News in brief

PwC study sees cyber insurance market growing rapidly The global cyber insurance market could grow to $5bn in annual premiums by 2018 and at least $7.5bn by the end of the decade, according to Insurance 2020 & beyond: Reaping the dividends of cyber resilience, a new report by PwC. Paul Delbridge, Insurance Partner at PwC, said: "Given the high costs of coverage, the limits imposed, the tight terms and conditions and the restrictions on whether policyholders can claim, many policyholders are questioning whether their policies are delivering real value. There is also a real possibility that overly onerous terms and conditions could invite regulatory action or litigation against insurers." He went on: "If insurers continue to simply rely on tight blanket policy restrictions and conservative pricing strategies to cushion the uncertainty, they are at serious risk of missing this rare market opportunity to secure high margins in a soft market. If the industry takes too long to innovate, there is a real risk that a disruptor will move in and corner the market with aggressive pricing and more favourable terms."hideLloyd's posts fall in profits at H1 Lloyd's has announced a profit of £1.19bn for the first half of 2015, compared with £1.65bn for the same period last year. The market's combined ratio was 89.5% (H1 2014: 87.4%) reflecting the performance of its 96 syndicates. The result corresponds to a return on capital of 10.7% (H1 2014: 16.3%). In a statement, Lloyd's chief executive Inga Beale said: "These results demonstrate Lloyd's success and resilience despite challenging underwriting and investment conditions. This sizable profit is in large part due to the market's expert underwriting and our deep commitment to rigorous oversight." Lloyd's chairman, John Nelson, said: "Over the past six months Lloyd's has continued to outperform its competitor group. Although there is little doubt that challenging times lie ahead, Lloyd's is in a robust financial position, well capitalised and well reserved to face the future." Lloyd's posted gross premiums of £15.51bn for the six month period, compared with £14.48bn for the same period last year. Against a background of falling rates in most major lines, the growth in premium volumes was attributed to evolving lines of business, such as cyber, new start-up syndicates and business transferred from underwriting platforms outside Lloyd's. Casualty lines have seen the largest growth, followed by Property (direct and facultative), Marine and Accident and Health. Conversely, there has been some contraction in Property Treaty, which is largely rate driven, and Motor classes. AGCS warns over new generation of cyber risks Businesses must prepare for a new generation of cyber risks which are fast evolving, moving beyond the established threats of data breaches, privacy issues and reputational damage to operational damage, business interruption and even potentially catastrophic losses. This is according to a new report from Allianz Global Corporate & Specialty (AGCS). The report said increasing awareness of cyber exposures as well as regulatory change will propel the future rapid growth of cyber insurance. With fewer than 10% of companies currently purchasing cyber-specific policies, AGCS forecasts that cyber insurance premiums will grow globally from $2bn per annum today to over $20bn over the next decade, a compound annual growth rate of over 20%. Previously, attention has largely been focused on the threat of corporate data breaches and privacy concerns, but the new generation of cyber risk is more complex, said AGCS. Future threats will come from intellectual property theft, cyber extortion and the impact of business interruption (BI) following a cyber-attack or from operational or technical failure, a risk which is often underestimated. RSA to sell Latin American operations RSA Insurance Group is to sell its operations in Latin America to Suramericana SA, the insurance subsidiary of Grupo de Inversiones Suramericana, for approximately £403m payable in cash. Stephen Hester, RSA group chief executive, said: "With RSA's focus on its largest markets in the UK & Ireland, Scandinavia and Canada, it has become increasingly clear to us that RSA is no longer the best strategic owner of these businesses...This is the largest remaining disposal we have underway and is consistent with our stated target to substantially complete RSA's strategic refocus by the 2015 year end results announcement." RSA Latin America is a pan-regional insurance platform and one of the top ten international insurers in the region. It has an established presence in Chile, Argentina, Brazil, Mexico, Colombia and Uruguay. The transaction is subject to obtaining relevant regulatory approvals in each of the countries. It is anticipated that all completions will have concluded by the end of 2016. Tianjin port losses set to grow The Tianjin Port explosion is likely to be one of the largest insured man-made losses to date in Asia, according Guy Carpenter. The reinsurance broker puts initial potential loss estimates between $1.6bn and $3.3bn in its report on the 12 August explosions. Guy Carpenter's report provides initial loss estimates and outlines the many variables involved in assessing the losses emanating from the two massive initial explosions that occurred at Tianjin Port on 12 August of this year. "The explosions that occurred in Tianjin, China are likely to constitute one of the largest insured man-made losses to date in Asia and will certainly be considered one of the most complex insurance and reinsurance losses in recent history," commented James Nash, CEO of Asia Pacific Operations for Guy Carpenter. It's known that local Chinese insurers will pick up significant property insurance losses but industry commentators believe global insurers and reinsurers will also be on the hook as marine cargo and also supply chain losses emerge. Insurer opportunity in Iran says Best The lifting of trade restrictions placed on Iran may present a significant opportunity for the Middle East and North African (MENA) (re)insurance market, with European