The Risk & Insurance Management Society Inc. has called again for the prohibition of placement service agreements and contingent compensation arrangements “for any broker or agent acting on behalf of a buyer.” In a statement on industry compensation and placement practices issued on Wednesday RIMS also said it believes that “all sources of compensation, direct and indirect, now or in the future, should be disclosed to clients without their request. Much has changed since RIMS issued its August 2005 statement on industry compensation and placement practices,” said RIMS in its statement. “In response to regulatory matters and settlement agreements, many brokers pledged to refuse to accept placement fees from insurers on business where they represent the buyer. RIMS applauded this action and supported the prohibition on the use of placement service agreements or other similar arrangements for the entire broker industry. We are disappointed to learn that some brokers are apparently reconsidering their pledge to refuse to accept these fees.”

Business Insurance

Over-aggressive regulation is the greatest risk facing insurers in the UK and elsewhere in the world, according to a report published today. Regulatory overkill was identified as the top "banana skin", or area where companies could "slip up", according to a new survey from the Centre for the Study of Financial Innovation, in association with PwC. This was in spite of moves by the UK's Financial Services Authority towards regulation based on broadly-framed principles as opposed to detailed rules, and emphasis on "proportionate" regulation, which targets the companies that present the greatest risks. However, David Lascelles, the survey's editor and the CSFI's senior fellow, said the concern expressed by insurers, including those in the UK, about excessive regulation "flies in the face" of claims of a more principles-based approach. Jeremy Jensen, a partner at PwC, said UK insurers were concerned that they would face more regulatory demands from forthcoming European Union rules.

Financial Times

Momentum is building in the US towards the creation of a more streamlined regulatory system for insurance and re-insurance with the reintroduction of bipartisan legislation to create an "optional federal charter". Senators John Sununu, a New Hampshire Republican, and Tim Johnson, a Democrat from South Dakota, proposed a bill last week that would regulate the industry along the same lines as a "dual charter" system in banking. The charter would provide a single federal regulator instead of the present system under which the industry is overseen by 50 state watchdogs. Domestic insurance companies have long complained that the present system means new products have to go through state-specific approval and licensing processes. They also balk at multiple enforcement requirements. Foreign reinsurers have complained that the system is anti-competitive because reinsurers are required to submit to the collateral requirements of each state in which they want to do business. No comparable system operates in the European Union.

Financial Times

Seven insurers will pay World Trade Center leaseholder Silverstein Properties Inc. $2 billion to settle all outstanding claims for the buildings destroyed in the Sept. 11, 2001, terrorist attacks. The settlement announced on Wednesday ends nearly six years of legal wrangling over claims stemming from the destruction of the Twin Towers. The insurers that agreed to the global settlement—which ends all outstanding court cases and related proceedings—are: Allianz Global Risks US Insurance Co.; Employers Insurance Co. of Wausau; Industrial Risk Insurers, which is now owned by Swiss Reinsurance Co.; Royal Indemnity Co.; Swiss Re; Travelers Cos. Inc.; and Zurich American Insurance Co. New York Gov. Eliot Spitzer called the resolution of the insurance claims “an enormous step forward” towards the rebuilding of the Trade Center site. Under the terms of the agreement all companies involved will keep the individual amounts owed to Silverstein properties confidential.

Business Insurance

Royal Sun Alliance Insurance Group PLC on Thursday said it will pay DKK6.4 billion (£584m) for the 25% of shares it doesn't already own in Danish insurer Codan A/S, in an offer that will be part-funded with £300m in new shares. The purchase of the minority stake continues a spate of consolidation in the insurance sector and comes after RSA in March said it had a healthy pipeline of “selective acquisitions.” The U.K.-based general insurance group is offering DKK605 in cash per Codan share, a 15% premium to Codan's DKK525 closing share price Wednesday. Shareholders have until June 21, to tender their stock. “The acquisition of the minority shareholding demonstrates the strategic importance of Codan and enhances our platform for delivering profitable growth. The transaction is expected to be mildly earnings accretive in 2008 and I am confident in the long term prospects for this business,” Andy Haste, RSA group chief executive, said in a statement.

Dow Jones

Insurance industry dealmakers Cochran Caronia Waller and Fox-Pitt, Kelton have themselves agreed to merge, expanding their advisory services and capital-raising capabilities for insurance and financial services industry clients. The merger, announced on Wednesday, is expected to close in the third quarter, pending regulatory and other approvals. The merged investment banking firm, which will be known as Fox-Pitt, Kelton Cochran Caronia Waller, will specialise in insurance and financial services. George Cochran and Len Caronia, managing directors and co-founders of CCW, will be co-chairmen of the merged firm. Giles Fitzpatrick, chief executive officer of FPK, will remain CEO, and CCW Managing Director John Waller will become president of the new firm.

Business Insurance

Florida may face an average of nearly $3.5 billion a year in hurricane damages over the next three decades, an insurance industry official said Friday. Damages in Florida were expected to total $104 billion over the next 30 years, according to the Florida Insurance Council's executive vp, Sam Miller, who was speaking less than two weeks before 2007's Atlantic hurricane season gets under way. Florida was hit by eight big storms in 2004 and 2005 that caused an estimated $36 billion in insured losses. Many private insurers quit the state after the storms or cut back sharply. "The private insurance is here," Mr. Miller told attendees at the 2007 Governor's Hurricane Conference, "but we still need a lot of help from Citizens." Citizens, Florida's state-run insurer of last resort that is now the largest property insurer in Florida, has about $9 billion in reserves to pay claims immediately, with 45 adjusting firms and 6,000 adjusters on standby, Mr. Miller said.

