News in brief

Global risks? It depends who you ask Climate change and risk interconnectivity were the key themes to emerge in the World Economic Forum's Global Risks Report 2016. Every year WEF taps around 750 experts asking them to assess 29 separate global risks for both impact and likelihood over the coming decade. The risk with the greatest potential impact was deemed to be failure of climate change mitigation and adaptation, marking the first time since the report was first published in 2006 that environmental risk has topped the ranking. Climate change was thought to carry the highest damage potential over weapons of mass destruction (geopolitical risk), water crises and large scale involuntary migration. The number one risk in terms of likelihood, meanwhile is large scale involuntary migration, followed by extreme weather, failure of climate change mitigation and interstate conflict.hideCecilia Reyes, CRO at Zurich Insurance, which helps WEF with the report, stressed the risk connectivity aspect, pointing out how climate change can lead to water crises, food shortages, constrained economic growth, weaker societal cohesion and increased security risk. "Meanwhile geopolitical instability is exposing businesses to cancelled projects, revoked licences, interrupted production, damaged assets and restricted movement of funds across borders," Ms Reyes. The report examined separately how global businesses perceive risks in different countries, based on responses from 13,000 executives. Their answers reveal a markedly different perspective to that of the more academically oriented survey. Socio-economic risks dominate business leaders' top 10 areas of concern, above cyber/data loss, terrorism and climate change related risks. Unemployment and underemployment are identified as the number one risk of highest concern for doing business in 41 economies - more than a quarter of the economies surveyed. Combined with energy price shocks, the two economic risks top the ranking in half of the economies. These are followed by the failure of national governance, asset bubbles and fiscal crises. Businesses ranked 'Failure of climate change mitigation and adaptation' at 21 while 'biodiversity loss and ecosystem collapse' was at 25. Business interruption is still biggest business risk, says Allianz The leading risk for businesses globally continues to be business and supply chain interruption (BI), according to the Allianz Risk Barometer 2016, the fifth annual survey on corporate risks from Allianz Global Corporate & Specialty (AGCS). BI was the leading risk for the fourth year in succession. However, AGCS noted that many companies are concerned that BI losses, which usually result from property damage, will increasingly be driven by cyber-attacks, technical failure or geo-political instability as new 'non-physical damage' causes of disruption. AGCS said: "The risk landscape for businesses is substantially changing in 2016. While businesses are less concerned about the impact of traditional industrial risks such as natural catastrophes or fire, they are increasingly worried about the impact of other disruptive events, fierce competition in their markets and cyber incidents." The survey found that the top three risks were BI, market developments and cyber incidents. The latter was also cited as the most important long-term risk for companies in the next 10 years. Low interest rates are greatest challenge for global insurers The greatest challenge facing global insurers is persistently low interest rates, according to a poll conducted by Moody's Investors Service. Interest rates, which have been depressed for longer than anticipated, dampen insurers' profitability and increase the risk of economic losses and capital declines, said Moody's, adding that interest rates are likely to remain low by historical standards and increase only gradually in 2016. Helena Pavicic, Moody's Analyst, said: "According to our poll, this year's M&A trend will continue into 2016, predominantly driven by further consolidation in the reinsurance and European life sectors. We agree and believe that this year's trend may even accelerate owing to regulatory pressures, low global economic growth and appetite from Asian insurers for cross border acquisitions." In the survey, close to half of the London participants identified new regulatory and solvency regimes as the biggest challenge facing the insurance industry in 2016. Moody's said it believes that insurance regulatory changes will increase capital requirements, but will not require insurers to raise new capital. Moody's added that although Solvency II is increasingly being viewed as a credit positive for insurers' capital adequacy, European participants had concerns about the opaque and complex nature of economic capital models and how consistently the regime will be implemented across countries. HDI-Gerling Industrie Versicherung rebrands as HDI Global The industrial lines insurer within the Talanx Group previously known as HDI-Gerling Industrie Versicherung AG has been renamed as HDI Global SE. The conversion to an SE (European joint-stock company) has been approved by the competent