participants also expected to re-engage and seek a foothold in the country, said a report from AM Best. International trade with Iran is expected to increase notably over the next few years and Best pointed out that Iran is one of the biggest insurance markets in the region, with gross premiums written of $7.5bn in 2014. Mahesh Mistry, Director, Analytics, said: "With the removal of restrictions, major reinsurers are anticipated to re-engage with the Iranian market. The country has significant oil reserves, and increased international trade is likely to stimulate an expansion of infrastructure and business development. The largest European reinsurers will be examining prospects in the Iranian market and are expected to have a first-mover advantage over their American counterparts, as US sanctions are likely to remain in place for longer than European restrictions." Arthur J Gallagher acquires Colombian retail broker Arthur J Gallagher has signed an agreement to acquire a controlling stake in Colombian retail insurance broker Guianza SA Corredores de Seguros, subject to regulatory approval. The remaining shares will be owned by Gallagher's local partners. Guianza is an independent, family-owned retail insurance broker offering both commercial and personal lines. The new retail operation will be led by chief executive Adolfo Urdaneta, who joined Guianza in July 2015, having formerly been chief commercial officer at Aon Colombia. Once the necessary regulatory approvals are in place and the transaction completes, Guianza will trade under the Arthur J Gallagher brand. Arthur J Gallagher has also extended its investment in Latin America with a 65% shareholding in independent Colombian energy and construction specialist ARM Re Ltda (ARM). ARM specialises in construction, energy and mobile equipment risks, handling facultative business across terrorism, transportation, property, third party liability and contractors' machinery and equipment. Axco country report on Egypt Axco Insurance Information Services Ltd (Axco) has released its country report on Egypt which highlights that, despite political instability and security concerns, the market continues to show considerable growth within the insurance industry. Like most areas of the Egyptian economy, the insurance industry had been significantly affected by the political upheaval and ongoing uncertainty since early 2011, said Axco. Rioting has caused an increase in property damage and a surge in car thefts is due to the breakdown in law and order in many parts of the country. "However, the ongoing lack of security has highlighted the benefits of insurance cover and it was reported that in 2015, commercial insureds were better protected by insurance than before. This is reflected in the increases in premium income in the last few years, and the $169m paid out by insurers for riot damage caused in January 2011," said the report. In 2015, the Egyptian market comprised 17 general non-life insurance companies, plus an export credit insurer and a cooperative insurance society. The largest insurer remains the state-owned company Misr which dominates the market in all classes. Total non-life premiums excluding personal accident and healthcare for the financial year ending 30 June, 2014 stood at $6.6bn, said Axco. Reinsurance pricing may be stabilising–Fitch The reinsurance market showed signs of decelerating rate declines in its most recent June/July 2015 renewals, indicating that pricing could be approaching a new equilibrium, according to Fitch Ratings. Pricing in the reinsurance market has been pressured by a long-running influx of alternative reinsurance capital from private equity firms, hedge funds and pension plans. However, the flow of alternative capital is slowing slightly, particularly from collateralised reinsurance. Insurance-linked securities (ILS) pricing has also stabilised recently and Fitch believes this means that capital market investors may have a waning appetite for reinsurance risk. Given the soft market conditions, reinsurer consolidation is likely to continue as companies consider M&A to combat market stress and limited organic growth opportunities, said Fitch. On a positive note, catastrophe losses ran below average and prior-accident-year reserve developments were generally favourable in first-half 2015, the agency said. Partner Re to be acquired by EXOR EXOR SpA, one of Europe's leading investment companies and the largest shareholder of PartnerRe Ltd, has signed a definitive merger agreement to acquire all of the outstanding common shares of PartnerRe for $137.50 per share in cash plus a $3.00 per share special dividend, for a total consideration of $140.50 per share, valuing PartnerRe at approximately $6.9bn. After consultation with their respective outside legal counsel and financial advisers, the boards of directors of both PartnerRe and EXOR have unanimously approved the transaction. The transaction is expected to close in the first quarter of 2016, subject to approval by PartnerRe shareholders, regulatory clearances and other customary closing conditions. PartnerRe headquarters will continue to be located in Bermuda. EXOR's definitive agreement with PartnerRe follows the mutual decision of PartnerRe and AXIS Capital Holdings Limited to terminate their amalgamation agreement. Accordingly, AXIS Capital will receive $315m from PartnerRe. RSA reveals acquisition proposal from Zurich The board of RSA has said it has received a revised proposal from Zurich Insurance Group regarding a possible all cash offer for the company at 550 pence per ordinary RSA share. The offer is conditional on, amongst other things, due diligence and the recommendation of the board. The board said it has indicated to Zurich that it would be willing to recommend an offer at the level of the offer to RSA shareholders subject to the satisfactory resolution of the other terms of the offer. HDI-Gerling to sell Luxembourg subsidiary HDI-Gerling Industrie Versicherung AG is to sell its subsidiary HDI-Gerling Assurances SA Luxemburg to the Luxembourg-based Bâloise Holding SA for what HDI called "a price in the middle