Business Insurance

Zurich Financial Services yesterday turned a deaf ear to market speculation that it had become a takeover target, reinforcing instead hints that it was on the takeover trail. James Schiro, chief executive, said ZFS was targeting deals in emerging markets and parts of Europe to boost growth. The company, strongly represented in corporate insurance in the US, also indicated ambitions to expand its US personal lines. Mr Schiro dismissed recent speculation about stake-building in ZFS, following the off-market sale of a 5 per cent holding last week. He said such transactions had occurred previously, and might be linked to tax-related "dividend stripping". ZFS has been touted as a takeover candidate after its restructuring in the past four years and limited premium growth. A rumoured deal with St Paul Travelers of the US was denied by both sides. But, more recently, AIG and Warren Buffett's Berkshire Hathaway have been tipped as suitors, as has Italy's Generali. None of the companies has commented publicly.

Financial Times

ACE Ltd. will pay $9m to settle issues arising from alleged bid rigging and contingent commissions payments investigated by the Pennsylvania attorney general and insurance department, under an agreement announced on Monday. In addition to the payment, which includes a $6m penalty, the Bermuda-based insurer agreed to comply with the business practice guidelines it established in 2004 after the insurance industry investigations spearheaded by then-New York Attorney General Eliot Spitzer. To settle those investigations by New York and other states, in April 2006 ACE agreed to pay $80m in restitution and penalties related to its participation with Marsh Inc. in rigging excess casualty bids and for executing half a dozen allegedly sham reinsurance contracts designed to improperly enhance earnings. As part of the settlement, ACE agreed to pay $40m in restitution to policyholders.

Business Insurance

Smaller shareholders in Alea Group Holdings (Bermuda) Ltd may have got their wish with the news that the failed reinsurer has received an approach that might lead to a higher offer than the 93p a share offered by Fortress Investment Group (FIN). In an announcement to the London Stock Exchange this morning (15 May), Alea said the approach from another potential bidder is "very preliminary" and "unsolicited".

Insurance Insider

A surplus lines unit of American International Group Inc. is suing underwriting rival Catlin Inc. for allegedly poaching seven employees from offices in Connecticut and Ohio. AIG’s A.I. Risk Specialists Insurance Inc., a managing general underwriter for Lexington Insurance Co., filed the suit on Thursday in U.S. District Court in Cleveland against Catlin and the seven former officials of SRO Napa, an underwriting agency that RSI acquired last month. RSI charges that the seven conspired with Catlin to copy confidential SRO Napa underwriting files and use them to solicit their former accounts. A Catlin spokesman declined to comment. In January, Donn Belzer and Grace Fortune, the top underwriting officers in the Ohio and Connecticut branches, respectively, quit to join Catlin. Within two weeks, eight other underwriting employees followed, leaving the two SRO Napa offices with a total of three employees, the complaint says.

Business Insurance

Odey Asset Management, the hedge fund, has taken a stake in Munich Re, amid concerns that the world's second largest reinsurer could face pressure from activist investors.  Although Odey's stake in Munich is less than 1 per cent, it is believed to be a meaningful holding for the hedge fund, which is known as a value investor rather than an activist. However it does highlight Munich's vulnerability to hedge funds or others seeking more radical action than that unveiled by the group so far. Munich announced two weeks ago that it planned to pay out €8bn ($10.8bn) to shareholders by the end of 2010, through share buybacks and dividends. Some observers believe this was an attempt to fend off calls from investors for more action.

Financial Times

Synergy Insurance Services UK the new insurance venture led by City financier Sir Mark Weinberg, has announced the launch of Synergy MicroCaptive. Synergy MicroCaptive adapts and simplifies the captive concept used by large corporations to turn it into a product which looks and feels much more like traditional insurance, but with many of the benefits of a captive. In this way, it can be used by businesses with an annual insurance spend of between £50k and £1m. Synergy MicroCaptive manages major business insurances via a single policy, eliminating many of the administrative costs created by the insurance system. In addition, 30-40% of the annual net premium is allocated to an interest bearing account in the client’s name to cover smaller losses so, if a business manages its risks well and has low - or no - small claims, it gets the money in the account back.

Post Magazine

The U.K. P&I Club posted a $46 million surplus during its most recent financial year largely due to a significant recovery under a policy triggered by record claims at the International Group of P&I Clubs and strong investment returns. The protection and indemnity club increased free reserves by 20% to $263 million based on its performance for the year that ended in February. Heavy claims filed by pool members who share in losses at the International Group triggered a policy written for the U.K. Club by Swiss Reinsurance Co. The club recovered $54.1 million under the policy, which amounted to a net benefit of $43.4 million after a commutation balance of $10.7 million had been satisfied. The U.K. P&I Club’s investment income reached $76.9 million for the financial year, significantly higher than the previous year’s $49 million gain. The club’s gross premiums rose slightly to $358 million from $355 million the year before.

