Spitzer continues to target contingent commissions.

Despite his imminent departure to Albany, the New York attorney general Eliot Spitzer has filed a lawsuit against Acordia Inc accusing the US' fifth largest insurance broker of illegally steering business to companies who paid them kickbacks. Spitzer - who has sued and settled with the US' four largest insurance brokers in the last two years - issued a suit against Acordia earlier this week accusing the firm of placing its "own financial interests ahead of the well-being of its clients" in charging contingent commissions. In the suit filed by Spitzer's office, Wells Fargo & Co, the parent company of Acordia Inc, is also accused of steering its banking clients to Acordia, which is then alleged to have directed business to The Hartford. Acordia is also said to have formed a list of insurance companies - known internally as "Millennium Partners" to steer business in exchange for "secret payments". But Acordia's president Dave Zuercher responded by arguing that the payments are legal and, if disclosed, consistent with guidelines approved by the National Association of Insurance Commissioners. Spitzer's allegations - which were filed in the State Supreme Court in Manhattan on 20 December - were mirrored by suits against the firm from the Illinois and Connecticut attorney generals.

Insurance Insider

Chubb Corp. has agreed to pay $15 million in policyholder restitution and to alter its practices—including replacing contingent commissions on all U.S. lines of business with a “supplemental compensation program” —to resolve investigations by attorneys general in New York, Illinois and Connecticut. Chubb, which noted in a statement that it was not assessed with any fines or penalties, also will pay $2 million to the officials for the costs of the investigations, which were led by New York Attorney General Eliot Spitzer. Mr. Spitzer’s office said in a statement that the settlement resolves an investigation of “customer steering, improper finite reinsurance transactions, and other unlawful industry practices.” In its statement, Chubb says that the investigations—as well as an independent inquiry commissioned by the company— “did not conclude that Chubb participated in a pattern or practice of illegal bid-rigging” in the excess casualty insurance market.

Business Insurance

AM Best has kept Catlin Group's credit ratings under review with negative implications after the group's announcement that its £591m offer for Wellington Underwriting PLC had been declared unconditional. AM Best said that this was because data that they requested has not been supplied. Credit analysts said: "This has prevented completion of AM Bests review of the likely impact of future major events on Catlin's consolidated risk-adjusted capitalisation." The ratings agency said that it expects to complete the review in the first quarter of 2007. However, reports cited analyst fears that Catlin will see its credit rating downgraded following the Wellington deal because of the large increase in debt gearing to finance the deal.

Insurance Times

Cats cause insured losses of $15 billion in 2006.

Natural and man-made catastrophes in 2006 caused insured losses of $15 billion (€11.34 billion) and total economic losses of $40 billion (€30.24 billion), according to preliminary estimates from Swiss Reinsurance Co. To date, only three catastrophe events this year have caused insured losses of more than $1 billion (€756 million), Swiss Re noted. Those events were a number of tornadoes in the United States—a single tornado in the Great Plains, followed by a series of tornadoes across the southern U.S.—plus Typhoon Shanshan in Japan in September, according to the Swiss Re research. Barring any events before the end of the year, 2006 will have the third lowest insured losses in the last 20 years after 1997 and 1988, according to Swiss Re. An estimated 30,000 people died as a result of catastrophes during the year, Swiss Re said.

Business Insurance

FSA issues Dear CEO letter on contract certainty.

The Financial Services Authority (FSA) has issued a Dear CEO letter setting out its view of the progress made by the general insurance industry towards finding a solution to the issue of contract certainty. The letter emphasises that contract certainty is not confined to the London Market but it applies to all firms who undertake general insurance business and particularly those conducting business with commercial and wholesale customers. Within the letter, reference is made to the Contract Certainty Steering Group and two Market Working Groups to coordinate work across the subscription and non-subscription markets. These groups are now producing the qualitative and quantitative information and supporting data that the market believes is needed to confirm the statement that the contract certainty challenge has been met and will not falter in years to come. The FSA have also made it clear that during their supervisory work with firms, they will look for evidence of measures designed to ensure that contract certainty becomes part of the natural operation of the market in 2007 and beyond.

