Florida property catastrophe reinsurance rates will likely fall by 15% on average during mid-year renewals, according to a report released by Guy Carpenter & Co. L.L.C.  A competitive reinsurance market, combined with the absence of any major insured losses, are the main factors driving the rate declines, according to the New York-based reinsurance broker. In addition, the state-run "Florida Hurricane Catastrophe Fund, continues to play an important role in most companies' overall reinsurance programs," said Kevin Stokes, global head of property specialty practice for Guy Carpenter in New York.

Business Insurance Europe

Ping An, the Chinese insurer, dropped out of the running to buy Royal Bank of Scotland's insurance business yesterday, leaving five potential buyers for the parent of Direct Line, Churchill and Privilege. Ping An joined Warren Buffett's Berkshire Hathaway and Generali of Italy in turning down the chance to buy the business, which RBS values at about £7bn excluding joint ventures. It had been thought that Ping An might want to buy RBS Insurance to diversify and to copy its top-notch systems for selling through the internet and other direct channels for use in China. Those remaining in the bidding process are Zurich Financial Services; Allstate, Travelers, American International Group of the US; and Germany's Allianz.

The Independent

The Florida authorities have reached a settlement with Aon relating to undisclosed compensation in connection with the placement of insurance coverage on behalf of Florida policyholders. Florida's attorney general Bill McCollum, chief financial officer Alex Sink and insurance commissioner Kevin McCarty announced that Aon will pay $2.6m to Florida to reimburse affected policyholders. Aon also will reimburse the three Florida agencies $1.4m in fees and costs, effectively ending its 'Spitzer' suits. The three-agency investigation determined that Aon brokered multiple insurance contracts in Florida from 1998 through 2004 and its clients included several public entities in the state of Florida, including city governments and school boards. The Florida authorities said they uncovered allegations that Aon improperly collected undisclosed compensation when it placed various insurance coverages with insurance companies. Under the deal, prior to having insurance bound, Aon must disclose to its clients all fees, compensation and commissions associated with each insurance transaction. The company must also maintain a record of all insurance quotes it receives.

Post Magazine

Royal Bank of Scotland has extended Wednesday's deadline for the auction of its insurance arm, which includes its Direct Line and Churchill brands, the Daily Mail reported on Thursday. First-round bids for Britain's largest motor insurer are expected to come within days, the paper said. RBS declined to comment on the auction for RBS Insurance, expected to be valued around £7 billion. Italian insurer Generali, which had been seen as a strong candidate, pulled out of the running on Wednesday because of the hefty price and RBS's unwillingness to consider breaking off parts of the unit, sources close to the situation told Reuters. Zurich Financial Services is the front runner in the sale. Other possible bidders are Germany's Allianz, U.S.-based Allstate, Travelers and AIG, and China's Ping An, people familiar with the situation told Reuters.

Reuters

The Financial Services Authority has published a discussion paper, which explores the creation of a framework for determining what further information the regulator might publish about firms and industry sectors. In its discussion paper, the FSA sets out a code of practice which it claims would provide a transparent mechanism for guiding FSA decisions about what additional information it might disclose. The paper also provides examples of the types of information the regulator may consider publishing; and draws a clear distinction between simply making information available, which could in some cases cause confusion and have a negative impact, and publishing information in a way that makes issues and practices clearer and, therefore, improves how markets function. Hector Sants, chief executive of the FSA, said: “We believe that transparency is an important regulatory tool, and as an organisation are committed to being open and transparent. The discussion paper seeks to initiate debate on how we can better utilise transparency to achieve our regulatory aims, and in particular proposes a code of practice.”

Post Magazine

IAG chief executive Michael Hawker has resigned just days after rejecting rival QBE’s A$8.7bn bid for the company. He will be replaced by chief operating officer, Michael Wilkins. Hawker, who was appointed chief executive of IAG in 2001, admitted he had lost the confidence of a number of shareholders following collpase of the company's share price and the issuing of three profit warnings in the past seven months. Hawker said: “It's with great personal regret that I have decided to resign from my position as CEO.”

Insurance Times

Lloyd’s of London has voted in favour of changing its corporate governance rules, a move which opens the door for the market’s insurers to accept business from intermediaries other than registered Lloyd’s brokers. At the extraordinary general meeting held Wednesday, the membership of Lloyd’s approved a resolution to consent to the proposals to amend the Lloyd's Act, statutory legislation that provides for governance at Lloyd’s. More than 99% of Lloyd’s membership voted in favour of the proposals.

Business Insurance Europe

The FSA fines AIG subsidiary £640 000 for call centre failings.

The Financial Services Authority has fined Unat Direct Insurance Management £640 000 for failings relating to a lack of effective control and oversight over its appointment of call centres. Unat, an indirect wholly-owned subsidiary of American International Group, used nine call centres to sell general insurance products, mainly personal accident insurance policies, underwritten by another AIG group company. Unat had a procedure in place to check whether call centres were authorised by the FSA, the extent of their compliance resources and their processes for compliance monitoring and data security. However, the firm failed to prevent its staff from instructing the call centres to start selling to consumers before the due diligence process had been completed. Furthermore, senior management did not receive adequate management information to enable them to satisfy themselves that the call centres were suitable to carry out insurance sales. This lack of effective control and oversight meant Unat did not carry out an acceptable level of due diligence before the call centres began selling.