Business Insurance

Plans to enhance London's attractiveness to insurance business in the face of competition from low-tax centres such as Bermuda will be unveiled today at the second summit between Gordon Brown, the chancellor, and City leaders at 11 Downing Street. Lord Levene, Lloyd's chair-man, will present proposals to introduce electronic trading to insurance business, create a London insurance university and host a global risk summit to boost the City's position as a centre for wholesale general insurance. These measures have been recommended following a review to examine the competitiveness of the London insurance market announced at the first meeting of the chancellor's high-level working group in October. One conclusion was a need to widen the pool of skilled insurance personnel and to make insurance attractive as a career to young people.

Financial Times

Warren Buffett wants to hire up to four senior investment managers, give them as much as $5bn (£2.5bn) each and see how they perform in a financial shoot-out to pick his successor as Berkshire Hathaway investment chief. Speaking to 27,000 investors gathered in his native Omaha for Berkshire's annual meeting on Saturday, the world's second-richest man said he had received more than 600 applications since beginning the search for a chief investment officer in February. "We are looking for one or more. I don't think it's impossible we could find three or four and ... give them a chunk of money - $2bn, $3bn, $5bn - and have them manage it for some time," he said in a six-hour session of questions and answers. The "Sage of Omaha" has said repeatedly he is in fine health and does not want to retire. However, uncertainty over who will succeed the 76-year-old investor upon his death has weighed on the share price of Berkshire, the US insurance-to-clothing conglomerate he has built. Mr Buffett, Berkshire's chief executive and chief investment officer, wants the next generation of leaders to split the roles. He has said he has three, unnamed, internal candidates for the chief executive position.

Financial Times

Florida lawmakers have passed bills extending a rate freeze and making it easier to join the state-run insurance pool that now covers more than 1.3 million policyholders across the hurricane-racked state. In the waning hours of the 2007 session, members in both the Senate and the House approved changes to Citizens Property Insurance Corp., the state-run insurer pool that is now the largest property insurer in Florida. For Citizens' customers, the bill extends for a year a rate freeze that was to end Jan. 1. The extension is expected to save Citizens’ customers at least $350 million statewide. The proposal also allows customers of private insurance companies to choose Citizens if their private policy is more than 15% higher. Current law requires private rates be 25% higher before a customer can jump.

Reuters

Zurich Financial Services agreed yesterday to pay $16.8m to settle allegations that its New York-based capital markets arm provided funding to four hedge funds that engaged in improper market timing of mutual funds. The US Securities and Exchange Commission, which brought the case against the Swiss-based insurance giant, said that the group's Zurich Capital Markets (ZCM) subsidiary provided financing to the hedge funds and helped facilitate improper trading from 1999 to 2003. Many mutual funds prohibit rapid turnover trading as it can increase trans-action costs and siphon profits from long-term investors. Zurich helped the hedge funds evade the mutual funds' "timing police" by setting up special-purpose vehicles that allowed the hedge funds to trade under disguised identities, the SEC said. Zurich did not admit or deny wrongdoing but it will pay a $4m penalty and return $12.8m in profits it earned from its relationship with the hedge funds. The money will go to investors in the mutual funds where the market timing took place.

Financial Times

Beazley Group said on Thursday that the Group expects that by year end there will be no overall rate increase on renewal business. Trading conditions remain good, it added. The company said underwriting conditions experienced so far this year are satisfactory - the Group has experienced an overall rate increase on renewal business across the portfolio of 3%. This increase is mainly driven by rate increases on catastrophe exposed business. The Group has written £205 million of gross premiums for the period ended Mar. 31 2007, an increase of 11% over the equivalent period in 2006 (despite the £/$ exchange rate moving from 1.73 to 1.96). The premiums written from the U.S. amounted to $29 million, comprising $18 million written by its domestic insurance company, Beazley Insurance Company Inc. and $11 million for the combined syndicates.

Dow Jones

The earthquake that shook parts of the southern county of Kent last week could have caused up to £50 million worth of damage according to the Association of British Insurers. The earthquake hit parts of Kent on the morning of April 28 and measured 4.3 on the Richter scale. A spokesman for the ABI said that the damage was expected to be in, "the low tens of millions," and said that the association will try to give a more exact figure as soon as possible. The spokesman said that events of this type, "are what insurance cover is for." It is understood that damage caused by earthquakes in the United Kingdom would be covered by both commercial and personal insurance policies.

Business Insurance

C.V. Starr & Co. plans to offer excess casualty insurance for public entity, residential and commercial contracting risks on behalf of two units of Allied World Assurance Co. Holdings Ltd., Bermuda-based AWAC announced on Tuesday. C.V. Starr will offer the coverages on behalf of Allied World Assurance Co. (U.S.) Inc. and Newmarket Underwriters Insurance Co. In a statement, John McElroy, U.S. senior vp and head of field operations for AWAC, said: “We are excited about our relationship with C.V. Starr & Co., which accelerates the continuing growth of our U.S. platform.” C.V. Starr President William Weichold said in a statement: “Working with Allied World provides us with additional capacity that expands our existing product line capabilities for existing and future clients while strengthening our commitment to building upon an already exemplary branch network. We look forward to a successful relationship.”

Business Insurance

The FSA must do more to streamline and fully integrate its processes and structures, and increase its focus on demonstrating the actual outcomes it achieves for consumers and markets, according to a report from the National Audit Office. Today’s National Audit Office report is the first assessment of the FSA’s performance. It was conducted at the invitation of HM Treasury. The National Audit Office consulted a wide range of the FSA’s stakeholders. Concerns were expressed on the number of rules in the FSA Handbook, the implementation of principles-based regulation on the ground and the need for the FSA’s approach to reflect the actual experience of consumers. The majority of stakeholders had broadly positive views on the FSA’s performance in the five areas examined.