Post Magazine

Catlin has announced that its offer for Wellington is being declared unconditional as to acceptances and that all required regulatory approvals have been received. In a statement it added: "All conditions to the Offer have now either been satisfied or waived and the Offer is now wholly unconditional. In addition, Lloyd’s has approved the cessation of Wellington’s Syndicate 2020. Catlin will accordingly benefit from full ownership of the enlarged capacity of its Syndicate 2003 with effect from 31 December 2006. “Approximately 38 per cent. (by capacity) of the unaligned members of Syndicate 2020 have accepted the all cash compensation offer made to them and 62 per cent have accepted the cash and reinsurance option.” Stephen Catlin, chief executive of Catlin Group Limited, said: “I am very pleased to announce that Catlin’s offer for Wellington has been declared unconditional. The acquisition creates material benefits for both companies and their shareholders, as well as to clients and brokers.

Post Magazine

The Lloyd’s Market Association (LMA) has named David Gittings as its new chief executive. Gittings, formerly group head of risk at Wellington, will concentrate on developing a more proactive focus for the LMA through the alignment of the needs of Managing Agents and the Franchisor. Gittings said: “The LMA is a well established and influential association which can help the Franchisor and the whole market to work together. As its Chief Executive, I look forward to securing a successful future for the market in accordance with the vision of its members, the Managing Agents and Syndicates which carry on the business of underwriting at Lloyd’s.”

Insurance Times

Insurers are concerned the Terrorism Risk Insurance Act of 2002, which is up for its second renewal by Congress next year, is at risk because of “creeping complacency” among businesses. Created after the September 11 attacks, the act - known as Tria - provides a federal backstop for insurance claims relating to acts of terrorism. While the White House has pushed for its expiry at the end of next year, Democratic control of Congress is expected to boost the chances of its renewal. But the extension is not a done deal, according to Robert Hartwig, chief economist at the Insurance Information Institute, an industry body. “There is an incorrect assumption on the part of some in the business and institutional investment community that this act will be automatically renewed,” he said. “The awareness of urgency on this issue is not yet there.” Describing Tria as “part of the package to protect the financial homeland”, Mr Hartwig warned that “creeping complacency” could prevent it from being made a top priority in Washington. “The biggest losers if Tria is not extended are businesses and workers,” he said. “Property and casualty insurers can scale back exposure if Tria is not extended but, in the event of another terrorist attack, businesses need to continue to operate and supply workers' compensation to their employees.”

Financial Times

The European Commission has confirmed that its interim report into competition in the business insurance sector—launched in the summer of last year—will not be ready until January and could even slip into February. The Commission sent detailed questionnaires to leading insurance trade bodies at the end of 2005, and to individual insurance companies and brokers in early 2006. It intended to use this information as the basis for an interim report planned for the end of this year. But a spokeswoman for the Commission said that the interim report being prepared by the Competition Directorate had been delayed because of "administrative reasons" and "various planning purposes." The spokeswoman declined to give any more details, but conceded that it could even "slip to early February."

Business Insurance

New York Gov.-elect Eliot Spitzer has nominated Eric Dinallo, general counsel of Willis Group Holdings Ltd., to be the state’s insurance superintendent, Mr. Spitzer’s transition team announced Friday. Mr. Dinallo was appointed general counsel for London-based Willis in March. He previously served as managing director and head of regulatory affairs at Morgan Stanley and led the Investment Protection Bureau for the office of the New York attorney general. He will succeed outgoing superintendent Howard Mills. "Eric Dinallo is an individual with tremendous integrity and leadership who will be a valuable addition to the team Gov.-elect Spitzer is assembling," said Joseph Plumeri, chairman and CEO of Willis, in a statement.

Business Insurance

Richard Ward, the new chief executive of Lloyd's, set out plans to overhaul the insurance market's archaic procedures and pledged that most of the market's main processes would be carried out electronically by 2009. Mr Ward, updating the Lloyd's three-year strategic blueprint and extending it to 2009, said: "My priority as CEO is to work with the market to deliver this plan and increase the pace of change." The former head of the International Petroleum Exchange, who became chief executive in April, also set out plans to make it easier for overseas brokers to access Lloyd's, helped by developments in technology. Mr Ward said Lloyd's would remain a mutual and that its historic underwriting room would continue for the "foreseeable future". But he said processes and operations supporting the way Lloyd's obtained business were "inadequate and will be reformed. Lloyd's paper-based infrastructure is in need of modernisation," Mr Ward's plan said. "Lloyd's processes, structure and distribution chain, can drive a higher administrative burden compared to other platforms".