Post Magazine

Lloyd's chairman Lord Levene has repeated his warning that creeping litigation is driving the emergence of a US-style compensation culture in Europe. Levene said that as globalisation takes hold, companies outside the US were becoming more willing to litigate generally. He also warned that US courts are becoming more willing to rule on cases beyond their typical territorial remits. As a result, he claimed, the fear of litigation impacts on both price and innovation. Levene was speaking at the Lloyd's 360 Risk Debate, focusing on the impact of liability on global business. Over 200 delegates attended the event which was chaired by former barrister, Clive Anderson. Other distinguished speakers included leading barrister Gerard Forlin; Lord Hunt, chairman of the financial services division of Beachcroft LLP; and Amanda Stevens, president of the Association of Personal Injury Lawyers.

Insurance Times

Dubai Group has launched a reinsurance company with paid-up capital of 1bn dirhams ($270m). ACR ReTakaful Holdings Limited is a joint venture between Dubai Group, the financial division of government-backed Dubai Holding, and two other companies: Khazanah Nasional Bhd, the investment arm of the Malaysian Government, and Singapore-based Asia Capital Reinsurance (ACR). The deal was completed through Dubai Group's subsidiary, Dubai Banking Group - a Shariah-compliant investment company. The company will focus on general (non-life), non-cyclical and large speciality risks in infrastructure and transportation industries such as aviation, marine, energy and engineering and will strive to channel these traditional risks from the conventional market into Islamic compliant takaful channels.

Insurance Times
 

Market fears that American International Group may make more big credit-related writedowns rose yesterday after the troubled insurance group revealed it would raise about $20bn in new capital to protect its balance sheet - 60 per cent more than originally planned. Martin Sullivan, AIG chief executive, said the insurance group had raised at least $13.5bn in recent days through the sale of common shares and equity-linked units. AIG is now selling hybrid securities in dollar, euro and sterling tranches that will raise the equivalent of another $6.5bn. Speaking at a Lehman Brothers conference in London, Mr Sullivan said the additional capital would leave AIG "well-positioned for any continued volatility in the credit markets". Analysts said this suggested the possibility of further large write-downs. AIG shares declined 2 per cent to $38.17 by midday in New York.

Financial Times
 

The proposed sale of Heath Lambert’s wholesale operations to Cooper Gay is coming under further pressure as executive opposition to the deal increases at the broker. At the beginning of the month, it was reported that Martin Emkes, managing director of Heath Lambert’s international general wholesale division had raised objections to the transfer. Now, it is understood that three further executives have also raised objections and one senior staff member has resigned. Heath Lambert was not prepared to discuss the latest objections. Cooper Gay CEO Toby Esser maintained that the deal was “on track” for a 31 May sign off to enable an asset transfer on 1 June. He added: “We intend to do a deal. It is dependent on people joining. We don’t know what the deal will look like but we are confident that a deal will be done.” But he said that the proposed deal could be endangered if enough staff did not decide to transfer. “Obviously we would have to think again if many people decided not to join,” Esser said. The objections come as Heath Lambert undertakes a statutorily required Transfer of Undertakings Protection of Employment Regulations (TUPE) employee consultation, which governs staff rights when assets are sold from one company to another. The proposed sale – thought to be for around £8mn – would also see Heath Lambert shed units including aviation, general reinsurance, and general London market wholesale division, FSJ.

Insurance Insider

Alistair Darling, the chancellor, is to meet senior insurance executives this week as the two sides seek to repair relations after tax changes that have put £35bn of annual life assurance sales at risk. The chancellor will tomorrow attend a meeting of the Association of British Insurers' board, which includes the heads of some of the UK's biggest insurers. Relations between insurers and the government have been strained since changes to the capital gains tax regime. These have made saving through a collective investment product, such as a mutual fund, more attractive from a CGT perspective than an insurance-based saving product, such as an investment bond. Several life assurers have already reported that sales of investment bonds have been hit by the changes. "This is an attempt to learn from recent events and make sure we have a strategic dialogue with government to mutual advantage," said Stephen Haddrill, director general of the ABI. The association said a number of issues would be discussed, including the competitiveness of the UK tax system, about which insurers are very concerned. Financial stability and savings are also expected to be on the agenda.

Financial Times

Berkshire pulls out of RBS auction.

Royal Bank of Scotland's £7bn ($13.6bn) auction for its UK insurance business has received a lukewarm response from potential buyers, with Warren Buffett's Berkshire Hathaway pulling out of the bidding and there are doubts over the level of interest from Germany's Allianz. RBS has targeted eight potential trade buyers, including American International Group, Allstate and Travelers of the US, Generali of Italy, Zurich Financial, and the Chinese insurer Ping An. The sale is part of its plans to bolster a balance sheet weakened by mortgage-related writedowns. Berkshire, an insurance-to-candies conglomerate, had expressed an initial interest in the business, which includes the general and life insurers Direct Line and Churchill, but yesterday said it had decided not to bid. "We have looked at it but we are not participating in the bidding," Berkshire told the Financial Times. It declined to comment on the reasons for its decision. Interested bidders must submit initial bids by May 28. RBS declined to comment, but people close to the situation said the bank was not worried about Berkshire's decision not to bid.