Insurance Times

After more than a year of escalating costs for some types of insurance and reinsurance, there are indications that the price of cover has peaked. When prices are rising, controlling the risks a company faces is imperative to obtain affordable insurance, or even gain cover at all. But when insurance is more plentiful, and more affordable, it is tempting for risk management to slip down the agenda. Yet the world is becoming ever more dangerous. With perils ranging from competition to a global pandemic, risk management remains crucial to corporate success. Richard Sharman, a partner in KPMG's risk advisory services group, notes: “If you look at a typical risk profile for a business, I would say no more than 25 per cent of that risk can be insured cost-effectively.” Mr Sharman says that, although many companies buy insurance, and are in many cases legally required to do so, they continue to bear the exposure to many perils themselves. According to a report published by the World Economic Forum, in co-operation with Citigroup, MMC, Swiss Re and the Wharton School Risk Center, the biggest risks confronting the global economy are: climate change; an oil price shock; a pandemic; and terrorism. With the explosion of derivatives, financial risk is also creeping up the agenda.

Financial Times

The earthquake which struck Kent in the early hours of Saturday morning could result in tens of millions of pounds worth of insurance claims, according to the Association of British Insurers. The earthquake, which hit 4.3 on the Richter scale, caused structural damage to hundreds of buildings in the Folkestone area of Kent, with many homes currently uninhabitable. Damage was also caused to a number of vehicles. Early estimates suggest that claims from the disaster could reach the “low tens of millions” with the majority of the losses stemming from the Folkestone region. Earthquakes, like tornadoes and floods, fall under the category of natural disasters, and as such will be covered by standard insurance policies.

Insurance Times

Troubled insurer Goshawk has announced a greatly reduced loss for the 2006 year of account with $1m compared to $141m. However the board has declared the company's future is far from certain and it could be two years before shareholders see some kind of return. In a statement issued late on Friday, the company's chairman Rory McNamara and chief executive Michael Dawson bemoaned resignations from the group last year, but added that a return of surplus from its Bermuda-based company Rosemont Re remains core to the strategy. "The outlook remains very uncertain and there can be no assurance that the strategy will be successful or that the liabilities of Rosemont Re will remain at the level estimated by directors. Further, even if the liabilities do settle at the level reserved there can be no guarantee that a surplus will be released. As a return of surplus from Rosemont Re remains core to the strategy to repay the banks there remains considerable risk.”

Post Magazine

Moody's has placed the A- (Good), positive outlook, performance rating of Lloyd's syndicate 386 (Limit Underwriting) under review for possible upgrade. The agency said that the review for upgrade reflected the syndicate's very good profitability in recent years and the expectation that future returns are more likely than not to be consistent with an A (Very Good) performance rating. Moody's stated that syndicate 386 has recently outperformed its A- performance rating peer group in recording profits of 4%, 21%, 39% and 35% of capacity for the 2001-2004 years of account. Furthermore, for 2006 the syndicate has reported a very good annually accounted profit of £123m, 33% of net premium earned, and a combined ratio of 78%.

Insurance Times

Outsourcing company Xchanging Plc said on Wednesday it had set the price for its initial public offering at the top of the expected range, giving it a market value of about £493 million ($985 million). Xchanging, which is raising £75 million from selling new shares, said the IPO was priced at 240 pence a share, at the top of its forecast range of 210 pence to 240 pence. Conditional dealing in the shares is due to start at 0700 GMT.

Reuters

Standard & Poor’s (S&P) has upgraded Lloyd’s financial strength rating to A+ following the Equitas deal with Berkshire Hathaway which sees the three-hundred-year-old market put its legacy fears behind it. In its statement today, S&P said its new rating reflect Lloyd’s “strong competitive position, strong operating performance, strong capitalisation, and strong financial flexibility”. The rating agency continued: “These positive factors are partly offset, however, by relatively high reinsurance reliance and continuing operating performance volatility.” S&P also cited the market’s strong 2006 results which, on the back of a low claims environment, saw Lloyd’s post a combined ratio of 83.1 percent and record profit before tax of £3.7bn.

The Insurance Insider

Shares of Marsh & McLennan Cos. Inc. rose 3.7% Tuesday amid rumours, reported by Reuters and other media outlets, that the New York-based brokerage is ripe for a buyout. Speculation about a buyout of MMC first emerged last year following news that Willis Group Holdings Ltd. made an unsolicited, informal offer to acquire MMC over the summer. A spokeswoman for MMC declined to comment. Rob Haines, a senior analyst with credit research firm CreditSights in New York, said he views the likelihood of an MMC buyout at less than 50%, but noted he “wouldn’t be shocked” if it happened.

Business Insurance

Gordon Brown yesterday professed no regret over his decision 10 years ago to scrap a £5bn-a-year tax credit for pension funds as he saw off a Conservative assault in the Commons on his economic record. The chancellor mounted a vigorous defence of his 1997 decision to cut advance corporation tax, bracketing it with his landmark decision to give independence to the Bank of England and with his adoption of a new set of fiscal rules. He said all these measures were vital to the long-term health of the economy. In a combative debate that threw up more heat than light on pensions policy, Mr Brown saw off the most serious assault on his economic record in his last few months as chancellor before his expected succession to the premiership.