Financial Times

About 34,000 Lloyd's Names are to share £50m, while directors and staff of Equitas, the run-off reinsurance company, will share a special bonus of £15.1m, as a result of a deal that will see Warren Buffett's Berkshire Hathaway take on Lloyd's pre-1993 claims from Equitas. The first phase of the deal, which was announced in October and which will see Berkshire provide Equitas with an additional $5.7bn of reinsurance cover, will also trigger early payments to Equitas executive directors and management under long-term incentive plans. Together with this year's bonuses for directors and staff, this will amount to a further £14.2m. Equitas said the Names to whom it provided cover - individuals who had supported the Lloyd's insurance market although most were now no longer underwriting - would receive the £50m pay-out next spring or summer, subject to approval from the Financial Services Authority. Sir Adam Ridley, chairman of the Equitas Trust, said about half of the Names reinsured by Equitas "should be entitled to £1,000 or more from the initial return premium, before tax". Both the £50m payment to Names, and the £15.1m special bonus, will come from the £172m of assets left in Equitas at the first phase. Some £102m will remain in Equitas, of which £22m will be set aside to purchase additional reinsurance in the second phase of the deal.

Financial Times

Catlin has announced that at a general meeting of the company, held on Tuesday in Bermuda, the ordinary resolutions set out in the notice of meeting in connection with the acquisition of Wellington Underwriting were passed. While Catlin remains confident of completing the acquisition before Christmas, the proximity of the 1 January 2007 renewals season means there are strong commercial and operational advantages for the enlarged group in combining the businesses, and therefore for Catlin's completing the acquisition, ahead of this date.

Insurance Times

Insurance brokers must disclose to commercial clients the amount they are paid for securing insurance cover for their customers, the City regulator has warned. The Financial Services Authority, in a letter to chief executives of insurance brokers, stated that insurance brokers were required to disclose to their commercial insurance customers what they were paid for securing cover for them, if the customer asked. A failure to do so was in breach of the rules and could result in enforcement action. The warning comes as the FSA prepares to look at the possibility of forcing insurance brokers automatically to disclose to their customers what they are paid for securing insurance cover for them. The move also follows a study by the regulator in the second half of this year of how insurance brokers managed conflicts of interest. The FSA said most companies it had visited included a clause in their documentation reminding those seeking insurance of their right to request information from their broker on their remuneration. But in the letter Hector Sants, managing director of the FSA's wholesale and institutional markets division, said the regulator had found "a widespread lack of formal process among intermediaries as to what remuneration would be disclosed to a commercial client on request, with not all intermediaries including all forms of remuneration".

Financial Times

John Charman, the insurance magnate, yesterday saw off a legal bid by his former wife to gain security over the full £48m divorce settlement she was awarded by a High Court judge earlier this year, in advance of his appeal next March. The award made in July is thought to be the largest contested divorce settlement in English legal history. It is the first "big money" divorce battle to come through the courts since the House of Lords restated the core principles underlying divorce settlements in two landmark cases earlier in 2006 that re-emphasised the 50:50 split as a starting point for calculating settlements. Furthermore, a large proportion of the assets at stake are in a Bermuda-based discretionary trust which, in spite of Mr Charman's arguments, the judge refused to exclude from the pool to be divided between the couple. Since the July ruling, Mrs Charman has received £20m of the award, including £8m of assets already in her name. She was pressing for security over the outstanding £28m balance.

Financial Times

The Risk & Insurance Management Society Inc. on Thursday said that it supports a long-term solution to ensure that commercial terrorism insurance coverage remains “comprehensive and affordable” beyond the planned expiration of the federal backstop program. The current Terrorism Risk Insurance Act extension, which provides a federal backstop for terrorism coverage in the United States, is set to expire Dec. 31, 2007. Sen. Christopher Dodd, D-Conn., incoming chairman of the Senate Banking, Housing and Urban Affairs Committee, which has jurisdiction over TRIA, on Thursday reiterated his support for a permanent extension of the backstop.

Business Insurance

The United States, which has emerged from this year's hurricane season largely unscathed, should brace itself for a potentially devastating hurricane season in 2007, a leading windstorm forecaster warned. A long-range forecast for next year issued by Tropical Storm Risk, a London-based forecaster, on Thursday predicted an above-normal Atlantic hurricane season with a strong probability that more hurricanes will slam into the United States than usual, based on average figures for the period 1950 to 2006. It said that 16 tropical storms were likely to occur in the Atlantic basin, nine of which would be hurricanes and four likely to be so-called intense hurricanes. Five tropical storms are likely to hit America, of which two will be hurricanes, TSR said. It anticipated a combination of conditions that would indicate a higher-than-average hurricane season.