Financial Times

Property losses from the Chinese earthquake in Sichuan province could reach as much as $15bn but the insurance industry is likely to emerge relatively unscathed. Despite Risk Management Solutions (RMS) estimating losses at between $10-15bn, the risk modeller said that only a “fraction of the property losses will be borne by the insurance industry”. The estimate comes as rival risk modelling firm, AIR Worldwide, predicted insured losses are likely to exceed $300mn and could reach $1bn. AIR Worldwide believes that total losses to insured and uninsured property is more likely to exceed $20bn. RMS said the losses could be even greater once infrastructure damage and interruption to economic activity caused by the magnitude 7.9 earthquake are factored into final estimates.

Insurance Times

Catastrophe risk modelling firm Air Worldwide estimates that total losses to insured and uninsured property from the M7.9 earthquake that struck near Chengdu, China will likely exceed RMB 140bn ($20bn). AIR estimates that insured losses will likely exceed RMB 2 billion ($300m) and could reach RMB 7 bn ($1bn). The estimates cover property losses for residential, commercial/industrial and construction all risks/erection all risks lines of business. Air cautions that there is a high level of uncertainty in insured loss estimates in China. The insurance market is rapidly developing and earthquake coverage is optional for both residential and commercial policies. Air estimates that insurance take-up rates in this region (the percentage of buildings actually insured against the earthquake peril) are minimal for residential properties and only marginally higher for commercial properties. Although earthquake coverage is mandatory for policies covering construction projects (the CAR/EAR line of business), in many cases companies do not purchase insurance for smaller projects.

Post Magazine

Businesses could be facing a future liability crisis if they do not face up to growing litigation issues, Lloyd's warned today. In a new report 'Directors in the Dock - is business facing a liability crisis?’ published by Lloyd’s in association with the Economist Intelligence Unit, businesses are urged to anticipate and prepare for future liability risks. Lloyd’s research has shown that boards everywhere are feeling increasingly challenged by litigation and are spending more time (13%) and money addressing these issues. The survey found that product recalls have risen 50% in Europe in the past year, while trading environments are becoming ever more complex and new legislation such as the Corporate Manslaughter Act comes into effect. As a result, the report said, the price of products and services is increasing and innovation and risk taking is being stifled.  Though the likelihood of sub-prime related claims is on the rise, Lloyd's chairman Lord Levene said they were yet to exceed expectations. He said: "The case hasn’t changed. We don't currently expect the number of claims to cause any undue concern this year."

Strategic Risk

Former AIG chief Greenberg wants AGM postponed.

Maurice R. Greenberg, former chief executive of American International Group Inc., has said the company is in "crisis" and called on the insurer to postpone its annual general meeting scheduled to take place later this week, according to a letter he sent to the board of directors. "Several top shareholders of AIG have called me expressing deep concern about the persistent and seemingly endless destruction of value at AIG," Mr. Greenberg said in the May 11 letter to the board, a copy of which was filed with the U.S. Securities and Exchange Commission on Monday. "AIG is in crisis," Mr. Greenberg added and called on the company to postpone its annual general meeting, which is scheduled for Wednesday. "The company's shareholders need to absorb the significance of the company's first-quarter losses," wrote Mr. Greenberg, who is chairman of C.V. Starr and Starr International, entities that were once affiliated with AIG, and continue to be the insurer's largest shareholders.

Reuters

The 7.8 magnitude earthquake that rocked China’s eastern Sichuan Province on Monday is expected to generate a large number of insurance claims, according to Risk Management Solutions Inc. The quake occurred in a mountainous region outside of the province’s capital, Chengdu, the 10th-largest city in China with a population of 4.5 million. Most of the damage reported is in Chengdu, though at least eight aftershocks, each with a magnitude of at least 5.0, were reported in outlying areas. According to London-based RMS, much of Chengdu’s development has occurred over the last 30 years, with the majority of its buildings constructed after 1978, when buildings were required to be made more earthquake-resistant.

Business Insurance
 

The Chartered Insurance Institute's (CII) second annual skills survey has revealed a worsening skills shortage in the financial services sector. Three quarters of employers surveyed reported shortages of technical skills - up 5 per cent on last year. In a statement the CII said: "The issue has become so critical that it is now on the agenda in four out of five boardrooms which represents a huge increase of 20 per cent on 2007." Over half the employers (57 per cent) accused the education system of failing to meet the needs of the industry with only 3 per cent describing basic levels of education as "more than adequate". These findings coincide with an increase of 14 per cent to 73 per cent of employers who believe that employees will need higher qualifications in the future.

Insurance Times

Munich Reinsurance Co. saw a 19% decline in its first quarter profit, to €785 million ($1.20 billion), caused in part by some substantial losses and investment performance, the company reported on Thursday. In the first quarter of 2008, Munich Re said it paid €578 million ($886.4 million) for major losses, including floods in two coal mines in Queensland, Australia, and winter storm Emma that hit central Europe in early March. Munich Re's primary insurance arm, principally ERGO Insurance A.G., posted a 22.2% lower operating result, to €246 million ($377.3 million), largely because of investment declines. Gross premiums written in the Munich Re primary business rose 0.9%, to €4.80 billion ($7.36 billion). In property/casualty insurance premium climbed by 2.3%, to €1.95 billion ($2.99 billion), the company said.