supervisory authority. "Our new name reflects the increasingly international profile of our business. Today we are already generating almost 60% of our premium in foreign markets - and the trend is rising," said Dr Christian Hinsch, Deputy Chairman of the Board of Management of Talanx AG and Chief Executive Officer of HDI Global SE. HDI Global SE handles more than three thousand international insurance programmes worldwide. Willis Tower Watson merger complete Willis Towers Watson has begun operations following the successful completion of the merger of Willis Group Holdings and Towers Watson. The company said it now advises clients across four business segments: Corporate Risk and Broking; Exchange Solutions; Human Capital and Benefits; and Investment, Risk and Reinsurance. Willis Towers Watson also announced the completion of its acquisition of Gras Savoye, the leading French insurance broker. Last year Willis Group made a firm offer to acquire the remaining 70% of Gras Savoye that it did not own. The acquisition combines Willis's global presence with Gras Savoye's operations in France, Central and Eastern Europe, and across Africa. Gras Savoye will keep its name and brand. Talanx acquires majority shareholding in Chilean insurer Talanx is to acquire a majority shareholding in the insurance group Inversiones Magallanes in Chile. Talanx said Latin America was a strategic target region and the move will make it one of the leading composite insurers in Chile. Talanx said it will submit a public tender offer, noting that an agreement has already been reached with the majority shareholder on the purchase of its shareholding. The purchase price for 100% of the company would be CLP136.6bn (€180m). The transaction is subject to the offer being successfully implemented and the Chilean regulatory authority approving the takeover. Talanx is already represented in Chilean retail and corporate business with the HDI brand. The acquisition will rank Talanx number five in Chilean composite business and number two in the motor business, based on gross written premium in 2013. Lloyd's D&O consortium keeps big capacity promise MSIG at Lloyd's, the international specialty arm of Mitsui Sumitomo Insurance Group, is to provide a commercial D&O line size of $75m via the MSIG-led Excess D&O Consortium at Lloyd's this year. The largest capacity offering for commercial D&O and prospectus liability in the Lloyd's market and now in its third year, the consortium consists of traditional syndicate capacity from ArgoGlobal, Chaucer, Channel Syndicate and AG Doré. The consortium achieved growth of 30% last year by meeting demand from brokers and end clients for an increased capacity offering from Lloyd's, MSIG said. The consortium is available to companies globally either on a direct or reinsurance basis, excluding US domiciled risks. It can also cater for both private and public companies, including those that have US traded ADR programs (levels one to three) or DUAL Listed exposures up to the full $75m limit. Nat cat losses low in 2015 but man-made disasters up Losses from natural catastrophes in 2015 were lower than in 2014, which in turn were lower than in 2013. According to the annual round-up published by Munich Re in January, 2015 saw the lowest losses of any year since 2009. Overall losses in 2015 totalled $90bn (previous year $110bn), of which roughly $27bn (2014/$31bn) was insured. Swiss Re's catastrophe loss round-up revealed that man-made disasters triggered $9bn in overall insurance losses in 2015, up from $7bn in 2014. The costliest event in 2015 was the series of explosions at a storage facility in the Port of Tianjin in north-eastern China on August 12. Swiss Re points out that the insured loss estimate is subject to a high degree of uncertainty due to the many different lines of business and coverage impacted, including potentially significant contingent business interruption losses. But initial indications suggest claims of at least $2bn, which would make it the largest ever man-made loss event in Asia for the insurance industry. Fires and explosions at other industrial sites and energy facilities in different regions added around $3bn to the overall man-made insured tally. Lloyd's to launch insurance-based index Lloyd's plans to launch its own insurance-based index, the Lloyd's Index, in the middle of 2016. The index, based on insight into the performance of the market, will provide managing agents, brokers and other insurers with new options for managing risk and form the basis of index-related products that could attract the interest of wider capital markets. Lloyd's said it will spend the next few months discussing the initiative with the market and regulators. Lloyd's Chairman, John Nelson, said: "This is an exciting and innovative development for Lloyd's. Our continued success is dependent on being able to develop the tools the market needs and also reflect the environment it is operating in. I believe this proposal would be advantageous to both Lloyd's and non-Lloyd's participants, keeping pace with the evolving insurance industry and the new sources of capital now available." RSA to sell Russian subsidiary