clients have set up their own captive to manage the risk transfer and take on the risks themselves, paying a fee to a fronting partner,” she said. Large captive owners are also increasing their participation in global programmes, according to Ms Westerlind. “Captives have the capital to pay claims, but they lack the global footprint of an insurer to issue policies and pay claims locally, so there is growing demand for fronting partners, because the majority of captives are operating as reinsurance companies,” she said. Existing global programme clients are increasing the role of captives in their global programmes, and expanding lines of business written by the captive or covering emerging risks. “Large companies are looking to leverage their captives in a more proactive manner – capturing more lines of insurance and bringing non-life and employee benefits into one captive, as well as using insurance and reinsurance structures – to arbitrage capacity, pricing and wording topics in the insurance and reinsurance markets, and to develop solutions for new risks, such as cyber,” said Ms Westerlind. Zurich, one of the largest global programme providers with some 5,300 multinational clients, has picked up some new business from the market consolidation. However, more important factors are likely to drive decisions to change carrier, according to Ms Westerlind “There are opportunities to attract new clients when primary insurers and brokers consolidate. Clients of merged entities can feel they are not getting enough attention as their insurer becomes more internally focused. However, moving a global programme is complex and there needs to be a very good reason to move insurer, such as claims or service delivery,” she said. The change in wider insurance market conditions does have some implications for the global insurance programme space. For example, hardening in the US commercial insurance market is more advanced, and more US global programme business is being written in the London market, particularly US casualty. Some large corporates are turning to captives and global programmes to respond to changes in market conditions, according to Mathew Latham, head of global programmes and captives at AXA XL. “We have seen some clients in certain sectors affected by market conditions use their captives and self-retention to address insurers’ attempts to restrict cover,” he said. Market conditions vary by line of business and region, and an increased divergence could pose a challenge for global programmes in the future. “The challenge companies could face in a hardening market would be keeping the programme together. For example, if local managers say they can find better rates in local markets, it might affect the stability of a global programme,” said Mr Latham. In the wider commercial and specialty market, some insurers are changing their risk appetite, reducing capacity or pulling out of less profitable lines. A portfolio review at Lloyd’s, for example, has resulted in many syndicates pulling out of some lines of business, while a number have ceased trading. Swiss Re recently announced it is to cut 20% of its direct corporate insurance book as it looks to address underperforming business. Increased selectivity has yet to have a significant effect on the global programme market, according to Ms Gorman. However, over recent years some large insurers have withdrawn from countries that are not seen as core or profitable. Some regional risks are now harder to place within a global programme, such as those in emerging markets like Africa, she said. While global programme insurers are under pressure to increase profitability, they have yet to increase charges, such as fronting fees, according to Ms Gorman. Brokers and insurers have instead sought to improve efficiency, while large global programme providers are looking to increase lead lines when fronting as a way to increase income, she said.

Global programme market conditions more favourable for buyers

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