Insurer results and specialty focus good news for corporate risk managers, for now…

The latest set of half-year insurer results strongly support the notion that the market believes the cycle is dead and significant strategic change is the only way forward if returns for investors are to be maintained. There is evidence of a hardening in some areas, but generally it is stable. It was noticeable that very few insurance and reinsurance company leaders talked about rate improvement that much in their discussion with analysts. They did talk about renewed underwriting discipline. AIG’s Brian Duperreault has called 2018 the “year of the underwriter” and committed to a firm combined ratio target by year-end. He was not alone in taking this stance. We cannot recall seeing so many up-front statements from insurance company CEOs focusing on the combined ratio. But the results, on the whole, were pretty good and are heading in the right direction in the vast majority of cases. However, many were still bolstered by reserve releases and therefore need to be viewed with an element of caution. A rare theme to emerge from this set of results was the explicit and implicit mention of global programmes. One analyst asked RSA CEO Stephen Hester why the insurer bothers with industrial insurance at all, given that the SME and middle market offers a higher return on the whole. He explained that the global programme business remains core because it means the insurer retains its leading corporate customers and all the other business that this brings to the group – sounding effectively like a loss-leader in the current market. Mr Hester was certainly not alone, and the trend of ditching troublesome life annuity business and investing in health and broader employee benefits lines will continue as insurers seek to draw more profit from their core multinational customers. Another continuing trend is the investment in specialty lines to support property and liability business. AXA’s acquisition of XL Catlin is the prime example of this, following Sompo’s acquisition of Endurance and ACE’s acquisition of Chubb, the latter being a reverse example of a specialty insurer acquiring a more traditional player. Hartford’s recent decision to acquire Navigators for $2.1bn is another example of a shift away from annuity business towards more group employee benefits and P&C insurance. Hartford is a traditional US insurance group focused on SME and middle-market business on the commercial side. Some 44% of its business is commercial and 47% of that is workers compensation. Well before the Navigators acquisition was announced, the group introduced new multinational capabilities designed to enable it to win more accounts with exposures outside the US. The acquisition of Navigators, which includes a Lloyd’s platform, gives the group a genuine international presence to support these expanding middle-market customers. As Hartford builds its specialty and international P&C presence it has sold its Talcott Resolution businesss, which means it has exited the annuity market. Last October, it entered into a definitive agreement to acquire Aetna’s US group life and disability business for $1.45bn, making it the second biggest life and disability insurer in the US. Hartford’s chairman and CEO Christopher Swift explained: “The combination of these two businesses strengthens our position as a leader in the large employer market and increases our presence among midsize employer clients. It also creates new opportunities to distribute additional products to a customer base of more than 20 million people who will be insured by the combined business.” This strengthens the group’s focus on being a market-leading “underwriting-centric” P&C benefits provider, it added. The same could be said for the grand ambitions of AXA, Generali, Chubb, Zurich and so on. If you add all this up it seems that the low interest rate environment, coupled with stiffer risk based capital adequacy rules, has forced the entire market to diversify and de-risk. The bancassurance model of the 1980s and 1990s is being replaced by more rational models offering the whole range of protection to companies and their staff. The good news for the corporate insurance buyer appears to be that specialty products and services are a core part of that offering. If it wasn’t for this trend, it is questionable whether the larger corporate buyer would still be enjoying such a depth and breadth of capacity – something to be watched closely because it could change.

Insurer results and specialty focus good news for corporate risk managers, for now…

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