Business Insurance

Shares in American International Group (AIG) traded down to hover just above a 10-year low in after-hours trading yesterday as the US giant posted a record first quarter loss of $7.8bn triggered by another round of heavy mark-to-market credit derivative and investment losses. In all, the insurer took a $9.1bn pre-tax write-down on the super senior credit default swap (CDS) portfolio of its AIG Financial Products Corp (AIGFP) division – adding to the $11.12bn charge it took in the last quarter of 2007 on the business. The financials were further decimated by a $6.1bn hit in AIG’s investment portfolio, primarily relating to US residential mortgage backed securities (RMBS). The overall Q1 loss follows AIG’s then record $5.3bn deficit in the fourth quarter, marking the first time in the insurer’s history as a public company that it has been in the red in consecutive quarters. The group announced it would raise a total of $12.5bn in capital to “fortify its balance sheet”, including $7.5bn from a common stock offering, with the balance coming from an issue of hybrid securities at a later date. But the move was not enough to stop Standard & Poor’s (S&P) downgrading AIG’s credit rating by a notch to AA-, placing it on CreditWatch with negative implications.

Insurance Insider

European insurers are likely to be more affected by Solvency II than by the current credit crunch, according to a report by Standard & Poor’s Corp. The rating agency said in the report that it expects current losses in the subprime mortgage market, and wider disruption in capital markets, to have “limited” impact for European insurers. To date, the insurance operations of companies based in Europe have disclosed mark-to-market losses of about $7 billion from subprime exposure, Simon Marshall, credit analyst at S&P, said in a statement. While a major catastrophic event could significant worsen that situation, Mr. Marshall said, Solvency II—the European Union’s proposed capital regime for insurers—is likely to have a greater impact on the industry. For example, S&P said, the upcoming capital rules could prompt consolidation, and could force more than 25% of insurers in Europe to “face major strategic decisions.”

Business Insurance

Munich Re's first quarter profits dipped 19 percent as it took a €578mn hit in its reinsurance division from the spate of major losses hitting the market in the period. Overall profits were €785mn, down from €974mn in the first three months of 2007, including an 18.6 percent fall in reinsurance operating profits to €0.9bn. The reinsurance giant revealed that it expects pre-tax claims costs of nearly €100mn each from floods in two coal mines in Queensland Australia in January and February, while European winter storm Emma resulted in losses of €75mn. Natural catastrophes contributed a total of 10.7 points to a reinsurance combined ratio that increased to 103.8 percent, compared to 101.8 percent in the Kyrill-hit prior-year period. As reported in the May, large risk losses hitting the industry in the first quarter are now estimated to exceed $6bn, including the two Australian losses at BHP Billiton mines thought to have increased to a combined $1.6bn as a result of a business interruption component inflated by the dramatic rise in coal prices.

Insurance Insider

Royal Bank of Scotland Group P.L.C.'s decision to sell its insurance business is likely to prompt a string of other banks to reconsider the strategic value of owning insurers. Faced with billions of dollars in writedowns, bankers expect lenders to conclude that providing a waterfront array of banking and insurance products matters less than freeing up cash, tied up in non-core units, to shore up hard-pressed banking arms. "Banks are now acknowledging that the value they offer in the insurance chain is through their distribution power rather than producing the insurance products themselves," said Mark Oldcorn, head of European insurance in the investment banking department at Credit Suisse. "But the backdrop to that realisation is of course the current crisis, which has forced many of them to face up to the fact that they are light of capital," said Mr. Oldcorn.

Reuters

Marsh & McLennan, the US insurance broking group, yesterday said it could sell parts of Kroll, as a $425m writedown on the value of the world's biggest corporate security group dragged MMC into a first-quarter loss. Brian Duperreault, who became chief executive of MMC in January, said there were parts of Kroll that did not fit with the rest of the business. "These are businesses that we have deemed are not as strong a strategic fit, and may have greater value outside MMC," said Mr Duperreault. "We will therefore seek ways to divest these businesses in ways consistent with enhancing shareholder value." The statement came in the wake of an approach for Kroll by David Buchler, its former European chairman and BC Partners, the private equity group, and other informal expressions of interest during the past year. People familiar with the situation have said that no talks are under way. Mr Duperreault said Kroll's business intelligence and investigations unit, the background screening business and the litigation support and data recovery services arm all had long-term potential within MMC.

Financial Times

Montpelier Re, the Bermudian (re)insurer, reported that first quarter net income plunged to just £0.3m from £73.3m in the first three months of 2007 after losses from key commercial properties came through. Operating income for the first three months more than halved, falling to £60.3m from £28.2m. The combined ratio was 89.7% compared to 65.6% in the first quarter of 2007. The loss ratio for the quarter was 54.5%, which includes $42.8m of large individual risk losses, slightly above the $30 - 40m range pre-announced by the Company on February 19th due to subsequent claims notices, and $14m of losses due to European windstorm Emma. This was offset in part by net favourable prior year reserve development of $21m, mainly as a result of adjustments to the 2004, 2005 and 2007 catastrophe losses.