Financial Times

Big US banks, insurance companies and brokerage firms complained to President Bush Monday that they are not getting the attention they should in world trade talks and other negotiations. “We understand that the administration and Congress must take into account the interests and objectives of all sectors of the U.S. economy in a way that is most beneficial to the nation as a whole. We are concerned, however, that the financial services sector is not receiving the attention it deserves based on its contribution to the national economy,” company leaders said in a letter to Bush.

Business Insurance

Following the announcement of its intention to float on 26 March 2007, Xchanging has today confirmed the offer price range. The range has been set at 210 pence to 240 pence per ordinary share with an expected total offer size of approximately 86 million equating to gross proceeds of approximately £193m and a market capitalisation of approximately £500m. The company is also seeking to raise gross proceeds of approximately £75m through the issue of new ordinary shares, with proceeds primarily used to fund the continuing growth of the business through establishing new enterprise partnerships, developing its business through its other delivery methods and selective acquisitions. Citigroup has been appointed sole Sponsor of the Global Offer.

Insurance Times

London and Bermuda have surpassed New York as the centres of the world's insurance industry, Hank Greenberg, the former chairman of AIG said yesterday. In a speech to insurance industry insiders and in an interview afterwards with the Financial Times, Mr Greenberg cited the US regulatory environment as the main reason for what he sees as New York's decline. "The insurance world moved to New York from London. I believe it has now moved back to London and to Bermuda. You have to ask yourself why. It's regulation," said Mr Greenberg, who was forced to retire from AIG in 2005 amid a regulatory inquiry into the firm's accounting and use of reinsurance. AIG later paid $1.6bn to settle the investigation but Mr Greenberg denies wrongdoing and is continuing to fight a civil fraud case brought by the New York attorney-general's office.

Financial Times

The takaful insurance market has the potential to grow to about $4 billion, according to Standard & Poor’s Corp. In a report, “Takaful: A New And Viable Insurance Business Model Or Just A Marketing Opportunity?”, the rating agency said that takaful insurance—a form of mutual insurance that is acceptable under Islamic law—could increase awareness of insurance in the Gulf Cooperation Council trading bloc region. S&P said that takeup of takaful insurance currently is growing by about 40% per year in the GCC region.

Business Insurance

Two former executives of Marsh & McLennan Cos. Inc. (MMC), the largest insurance brokerage in the world, went on trial Tuesday in New York for what prosecutors said were their roles in a lucrative bid-rigging scheme. William Gilman, who was executive marketing director, and Edward J. McNenney, ex-global placement director, are charged in Manhattan's state Supreme Court with scheme to defraud, first- and second-degree grand larceny and restraint of trade. The former Marsh executives, being tried without a jury before Justice James Yates, have pleaded not guilty. If the judge convicts them, they each would face up to 25 years in prison. Their lawyers say the New York state attorney general's office didn't like the way their clients worked but the defendants did nothing criminal. The prosecution says the defendants and others conspired with brokers and other insurance companies to arrange noncompetitive bids for New York-based Marsh & McLennan's corporate customers from November 1998 to September 2004. The customers, large companies with big potential risk that bought excess casualty insurance for catastrophic situations such as the Exxon Valdez oil spill, were cheated by this arrangement, the prosecution says.

Dow Jones

THB UK Professionals Risks has launched a new liability product specifically for individuals named as ‘approved persons’ by the Financial Services Authority. FSA approved persons liability will be written exclusively by THB under a binding authority from Pembroke Syndicate 4000 at Lloyd’s and cover will be available to all classes of approved person and will provide liability cover of up to £500,000 for an individual and £2m for a company. Under FSA regulations, an approved person is an individual who performs a ‘controlled function’ within a firm approved and regulated by the FSA. A controlled function is a role that has great regulatory significance such as a compliance officer or other senior manager. Failure to comply with FSA regulations can result in an approved person being subjected to a personal fine or penalty.

Insurance Times

The Lloyd’s specialist insurance market is using Xchanging’s processing software Genius as its core reinsurance system in China, which will enable users to log on as either a Chinese or English speaking user and to view screens and develop reports in the appropriate language. Lloyd’s has also purchased a global licence from internet trading service RI3K that enables business to be placed in an efficient, cost-effective and secure manner. In addition to this, the Shanghai office will make full use of the London Market’s Insurers’ Market Repository – an electronic filing cabinet that enables claims and premiums to be handled quickly and efficiently without the need for paper files. RI3K’s paperless environment will enable underwriters in Lloyd’s reinsurance operation in China to exchange information electronically with underwriters in London, speeding up the service to brokers and cedants in China. As part of the deal, Lloyd's has also negotiated a licence that enables the market to use RI3K's internet service to write and place business in other territories.

Insurance Times

The Financial Services Compensation Scheme has set its initial levy for 2007/08 at £94.5m, including costs of compensation and management. This is £10m lower than the indicative levy announced when FSCS published its plan and budget in January. The levies for A12 (brokers holding client money), A16 (pensions review), and A18 (mortgage brokers) have been reduced. The others remain unchanged. The reductions result in part from additional recoveries received in 2006/07 and in part from continuous review and refinement of projections for the coming year based on the current trends and information. The A12 levy is set at £10.5m, which is down £0.7m from the indicative estimate. "This is mainly due to a reduction in the number of mortgage endowment claims expected to be received," the FSCS added. The levy for insurance intermediaries has been set as forecast at £2m for the 2007/8 period.