RSA Insurance Group (RSA) has signed contracts, subject to regulatory approvals, to sell its entire shareholding (around 75%) of Russian joint stock company Intouch Insurance to Blagosostoyanie for approximately £5m payable in cash. Paul Whittaker, Group Chief Operating Officer, RSA, said: "Our business in Russia does not have the same scale as our core franchises in the UK, Canada and Scandinavia. Therefore, we have decided to sell Intouch to a company that is an experienced and committed player in the Russian market." Intouch Insurance accounted for net written premiums of £27m and an underwriting loss of £5m within RSA's 2014 group results (before deduction of non-controlling interest). Completion is expected to take place in early 2016. AXA increases its presence in Poland AXA is to acquire Liberty Ubezpieczenia, the Polish property and casualty operations of Liberty Mutual Insurance Group, for a total consideration of PLN92.3m (€21m) plus the net asset value outstanding as of the date of closing. Liberty Ubezpieczenia recorded gross written premiums of PLN315m (€75m) in 2014. AXA said the transaction would allow it to further strengthen its presence in Poland, which it said is one of the most attractive insurance markets in Central and Eastern Europe. Completion of the transaction is expected to take place before the end of the third quarter of 2016. AXA also said it had completed the acquisition of Brazil's SulAmérica Companhia de Seguros Gerais, the large industrial and commercial risks insurance subsidiary of SulAmérica S.A., for BRL135m (€31m). China launches insurance investment fund for infrastructure The China Insurance Regulatory Commission has announced that a fund that mobilises insurance company funds for infrastructure has been set up with an initial pool of CNY40bn ($6.15bn). The fund will be managed by the China Insurance Investment Company, newly established with CNY1.2bn of registered capital and 46 corporate shareholders, including 27 insurers, 15 insurance asset management firms and four private companies. In its first investments, the fund will help China Merchants Steam Navigation Company with overseas port projects. It will also support liquefied natural gas projects with Russia. The fund was approved by the State Council in July and is expected to ultimately reach CNY300bn. It is designed to facilitate strategic projects such as housing renovations, urban infrastructure, water conservation and the Belt and Road Initiative. It can also invest in emerging industries, logistics, healthcare, information technology, environmental protection, small and medium-sized enterprises. Third quarter statistics for Hong Kong insurance industry Total gross premiums of the Hong Kong insurance industry in the first three quarters of 2015 amounted to $272.7bn, an increase of 10.5% over the corresponding period in 2014, according to provisional statistics released by the Office of the Commissioner of Insurance. In the first three quarters of 2015, gross and net premiums of general insurance business both increased by 2.2% to $35.5bn and $24.8bn respectively, compared with the corresponding period in 2014. Overall underwriting profit however declined from $2.4bn to $1.5bn. On direct business, gross and net premiums increased by 4.9% to $27.1bin and 2.6% to $19.9bn respectively in the first three quarters of 2015 compared with the corresponding period in 2014, mainly driven by accident & health business (comprising medical business) and general liability business (comprising employees' compensation business). The former recorded a growth in gross premiums from $8.9bn to $9.7bn while the latter recorded a growth in gross premiums from $7.3bn to $7.6bn. The underwriting profit of direct business dropped to $1.1bn in the first three quarters of 2015 from $1.7bn in the corresponding period of 2014. The underwriting profit of accident & health business and general liability business decreased from $450m to $213 m and from $350m to $270m respectively. In addition, the underwriting performance of motor business showed a turnaround from a profit of $24m to a loss of $83m. Stable Mexican insurance sector in 2016–Fitch Fitch Ratings has assigned a stable outlook for the Mexican insurance sector in 2016, based on what it called "adequate performance in the short and medium term". Fitch said it expects growth of the Mexican insurance and surety sector to be around 6% and 8%, respectively, in nominal terms. In addition, Fitch expects 3.3% growth for the Mexican economy as a whole in 2016. The rating agency noted that losses caused by Hurricane Odile and Patricia have been adequately absorbed by the insurance industry through 'robust' catastrophic reserves and adequate reinsurance programmes within the sector. Fitch said the sector's combined ratio was likely to increase in 2016, mainly as a result of the new regulatory framework and agricultural damage that has not been registered regarding Hurricane Patricia. Fitch added that it expects that companies will adapt to recent regulatory initiatives. During 2015 insurers and the surety sector implemented qualitative requirements from the Unique Insurance and