Reinsurance
 

Munich Re buys US marine MGA for $52.5mn.

Munich Re has continued its drive for distribution with the acquisition of US marine insurance underwriting agency and broker Roanoke Trade Services Inc for $52.5mn. The new unit will report to Mark Watkins, CEO of the reinsurer's UK operation who also manages the Watkins Syndicate at Lloyd's. The move follows Munich Re's acquisition of intermediary Bell & Clements Group and Lloyd's insurer Beaufort in the last 12 months, as the reinsurer attempts to increase its access to business in the face of competitive underwriting conditions. The reinsurer said Roanoke would allow the Watkins Syndicate - which is already represented in Europe, Asia and the Middle East - to access US marine business through its own network and "further diversify its portfolio". As well as writing business for Munich Re, Roanoke will continue to trade with other US insurance entities as an underwriting agency and broker.

Insurance Insider
 

Global reinsurance broker Guy Carpenter has confirmed that it is undergoing a round of job cuts. “As part of a strategic initiative to better position Guy Carpenter for the future, the firm is implementing several organisational changes, including staff reductions in certain areas,” said the group in a statement. “This decision was difficult but necessary given current market conditions. Guy Carpenter will implement these changes as quickly and seamlessly as possible to maintain its high level of customer service.” Although press reports say that the staff reductions may number as many as 350 – or 15% of the broker’s total workforce – no number was given by the broker.

Post Magazine
 

Most Bermuda insurers are now in good shape, but earnings and profit margins will continue to deteriorate long term, says A.M. Best Co. in a special report. “The overwhelming conclusion is that the majority of carriers on the island are financially strong, benefiting from record earnings produced by the fundamental quality of underwriting operations,” says the report. “As can be expected, balance sheets, with few exceptions, are in the best shape in years.” But profit margins will continue to deteriorate, “barring any industry-changing event,” says the report. “Pressure on companies to lower rates and loosen terms challenges the effective management of capital, while cedents purchasing less reinsurance make the stability of earnings less certain. Compounding these factors are significant capacity in the market and pressure to deploy capital with fewer opportunities.” The report notes, however, that in light of first-quarter results, an acceptable rate of return can be expected for this year, albeit at lower margins than those reported in the past two years.

 Business Insurance
 

Number of US subprime-related lawsuits surged in Q1 2008.

Navigant Consulting has said the number of subprime-related cases filed in federal courts surged in the first quarter of 2008, dramatically outpacing 2007 filings. The total filings are close to surpassing the savings-and-loan (S&L) crisis litigation of the early 1990s. According to a company report, the number of subprime-related cases exploded in the first quarter of 2008, increasing 85% over the next busiest quarter. A staggering 170 cases were filed during the quarter, approaching the 181 filings over the final six months of 2007. “Like the credit crunch itself, the litigation is unrelenting,” said Jeff Nielsen, Managing Director of Navigant Consulting. “In this most recent quarter, we are looking at approximately two filings per day, including weekends. What we saw in 2007 was a mild breaking wave compared to the tsunami we are witnessing now.” Over a 15-month span ending March 31, 2008, the number of subprime-related cases filed totalled 448, up from 278 previously reported at year-end 2007.

Post Magazine
 

XL's first-quarter profits plunge.

XL Capital Ltd. reported on Tuesday that its profits for the first quarter of 2008 were $244.4 million, down 57% from its 2007 first-quarter results. Brian O’Hara, president, chief executive officer and acting chairman, said the results were mostly due to the “extremely difficult” global credit market conditions, which hurt XL’s investment income performance for the quarter. Net income on investments for the first quarter of this year was $449.2 million, down 18.8% from the same period last year. Additionally, net realised losses on investments for the quarter were $102.3 million compared with a gain of $9.3 million last year. XL’s combined ratio for the first quarter was 93.1%, up from 90.2% a year ago. XL did see a 3.1% increase in gross written premiums in its insurance segment. Its reinsurance segment, however, saw a 22% decrease, which XL said was due to selective treaty cancellations and competitive market conditions.

Business Insurance
 

Cooper Gay in advanced talks to buy Heath Lambert wholesale arm.

(Re)insurance broker Cooper Gay & Co Ltd is in advanced talks to acquire the wholesale operations of Heath Lambert Group. The sale, which is subject to approval, is thought to be in excess of £8mn, and will see Heath Lambert shed units including its aviation, general reinsurance, general London market wholesale division, FSJ and international general wholesale division, Global Business Solutions. The firm's total wholesale revenue is estimated by sources at up to £19mn - FSJ £3.5mn, aerospace £3.5mn, reinsurance £4mn, marine £2mn, Global Business Solutions, headed by Martin Emkes is around £6mn - but the units being sold by Heath Lambert are thought to have a total turnover of between £12mn and £15mn. FSJ places business for lines including bloodstock/livestock, unusual/high-hazard commercial accounts, motor fleet and the pharmaceutical sector, and is headed by the unit's chairman Derek Thornton. Neither firm was prepared to discuss the terms of the deal.