Post Magazine

The U.S. Atlantic basin will likely experience a very active hurricane season, the Colorado State University forecast team announced today, increasing its earlier prediction for the 2007 hurricane season. The team's forecast now anticipates 17 named storms forming in the Atlantic basin between June 1 and November 30. Nine of the 17 storms are predicted to become hurricanes, and of those nine, five are expected to develop into intense or major hurricanes with sustained winds of 111 mph or greater. Long-term averages are 9.6 named storms, 5.9 hurricanes and 2.3 intense hurricanes per year. "We are calling for a very active hurricane season this year, but not as active as the 2004 and 2005 seasons," said Phil Klotzbach of the Colorado State hurricane forecast in a in statement announcing the predictions.

Insurance Times

Fortress Investment Group LLC, which manages private equity and hedge funds, agreed to buy the Bermuda- based reinsurer Alea Group Holdings Ltd. for £162m ($320m). Fortress will pay 93 pence a share in cash, it said in a statement today. That price, 1 percent less than Alea's closing price yesterday, represents a 15 percent premium over its average price for the last six months, Fortress said. The sale to Fortress will “bring greater stability to the company,” Alea Chairman John Reeve said in the statement. The agreed price “represents an attractive proposal for all shareholders and offers them the opportunity to crystallise their investments in the company.'” Hamilton, Bermuda-based Alea, which is closed to new business, put itself up for sale following record storm losses in 2005. Mark Cloutier, former chief executive officer of Overseas Partners Re, became Alea's CEO last September, replacing Mark Ricciardelli, who stepped down after about two years on the job. In a separate statement today, Alea posted a loss for 2006. The full-year loss was $835,000, virtually zero a share, compared with a loss of $178.9m, or $1.03 a share in 2005, the company said.

Bloomberg

The Committee of European Insurance and Occupational Pensions Supervisors, the body that will advise the European Commission on what form its planned new capital adequacy regime Solvency II should take, has issued a new quantitative impact study to help it finalise its proposals. The new study, QIS3, is intended to help the committee decide on the final capital calibrations that should be used under Solvency II and should also provide the first real indicator of the level of capital that will be required for individual companies and the market as a whole. Europe’s insurers and reinsurers have been given until the end of June to complete the latest spreadsheets and questionnaires that will help CEIOPS work out how capital levels should be best calculated. The committee conceded that it is now working under a “tight schedule” because the European Commission has set itself a target of July to publish a draft directive on the new capital adequacy regime. It said that it would not therefore be unhappy if some insurers submitted only partial answers to its questions. Under the latest study, CEIOPS has provided specifications for how the eligible elements of capital should be assessed based on some recent thinking within the European Union, it said.

Business Insurance

The financial strength ratings of The Steamship Mutual Underwriting Association (Bermuda) Ltd. and London-based The Steamship Mutual Underwriting Association Ltd. have been downgraded by A.M. Best Co. to B++ from A-. The rating action against the Bermuda protection and indemnity club reflects “potential volatility” in its “risk-adjusted capitalization, the continuing challenge the club faces in underwriting profitability and its reliance on investment income,” Best said in a statement. There is a “substantial risk” that the club’s capital will deteriorate until February 2009, because it is “dependent on investment to achieve a surplus” and is likely to be affected by “increased exposure to reserving risk following higher than anticipated underwriting losses for the 2006-07 financial year…” The London insurer was downgraded because of its reliance on the Bermuda club to provide annual reinsurance coverage on 90% of the first $30 million of net liabilities in any policy year and 100% of liabilities above $30 million.

Business Insurance

Lloyd's received a boost ahead of results after Fitch upgraded its Insurer Financial Strength rating from A to A+. The upgrade follows completion on Tuesday of the first phase of Equitas's deal with Warren Buffett's Berkshire Hathaway group. Under this deal, Berkshire will take on Lloyd's pre-1993 liabilities and provide an additional $5.7bn (£2.9bn) of reinsurance to Equitas. Richard Ward, Lloyd's chief executive, said: "This upgrade is great news. The successful completion of Phase I of the Equitas deal obviously played a significant part in Fitch's decision but the upgrade also reflects our ongoing work to improve and strengthen Lloyd's financial position, brand and licences."

Financial Times

Strong performance from Lloyd's insurers in calm cat conditions has led the Society to report pre-tax 2006 profits of £3.7 bn for the market. The result, announced this morning contrasted with the £103 mn loss reported in the hurricane devastated 2005 year. Light catastrophe activity was the main contributor to a combined ratio of just 83.1 percent for the market, down from 111.8 percent in 2005. This compared favourably with an estimated average 93 percent for US property and casualty insurers; 95 percent for US reinsurers; 94 percent for European (re)insurers; and, 86 percent for Bermudian (re)insurers, said Lloyd's. Lloyd's chairman Lord Levene acknowledged the performance had benefited from an "exceptionally low level of catastrophes", and warned it would be "unrealistic" to expect a repeat pattern this year. "With a trend for more frequent and severe natural catastrophes, we must continue our focus on underwriting for profit. The market is well prepared to meet these challenges," he stated.