Surety Circular and tested for quantitative factors. During 2016, companies will likely implement quantitative elements, which should strengthen equity and reserve levels, said Fitch. Lockton acquires Brazilian broker Lockton Brazil has acquired VIS Corretora de Seguros e Beneficios Ltda (VIS), a specialist insurance and employee benefits broker in Sao Paulo. Terms of the agreement were not disclosed. Nicholas Weiser, CEO and co-founder of VIS has joined Lockton Brazil's Executive Committee. Tony Gusmao, CEO of Lockton Brazil, said: "As much as ongoing consolidation in the Brazilian broking and consulting market is expected, there are a limited number of quality companies of this size with such an experienced management team." Arthur J. Gallagher in Shanhgai reinsurance brokerage joint venture Arthur J. Gallagher has launched Jiang Tai Re, a joint venture with Jiang Tai Insurance Brokers and Beijing Jiang Tai Universal Investment Management Associates. Gallagher said it was the first step towards helping Shanghai become a new regional reinsurance hub. Gallagher's specialist reinsurance partner, Capsicum Re, will further service and support the team on treaty and facultative business through its bases in London and Singapore. Jiang Tai Re is the first domestic reinsurance brokerage to be granted a licence by the China Insurance Regulatory Commission and the aim is to assist Chinese enterprises operating overseas as they look to expand on the international stage. Frank Lu, current President of Jiang Tai Insurance brokers, is leading the new venture, which includes a treaty and facultative team, and catastrophe modelling and dynamic financial analytical capabilities. Commercial rates in US declining further The insurance market underwriting cycle "is turning unfavourable" in many US commercial market segments, including directors and officers (D&O) liability insurance, according to Fitch Ratings. Premium rates in property lines have been declining for some time in response to a lack of large loss events, said Fitch, which added that it expects that competitive forces will likely drive prices lower in more casualty and liability lines, in part due to past underwriting success. Worse underwriting performance would be needed to facilitate a shift towards positive D&O premium rate movement, said Fitch. Recent merger activity in the property/casualty industry will have a meaningful effect on D&O market composition, but is unlikely to influence near-term pricing momentum, Fitch noted. It explained that, based on nine months 2015 direct premiums, 50% of the market is written within four companies, with pro forma D&O market share split between AIG (17%), Ace/Chubb (14%), XL Catlin (10%), and Tokio Marine US (9%). Strong balance sheets for Japanese insurers Japanese insurers are maintaining their balance sheet strength despite challenging market conditions in Japan, according to AM Best. The levels of risk-adjusted capitalisation for AM Best-rated Japanese insurance companies, as measured by Best's Capital Adequacy Ratio (BCAR), have improved over the past five years as a result of strong growth in capital. "Both life and non-life companies have tightly controlled their risk exposure primarily through rebalancing their investment portfolio and risk diversification during the period," said Best. "Although the recent large scale of acquisitions in overseas markets weighs on their capitalisation in the near term, this is expected to gradually recover going forward due to a more stable earnings source from the diversified business mix across different regions, based on successful progress in the integration of these overseas operations." Allied World launches global crisis management division Allied World Assurance Company (AWAC) has launched a new global crisis management division, comprising structured trade credit, political risk, multi-buyer trade credit and product recall. AWAC said that the new division will offer "an array of products that provide coverage to help organisations prepare for, manage, and recover from issues and incidents that can threaten many facets of their business, including brand, reputation, finances, and operations." It said it will be offering specialty coverage "that requires targeted knowledge of the exposures, trends and markets in order to adequately manage the risks associated with the line of business." The new division will be led by executive vice president, Todd Germano, who was previously president of Allied World US Property & Casualty. New CEO of Nordics, Russia & Turkey for AGCS Allianz Global Corporate & Specialty (AGCS) has appointed Peter Hecht-Hansen as its new CEO of Nordics, Russia & Turkey. He will report directly to Carsten Scheffel, AGCS Chief Executive of Regions and Markets, as from February 1, 2016. Mr Hecht-Hansen joins AGCS from Euler Hermes where most recently he was Nordic Director. Matthew Wells has succeeded Mr Hecht-Hansen as Nordic Director, reporting to Jules Kappeler, CEO, Nordic countries, Euler Hermes. He was previously Distribution Manager, Northern Europe Region, Euler Hermes.

News in brief

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