Insurance Insider
 

P&I clubs likely to increase calls: Best.

Protection and indemnity clubs struggling with soaring claims are likely to increase call levels as they change their underwriting approaches, a report from A.M. Best Co. Inc. concludes. Members of the International Group of P&I Clubs have collectively failed to make a technical profit in any financial year since 1999 despite large increases in call levels, said the report from Best, the Oldwick, New Jersey-based rating organization. Many of the marine insurers have adopted more forward-looking approaches to pricing and those changes are likely to result in further increases in calls, the report said. The clubs are expected to rely less on investment income to produce surplus as equity markets have become volatile, according to the report. High-value claims have had a big impact on the clubs’ underwriting results but it is unclear whether recent large claims mark the beginning of a long-term trend, Best said.

Business Insurance
 

Reinsurance market will soften further for June and July renewals.

Pricing is projected to be favourable for traditional property catastrophe reinsurance programmes when insurers seek mid-year renewals, according to an analysis by Aon Re Global. While terms and conditions are expected to continue to improve, price reductions will be a higher priority for cedents. The underlying fundamentals that drove the softening of price and terms and conditions at January 1, 2008 are expected to continue through the June and July renewal season. “Supply continues to grow at a faster rate than that of cedent demand, which implies continued softening,” said Bryon Ehrhart, president and CEO of Aon Re Services.

Insurance Times
 

The decision by some insurance companies to refuse to cover passengers for cancellations or lost luggage at Heathrow’s Terminal 5 has been labelled as “scandalous” by Insure and Go. Perry Wilson, managing director of Insure and Go, said: “This decision taken by numerous insurers is going to add to the misery suffered by airline passengers over the past few weeks, and frankly we think it’s outrageous. Some insurers are hiding behind the excuse that problems at T5 are not ‘unforeseen’ because they have been going on for weeks. That is like saying you’re not going to cover someone against being mugged in Johannesburg because crime is so rife there.”

Post Magazine

Buffett lieutenant steps down from reinsurance arm.

Joseph Brandon, once considered a leading candidate to replace Warren Buffett at the helm of Berkshire Hathaway, has stepped down as head of its reinsurance division, General Re. The departure of Mr Brandon, who will be replaced by his number two, Franklin "Tad" Montross, is a blow to Mr Buffett, who for years considered Mr Brandon one of his closest lieutenants. Mr Buffett has repeatedly praised Mr Brandon's stewardship of General Re since his appointment as chief executive in 2001. In his latest letter to shareholders, released at the end of February, Mr Buffett said Mr Brandon and Mr Montross had been doing "first-class business in a first-class way". Mr Brandon's departure follows the convictions of four former colleagues for fraud. He has not been charged with any wrong-doing. Mr Brandon was identified as a non-indicted alleged co-conspirator in a trial that resulted in the conviction of Ronald Ferguson, the previous chief executive, and three other former executives.

Guy Carpenter & Co is preparing to cut around 13 percent of its global workforce, as the reinsurance intermediary responds to the tough market conditions. The job cuts are likely to affect around 350 staff at the 2,600-employee subsidiary of Marsh and McLennan Companies Inc (MMC) with some of the losses thought to be back office positions. Guy Carpenter would not comment. The Insurance Insider understands that the firm is deciding on how long it will take to complete the "restructuring", which is thought to affect a significant number of Guy Carpenter's 49 offices worldwide. One source close to the restructuring insisted that the decision had been made "months ago", prior to the appointment of Peter Zaffino who replaced David Spiller as CEO at the end of February and is designed to make Guy Carpenter "sound for the future". The cuts are thought to be a reaction to the continued rate softening, and the trend for primary insurers to buy less reinsurance, which is impacting reinsurance brokers' revenues.

Insurance Insider

This year’s Atlantic hurricane season will be more active than average, with eight hurricanes forming, forecasters at the Tropical Meteorological Project at Colorado State University predicted on Wednesday. That’s one more hurricane than the forecasting team predicted in its Dec. 7, 2007, projection. Of the eight hurricanes, four will grow to be intense hurricanes, according to the team. Once again, that is an increase of one intense hurricane over December’s prediction. “Information obtained through March 2008 indicates that the 2008 Atlantic hurricane season will be much more active than the average 1950-2000 season,” the team’s report said. The team predicted that there is a 69% probability that at least one major hurricane—defined as a storm with sustained winds of at least 111 miles per hour—will make landfall somewhere on entire U.S. coastline this year, compared with an average 52% probability in the last century. The report also calls for an “above-average major hurricane landfall risk” in the Caribbean this year.

Business Insurance

Directors' and officers' insurance rates are jumping over 40% to the subprime credit disaster, says a senior director at Ironshore subsidiary Iron Pro. “Bigger carriers say they are seeing premium growth of around 30-40% in the first quarter, while for some carriers are seeing double that,” said Greg Flood, president of Ironshore Insurance's professional liability facility Iron Pro. Estimates insured losses for the sub-prime disaster range may rise to $8bn including errors and omissions insurance, according to Bear Stearns- ironically one of the companies most affected by the collapse of the subprime mortgage market.