single-digit million euro range." The company to be divested is active in motor, property & casualty insurance with a special focus on retail and commercial customers in Luxembourg. It generated a gross premium volume of around €4.67m in the 2014 financial year. The transaction is subject to the customary regulatory approvals. Towers Watson report into Indian Insurance Sector valuations The valuation of insurance companies is still a relative novelty for investment analysts in India as the industry has historically been isolated from the analysts' radar, according to a study by CII and Towers Watson, titled Indian Insurance Sector: In Pursuit of Value. With the government increasing the foreign direct investment (FDI) limit to 49%, there is a keen sense of anticipation within the Indian insurance industry that is expecting a flush of foreign investment in the sector, said the study. It added: "Although further clarity is still needed on the precise rules governing the hike in foreign investment and other provisions of the Act, there is still a palpable nervous energy and restlessness within the industry as it tries to grasp its potential. In the past few years, insurers have gone through testing times and faced increasing competition, a raft of regulatory changes and a prolonged economic slowdown that have all required realignment and adjustment. Nevertheless, many insurers remain upbeat about the industry's prospects and have emerged anew seeking growth, momentum and value." Korean insurance market continues to grow Following a 4.4% growth in 2014, the Korean insurance market is expected to continue the upward trend in 2015, growing by 7.5%, and is set to generate about KRW200tn in premium income, according to Korean Re. The projected growth rate of non-life insurance is 7%. Motor insurance premiums are forecast to increase by 4.7% in 2015 as a result of price hikes in 2014 and a growth in the sum insured of property damage liability coverage. The general P&C sector will continue to suffer from weak economic conditions, growing by only 1.6% in 2015. For the first five months of 2015, major non-life insurance companies in Korea showed strong business performance, said the reinsurer. The nation's six largest non-life insurers recorded a combined net income of KRW1,000.1bn between January and May of 2015, up 23.9% from the same period of last year. Their revenues rose by 4.9% to KRW24.72tn. Hanwha General Insurance and KB Insurance were among the insurers that achieved the biggest increases in net income. Hanwha saw its net income soar as much as 200% for the first five months of the year, and KB Insurance posted a 64.6% growth. Aon Benfield sees global reinsurer capital flattening Aon Benfield has estimated that global reinsurer capital totalled $565 billion at 30 June, 2015. The headline reduction of 2% relative to the end of 2014 was driven by strengthening of the US dollar over the intervening period. On an underlying basis, the capital available to support reinsurance underwriting was flat, with retained earnings offsetting unrealised losses on bond portfolios. Alternative capital continues to grow, but at a slower pace than before, rising by 6% to $68bn. The Aon Benfield Aggregate (ABA) report analyses the financial results of 28 major reinsurers in the first half of 2015. It noted that premium growth is being achieved and underwriting performance remains strong, aided by low global catastrophe losses and favourable prior year reserve development. The combined ratio stood at 91.1%. However, investment returns are still under downward pressure, with little prospect of relief in the near term. Global commercial insurance rates decline in Q2 2015 Marsh's latest Global Insurance Market Quarterly Briefing has reported that commercial insurance rates decreased globally in most lines of business in the second quarter of 2015. The decrease, driven largely by an abundance of global capacity and a lack of large insured loss activity, marks the ninth consecutive quarter of rate declines. Decreases in insurance rates were seen across regions and in most major lines of business. However, notable exceptions were seen in specialised coverages, led by a firming cyber insurance market, said Marsh. According to the report, Asia-Pacific experienced the largest composite rate decrease, followed by continental Europe, the UK, Latin America and the US. In major coverage lines, property insurance showed the largest rate declines, greater than 5%, on average. Rate decreases, which occurred across all regions in the second quarter, were led by Asia-Pacific and continental Europe. Casualty insurance rates, on average, decreased more moderately than property, ranging from flat to down 5%-a consistent trend across all major regions. Asia-Pacific, as it did last quarter, had the largest decrease, followed by the UK. Total cost of risk reduced in US in 2014 The 2015 RIMS Benchmark Survey has revealed that businesses in the US paid nearly 1% less in 2014 than they did in 2013 to cover the total cost of risk (TCOR) after three consecutive years of increases. TCOR is the cost of insurance, plus the costs of the losses that are retained, and the administrative costs of the risk management department. Management liability, workers compensation, liability, and property costs all declined. "The 2014 survey results reflect the overall stability of the US property/casualty market. One notable driver is the increasing role of alternative capital in assisting reinsurers to deal with economic uncertainties. A related factor is the rising importance of predictive models among insurers not only in the area of property, but also for cyber and casualty," said Jim Blinn, Executive Vice President and Global Product Manager at Advisen. As to what the industry expects in the second half of 2015, Mr Blinn said commercial property/casualty insurers are beginning to see a softening market. "We are looking at a period of rate decreases in insurance premiums owing to rising competition in the market and more than enough available capacity," he said.

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