Reuters

Insurers will today call on the chief City regulator to live up to its promises of delivering a workable form of lighter regulation. Stephen Haddrill, director- general of the Association of British Insurers, said in the past year he had detected a "real change of heart" in the Financial Services Authority. "The coming year is turning those good intentions into reality," he said. Senior FSA officials have spoken in increasingly strident terms about their commitment to regulation based on broadly-framed principles as opposed to detailed rules. They have also emphasised the importance of "proportionate" regulation, which targets the companies that present the greatest risks. Yet a survey published last week by the FSA's own industry practitioner panel revealed a degree of scepticism and confusion about how many of the watchdog's high-profile initiatives would work in practice. Mr Haddrill said the key to transforming the FSA's promises into practical-improvements for insurers was clarifying the industry's role in providing guidance to supplement the FSA's -principles. He said the FSA had already endorsed a number of codes of good practice developed by the industry, including those on critical illness and unit-linked -products.

Financial Times

Hank Greenberg, the ousted chairman of American International Group, scored a victory over his former company yesterday when the two sides settled 18 lawsuits and arbitrations with a deal that left him in possession of four specialised insurance agencies. AIG also withdrew its efforts to stop Mr Greenberg from using the nameC.V. Starr & Co as the name of his new company. Cornelius Vander Starr was the founder of the company that became AIG, and AIG had claimed both the Starr name and the four agencies were its possessions. Mr Greenberg, in turn, agreed not use the names American International and AI. Although the terms of the deal were not announced, people familiar with the terms said AIG paid money to Mr Greenberg and not the other way around. "The settlement is confidential but there has been no monetary payment that is material to AIG's financial disclosures," said AIG spokesman Chris Winans.

Financial Times

3i has teamed up with the Malaysian government's investment arm to invest in a recently formed Singapore business focused on the region's reinsurance market. The UK-listed private equity group and Khazanah Nasional Berhad of Malaysia have been joined by US hedge fund Och-Ziff, the private equity arms of Credit Suisse and Morgan Stanley and Sweden's Wallenberg family, to invest a total of $620m (£313m) in Asia Capital Re. The business, registered as a reinsurer by the Monetary Authority of Singapore, has obtained an A minus financial strength rating, rare for a newly formed operation. Mark Thornton, 3i's Asia co-head, said ACR had spotted a gap among Asian re-insurers to service airlines, shipping fleets and power stations. These markets had been dominated by reinsurers from outside the region.

Financial Times

Lloyd’s of London has launched an investigation into Catlin's recent £600m takeover of rival Wellington, amid allegations of potential insider trading in the run-up to the deal. Catlin unveiled its deal with Wellington last month, which created the largest underwriting syndicate on the Lloyd's insurance market. Under the terms of the deal, Catlin paid 50p for every £1 of Wellington's underwriting capacity on the Lloyd's market. Only weeks earlier capacity in the Wellington syndicate was being sold for just a few pence in the pound, as part of the annual auction process. The investigation has been launched following allegations that Catlin may have already held talks with Wellington at the time the auction took place. Wellington bought an additional £29m of capacity from other investors in the syndicate at average prices of 3p per £1 during the auction process. Wellington denies any wrongdoing.

Sunday Telegraph

Insurers must improve their risk management practices, despite having made progress over the past three years, the chief City regulator warned yesterday. The Financial Services Authority said a review - in response to concerns about more volatile investment conditions, insured lives lasting longer and threats such as terrorism and climate change - had identified areas that needed improvement. These included elements of insurers' governance and oversight, identifying an insurer's appetite for risk, applying risk management frameworks, improving management information and understanding the FSA's system that requires insurers to match the amount of capital they hold to the risks they face. The comments come as the European Commission draws up a directive known as Solvency II that will replace a patchwork of local regulations with harmonised rules designed to protect insurance customers better.