Post Magazine

Fitch Ratings estimates that litigation stemming from the subprime mortgage crisis will result in $3 billion to $4 billion in directors and officers liability and errors and omissions claims. In addition, Fitch notes, “insurers’ potential losses could be substantially higher if credit issues spread to sectors not directly tied to the subprime mortgage market or if market conditions lead to increased bankruptcies,” Fitch said in a report issued Wednesday. Fitch says it expects subprime investments’ poor performance to continue in 2008. “Further, highly illiquid, volatile market conditions have spread somewhat to other asset classes, which could impact insurers’ broader investment portfolio performance,” the report notes.

Business Insurance

Federal prosecutors are putting pressure on Warren Buffett's Berkshire Hathaway Inc. to replace the chief executive of its reinsurance subsidiary, the Wall Street Journal reported, citing people familiar with the situation. The pressure to remove Joseph Brandon, CEO of General Re Corp., comes after four of its former executives were convicted of fraud earlier this year, the report said. The conviction in February was tied to a reinsurance deal, which prosecutors said misled investors of American International Group Inc., as it enabled the company to improperly inflate its loss reserves, making its financial results seem artificially bright. Mr. Brandon's position at General Re has been uncertain since 2005, when he got a formal notice from federal securities officials that they were examining whether he violated securities laws, though he has not been charged with any wrongdoing, the Journal said. A decision to remove Mr. Brandon lies with Mr. Buffett, the chairman of Berkshire, the report said, quoting a source familiar with the situation.

Reuters

Bermuda-based insurer Argo Group International Holdings Ltd said on Wednesday it had made a £136m ($269.7 million) recommended cash offer to buy Heritage Underwriting Agency plc. Under the deal, shareholders in Lloyd's of London firm Heritage will receive 154 pence a share after an already announced 6p final dividend, 15 percent above Tuesday's closing price of 133.5p. The news, part of a wave of consolidation in the world's oldest insurance market, had pushed shares in Heritage up 13.5 percent to 150.5 pence by 1318 GMT. The bid values Heritage at 1.8 times its 2007 tangible book value, in line with other transactions in the sector, UBS said in a note.

Reuters

Lloyd’s of London posted a £3.85bn pre-tax profit in 2007 compared with £3.66bn in 2006 due to profitable underwriting conditions, strengthened capital resources and a limited exposure to catastrophes. However, it said such benign conditions have resulted in increased pressure on rates across all lines of business and also warned that it cannot expect the strong underwriting conditions and low levels of catastrophes to continue. The market's combined ratio came in at 84.0 percent from 83.1 percent in 2006, comparing favourably with U.S. property and casualty insurers, U.S. reinsurers and European and Bermudian insurers. 'The need to exercise underwriting discipline and maintain a focus on underwriting for profit rather than market share remains essential,' chairman Lord Levene said. Central assets rose 34 percent to £1.95bn, while investment returns rose 21 percent to £2.07bn.

Thomson Financial

Glacier Insurance AG has announced it has commenced underwriting operations in London, having received the relevant regulatory approvals. Steven Price has been appointed managing director, Glacier Insurance London. Glacier Insurance London will specialise in writing marine, war and terrorism, UK property, general aviation, space and London Market casualty business. It expects to write $30m to $40m of premium from London in its first year. Glacier Insurance, part of the Glacier Group, began underwriting operations in November 2006. In 2007, its first full year of underwriting, it wrote $40.4m of premium. It currently writes business from its headquarters in Vaduz, Liechtenstein and its branch office in Cologne. Steven Price joins Glacier Insurance from the London operations of specialist Bermudian insurer Securit Re, where he was CEO, as well as a co-founder of the company. Prior to that, he spent seven years at the QBE Group, where he was managing director of its European Commercial Division, with overall responsibility for QBE Europe’s Major Risks, Treaty Reinsurance and Financial Risks operations.

Insurance Times

Marsh & McLennan Cos. Inc. and Willis Group Holdings Ltd. are acting in accordance with the terms of their 2005 producer compensation settlement agreements, the New York State Insurance Department said on Monday in releasing two reports by an outside consulting firm hired to monitor and test the brokers’ compliance. New York-based Marsh and London-based Willis were among several brokers that over the past few years settled charges with various state regulators that the brokers steered business to insurers paying the highest contingent commissions. As part of their settlements with New York’s insurance department and attorney general, Marsh paid $850 million and Willis paid $50 million in restitution to policyholders. They also adopted business reforms designed to avoid conflicts of interest, including ceasing to collect millions of dollars in contingent commissions. According to consultant RSM McGladrey Inc., the restitution funds have been appropriately funded and disbursed, and both firms are complying with various disclosure and reporting requirements.

Business Insurance

Lloyd’s brokers painted a mixed picture of resignation and resilience in a survey published today by international accountancy and advisory firm Mazars. The survey revealed 78% of respondents expected to endure a continued softening in rates over the next 12 months, while only 18% thought they would remain the same and none believed they would harden. The classes of business considered most at risk were liability, property and reinsurance. Alongside this gloomy mood, the state of the global economy was chief amongst concerns for the development of the Lloyd’s market over the next three years. There was also overwhelming sentiment towards continued consolidation, with the vast majority (89%) of those surveyed predicting that the total number of Lloyd’s brokers will diminish in the next year. Despite this, 54% of respondents cited whole-team acquisitions - and 27% whole-business acquisitions – as figuring in their strategic growth plans, while only 5% mentioned a sale and 7% a merger.