The Insurance Insider

Equitas Ltd. has completed the first phase of a deal with Berkshire Hathaway Inc. that could provide it with £7 billion ($13.75 billion) in reinsurance cover and ultimately end the liabilities of Lloyd’s names reinsured into the vehicle. The London-based company, which reinsures the pre-1993 longtail liabilities of Lloyd's of London syndicates – has said that it had completed a reinsurance transaction with Berkshire Hathaway subsidiary, National Indemnity Co., as announced in October last year. National Indemnity has reinsured Equitas’ liabilities and has provided an additional $5.7 billion in cover to Equitas. In return National Indemnity will receive Equitas’ assets – totalling £4.9 billion ($9.62 billion) as of March 31, 2006 – a £286 million premium from Equitas plus a £172 million contribution from Lloyd’s. National Indemnity has also acquired Equitas Management Services Ltd., which will continue to manage the runoff of Lloyd’s pre-1993 business.

Business Insurance

Robert Hiscox urged Lloyd’s market underwriters to “move business at the pace of the brokers”, in an impassioned speech at the Insurance Institute of London lunchtime lecture at Lloyd’s. Calling upon the market to embrace the efficiencies and speed afforded by electronic systems, Hiscox said that such a move was essential if it was to become a low cost provider of insurance. “Sitting in a box and underwriting was a most congenial place to work,” he reminisced, but said that for the underwriter it was now much easier to make a dispassionate, sensible decision when seated in front of their computer. However, Hiscox also threw down the gauntlet to the broker, a creature which he described as being “very emotional and touchy”. “Why,” he asked “does this industry have such a poor opinion of itself?” Highlighting the challenges faced by the broker in an increasingly complex and volatile risk environment, Hiscox said that he could not understand why this market did not charge a proper fee.

Insurance Times

CV Starr chairman Maurice Greenberg has said that the company will be an underwriter for some of Lloyd's of London's reinsurance operations in China, according to MarketWatch. Speaking at a media briefing in Shanghai, Greenberg said CV Starr will underwrite part of the reinsurance risk Lloyd's of London accepts from the local market once it starts up in China. "You make an underwriting profit and you'll invest the funds you receive in the economy here, and you're providing a service to the market because the market needs reinsurance," Greenberg said.

Insurance Times

Bermuda does not pose a threat to the London insurance market according to a panel of industry experts speaking at the Financial Services Authority annual insurance sector conference today. "No firm has vacated London to stop writing business there," said Dan Glaser, managing director AIG Europe (U.K.) Ltd. "Competition is a good thing for different marketplaces and in the long term, London will benefit from Bermuda," he said. Mr. Glaser also said that Bermuda was a place of specialisation - especially in terms of catastrophe risk. London has the advantages of being better located for access to the global industry and being the home of "a huge pool of talent" across industries, he added. Stephen Catlin, Chairman of Catlin Group Ltd., agreed saying that Bermuda could not compete with London in terms of talent. He added that London also "owns the business language of the world, has a legal system and a regulator which are both liked and trusted which is a good environment in which to write insurance and reinsurance," he said.

Business Insurance

The Financial Services Authority is to dismantle onerous requirements for insurers and brokers on the sale of some general insurance products. The U-turn, proposed yesterday by outgoing FSA chief executive John Tiner, removes some of the burden put on insurers and brokers two years ago when the body became responsible for regulating general insurers and brokers, to comply with the European Union's insurance mediation directive. The FSA's demands had proved unpopular with some insurers, which had complained they had driven up costs and forced them to issue large amounts of additional paper work. Following a review of the general insurance rules, the regulator said that for general insurance products such as home or motor insurance, it would look to remove most of the requirements on companies that went beyond the directive, cutting the number of documents insurers and brokers must produce. Vital safeguards to protect consumers would be kept. However, the FSA also proposed a tightening of the rules governing the sale of personal protection products, such as critical illness cover and payment protection insurance.

Financial Times

The U.S. unit of German reinsurer Munich Reinsurance Co. made a net loss of $1.03 billion in 2006, hurt by additional provisions for asbestos claims and a negative tax effect, Munich Re said in its annual report. The world's second-biggest reinsurer, which covers risks for the insurance industry, said it had shored up its reserves for asbestos claims by $600 million. A year ago, the company said it foresaw no further need to add to reserves at American Re. Tax effects cost American Re almost another $1 billion, Munich Re added in its report, published on Tuesday. Nonetheless, American Re's 2006 net loss was less than 2005's loss of $1.5 billion. A Munich Re spokesman said the company intended to hold on to its U.S. unit. "A sale is absolutely not on the agenda," he said, adding that the reserves should now be sufficient. Munich Re confirmed its preliminary report of record net profit of over €3.5 billion ($4.66 billion) for 2006 and repeated its 2007 target of achieving net profit of between €2.8 billion and €3.2 billion ($3.73 billion and $4.26 billion).