Post Magazine

Aspen Insurance Holdings Ltd. on Friday received approval from Lloyd’s to establish a new Lloyd’s syndicate. Syndicate 4711 will start underwriting in April for business incepting May 1. It is managed by a new Lloyd’s managing agency, Aspen Managing Agency Ltd., which is authorised by the Financial Services Authority in the United Kingdom. The syndicate will renew certain participations on selected classes of business currently written by its existing U.K. company, Aspen Insurance UK Ltd., Hamilton, Bermuda-based Aspen said in statement. These classes include energy, marine, hull, liability, transportation-related liability, aviation and certain types of specialty reinsurance lines. Aspen executives said the company plans to write approximately $100 million in premiums through Syndicate 4711 this year. The insurer and reinsurer said it does not expect it will have any material impact on the consolidated gross written premium the company expects to write during this year.

Business Insurance

As U.S. Treasury Secretary Henry Paulson gets ready to unveil plans on overhauling the regulation of markets on Monday, one group is already lining up in the opposition camp: state insurance commissioners. One of the items on the treasury department's blueprint for a massive shake-up of U.S. financial market regulations calls for the creation of a federal insurance regulator. States currently have the authority to oversee insurers, and although efforts have been made to standardise forms and other requirements, many differences persist between states. "I think we've demonstrated over the years that state-based regulation is the most effective way to protect our consumers," Sandy Praeger, president of the National Association of Insurance Commissioners, said in a telephone interview. "Efficiency at the cost of consumer protection is I don't think where we want to go." Praeger, who said she was speaking on behalf of all state insurance commissioners, said it was important to have people at the state level who could ensure that products were appropriate and could explain them to customers.

Reuters

AIG, the giant insurance group, yesterday filed a new lawsuit against Hank Greenberg, its former chief executive. The suit is similar to one previously filed in federal court in New York claiming Mr Greenberg, who was ousted as AIG's chief executive in 2005 over accounting allegations, "misappropriated" AIG's shares worth $20bn. The initial suit was filed in a US federal court. Yesterday's action, which also names six other former AIG executives, was filed in New York state court. An AIG spokesman said the group needed to file the new suit because the three-year statute of limitations governing such claims was about to run out. A spokesman for Starr International, a former affiliate of AIG that Mr Greenberg now controls, said AIG filed the suit in a state court because its federal claim has been unsuccessful thus far.

Financial Times

Bermudian firm ACE Ltd is moving its holding company from the Cayman Islands to Zurich, Switzerland. When industry legends Robert Clements and Robert Newhouse set up Bermuda’s founding insurers ACE and its rival XL over 20 years ago they chose to separate the firms’ holding companies between the Cayman Islands and Bermuda in the event of a crisis on one of the two islands. ACE chairman and CEO Evan Greenberg explained the redomicile to “a major financial centre”, reflected “the natural evolution” of the company from its origins as a monoline excess insurer owned by its policyholders “to a global publicly-traded company operating throughout the developed and developing world”. The move, which is scheduled for July, is dependant on shareholder and regulatory approval. ACE will continue to operate from its Bermudian headquarters and there will not be any restructuring of its (re)insurance divisions.

Insurance Insider

The Financial Services Authority has published a discussion paper that looks at intermediary commission disclosure and wider issues of transparency in the commercial insurance market. In December 2007 the FSA published an independent report that considered whether disclosure of commission earned by commercial insurance intermediaries should be made mandatory. The report found that intermediary disclosure by itself was not justified on cost benefit grounds. The report, however, raised wider concerns about market inefficiencies and the FSA announced that it would publish a DP to look into this area. The DP examines the conditions necessary to ensure an environment that encourages market efficiency. Key to this is that buyers have access to clear, comparable information about the role of the intermediary including their services and the way they are paid.

Post Magazine
 

Chubb insures the primary layer of the Marsh-placed $75mn directors' and officers' (D&O) programme for beleaguered investment bank Bear Stearns. As securities class actions against Bear Stearns begin to mount, sources have revealed the US insurer has the first $15mn layer, attaching above the bank's $25mn Self Insured Retention (SIR). Other insurers offering broad A-B-C cover on the programme are Bermudian XL Capital, with $15mn excess of the $15mn primary layer; and HCC Global Financial Products, with a $20mn excess of $30mn layer. US giant American International Group (AIG), meanwhile, provides a $25mn excess of $50mn layer for Side-A only cover.

The Insurance Insider

Twenty U.S. reinsurers posted an average 94.7% combined ratio for 2007 compared with an average 94.9% combined ratio reported by a comparable group in 2006, according to the Washington-based Reinsurance Assn. of America. Last year’s 2007 combined ratio reflects a 65% loss ratio and a 29.7% expense ratio. For 2006, the loss ratio was 67.1% and the expense ratio 27.8%, according to the RAA. The reinsurers wrote $22.71 billion of net premiums for the year, down 12.1% from the total reported by the comparable group in 2006. Policyholder surplus totaled $75.86 billion, up 1.8% from 2006.

Business Insurance Europe