Reuters

The Financial Services Authority has set out proposals to reform the funding of the Financial Services Compensation Scheme. FSA Director Graeme Ashley-Fenn said: "An effective system for compensating consumers for losses incurred when a financial services company fails is an important part of the regulatory system. The FSCS makes a vital contribution towards two of the FSA statutory objectives - protecting consumers and maintaining consumer confidence in the financial services industry - a role from which all firms benefit." Although wholesale business is not capable of giving rise to claims on the compensation scheme, the FSA in principle favours making it possible to have recourse to the wholesale sector for a proportionate contribution to funding the scheme. This is in recognition of the links between retail and wholesale business within the UK’s financial services and of the benefit the wholesale sector derives from public confidence in the financial system as a whole. It is expected the wholesale pool could add a further annual £1-2 billion of funding to the FSCS, further increasing its financial capacity. The FSA plans to set out its proposals for wholesale funding, and potential tariff measure changes, in a supplementary consultation paper later this year.

Post Magazine

Atlantic hurricane and tropical storm activity will be 75% higher than usual this year according to Tropical Storm Risk, the consortium of experts on insurance, risk management and seasonal climate forecasting, led by the Benfield UCL Hazard Research Centre at University College, London. TSR’s March forecast is the highest since their records began 23 years ago. It predicts Atlantic basin and U.S. landfalling hurricane activity to be around 75% above the 1950-2006 norm in 2007. This is an increase from the 60% forecast issued last December. The main predictions include an 86% probability of an above-normal Atlantic hurricane season; 17 tropical storms for the Atlantic basin as a whole (with nine of these being hurricanes and four being intense hurricanes); an 85% probability of above-normal US landfalling hurricane activity; five tropical storm strikes on the U.S.; two tropical storm strikes on the Caribbean Lesser Antilles.

Business Insurance

The spectre of asbestos has returned to haunt reinsurance giant Munich Re as it revealed in its full annual report this morning (20 March) a $600mn strengthening of loss reserves for related claims. Despite the reinsurer confirming group record 2006 profits of EUR3.5bn, the charge, together with a strengthening of workers' compensation reserves and a $993mn tax write-off, contributed to a $1.03bn loss in its US operation Munich Re America. The company said that while the development of recent underwriting years 2003-2005 continues to be positive, and the subsidiary returned a positive underwriting result for 2006, the performance was "significantly masked" by adverse development on old underwriting years. The $600mn charge came as a result of an internal reserve analysis, said Munich Re, "because reported claims activity for this liability complex accelerated again". There was no impact on the group result because reserves held at that level were released, the reinsurer explained.

Insurance Insider

Lloyd's has received the long-awaited approval for its new Chinese onshore reinsurance operation from regulators yesterday. The Lloyd's Reinsurance Company China Limited has been granted it formal licence document from the Chinese Insurance Regulatory Commission. The Society announced it would be launching its Shanghai operation last April. In the announcement Lloyd’s chairman Lord Levene said: “Lloyd’s reinsurance operation in China will enable us to expand our global footprint and support one of the fastest growing economies in the world.” An opening ceremony, hosted by Lord Levene, will be held in Shanghai on 16 April.

The Insurance Insider

The Financial Services Authority has said that non-life insurance brokers have "no excuse" for failing to protect client money. The London-based FSA, the U.K. insurance regulator, said that a recent study showed that brokers that used its "Client Money Guide" and a web-based training guide had a better understanding of client money handling rules than brokers studied in previous FSA investigations on the subject. Between September and December, the FSA visited 161 general insurance brokers to assess their compliance with the regulators client money rules. The FSA said that the main areas where using its guidance had helped improve brokers’ handling of client monies were the correct calculation of client money, segregating client money in trust accounts within a day of receipt, and auditing client money systems and controls.

Business Insurance

Lloyd's of London insurer Kiln Plc plans to move to Bermuda, following peers including Hiscox and Catlin, it said on Tuesday after publishing record 2006 profits. Kiln said Bermuda, an island tax haven with a lighter regulatory regime, offered a favourable environment for Kiln to develop a more international business, as well as better access to alternative sources of capital. It is also closer to the United States, where Kiln is considering an onshore presence. Boosted by high prices for risks and unusually low catastrophe claims that have lifted the sector as a whole, Kiln said its full-year pretax profit jumped to £64.1m from £8.5m a year ago. The insurer, which specialises in underwriting complex and unusual risk, also raised its 2006 dividend to 4 pence per share from 3 pence a year earlier. Its combined ratio improved to 77 percent from 114 percent a year ago.

Reuters

Insurance brokers guilty of plundering client money and failing to pass on claims are the target of a whistle-blowing system designed to crack down on financial crime. The Financial Services Authority yesterday called on insurers and brokers to use newly established lines of communication to report possible criminal behaviour by clients and peers. Financial crime in the insurance sector included the falsification of customer details to obtain insurance business and the issuance of false insurance certificates, said the FSA. The watchdog was also concerned about the misappropriation of money from clients and about failures to pass on premiums, refunds or claims. The regulator said the system was not a response to specific wrongdoing, but part of broader efforts to protect consumers. It launched a similar mortgage fraud reporting system last year.

Financial Times

New analysis of deal values in the insurance broking sector shows that earning multiples have risen by more than 25% over the past year. According to Deloitte, multiples in excess of 10 times have been achieved in many insurance M&A deals over the past year. Deloitte argues that demand is a key factor pushing up prices. Whilst much of the insurance broking sector M&A activity was previously driven by broker consolidation, 2006 and the start of 2007 have seen insurers re-enter the market for insurance distribution. Ian Clark, insurance partner at Deloitte said: “The interest of insurers in acquiring distribution channels has not only increased demand but has fundamentally changed the way in which insurance distributors are va