Financial Times

Four insurers that had previously reached settlements with New York Attorney General Eliot Spitzer barring them from paying contingent commissions on excess casualty business can no longer pay the commissions on six additional lines of coverage, including boiler and machinery and financial guarantee business, Mr. Spitzer’s office announced on Thursday. Under the terms of their earlier settlements over broker compensation practices, the insurers—ACE Ltd., American International Group Inc., St. Paul Travelers Cos. Inc. and Zurich American Insurance Co. Inc.—agreed to stop paying contingent commissions on any line, product or segment of business if insurers that represent 65% of the gross written premiums on that line were not paying such commissions or were to reach similar settlements. The insurers also agreed they would immediately stop paying contingent commissions on excess casualty coverage through 2008, after which contingents on that line would be subject to the 65% rule. In letters to the four insurers, Mr. Spitzer said that his department’s analysis of data provided for 2005 by A.M. Best Co. Inc. showed that the 65% "tipping point" had been reached in several lines and that, as a result, the insurers could no longer pay contingent commissions on those lines beginning Jan. 1, 2007.

Business Insurance

Maurice R. Greenberg, the former head of insurer American International Group Inc., has been buying shares of New York Times Co. to try to break the Sulzberger family's hold on the media company, the New York Post reported Wednesday, citing unnamed sources. Mr. Greenberg has been buying hundreds of thousands of Times shares, the Post reported, putting him in league with other shareholders, such as Morgan Stanley Investment Management who have been questioning the Sulzbergers' holding of a more powerful class of stock. "I can't comment about Mr. Greenberg's stock purchases," said Mark Corallo, a spokesman for the former insurance executive. Mr. Corallo said that Mr. Greenberg "is exploring several options involving media companies." The New York Times, whose shares gained more than 4% in morning trading, was not immediately available for comment.

Reuters

Chaucer Holdings PLC and ICAT Holdings LLC are pleased to announce the establishment of Lloyd's Syndicate 4242 with an underwriting capacity of US$148 million for 2007. ICM Syndicate 4242 will underwrite insurance policies for small and medium sized companies in catastrophe-exposed regions of the United States. ICAT Managers, a managing general agency, based in Boulder, Colorado, will write the majority of the Syndicate's business through Lloyd's approved coverholder arrangements. The establishment of ICM Syndicate 4242 marks an important step in ICAT's long-term strategy of developing an underwriting platform at the core of the ICAT distribution and administration model. ICAT believes that Lloyd's offers the best platform on which to establish a fully integrated underwriting business.

Company Announcement

Bermudian start-up (re)insurer Lancashire has announced that it intends to incorporate a subsidiary in the Dubai International Financial Centre ('DIFC') targeting energy and engineering risks. Lancashire said it will submit an application to the Dubai Financial Services Authority ('DFSA') seeking status for the new subsidiary as an authorised insurance intermediation firm. The Bermuda-domiciled firm said the new company will allow it to market its UK and Bermuda-based insurance subsidiaries more effectively and efficiently in the region. Richard Brindle, Chief Executive Officer, commented: "Using the DIFC as our marketing centre to source the business, we intend to write non-catastrophe exposed engineering risks in the region and other lines such as energy. We have chosen the DIFC because it is the regional domicile of choice.' The application is subject to DFSA and DIFCA approval

Post Magazine

Pretty much every year, we hear the same old moan. "Underwriters have hit a stalemate with their clients about reinsurance premiums" and "this year's all-important renewal season will be the latest on record". It might just be the usual chit chatter, but this time there are clear signs that the reinsurance market will be pushing the January 1 deadline right to its limit. Friction is mounting between reinsurers and their clients, the latter finding it difficult to comprehend just why rates are going up despite 2006 set to be a bumper year for underwriting profits. With massive premium hikes following last year's unprecedented hurricane season, and few tropical storms this year, underwriters know they are on the way to posting enviable figures. "We are potentially close to making an enormous profit," admits Andrew Carrier, an underwriter at quoted Lloyd's syndicate Kiln. He is quick to add that although reinsurers are on the verge of making "a spectacular result", he warns: "We are not out of the woods yet." There is always a minuscule risk that a freak storm could yet blow profits off course, but with the hurricane season traditionally running from the start of June until the end of November, it looks certain that underwriters are well and truly on the home run.

Daily Telegraph

John Charman, the insurance magnate, has been given permission to bring an appeal against the £48m divorce award to his former wife. The award, by a High Court judge last August, was said to be the largest contested divorce settlement in English legal history. The judge decided that Beverley Charman should receive just less than 37 per cent of the assets built up during the couple's 29-year marriage, in which both had started with virtually nothing. It was the first "big money" divorce award to be disclosed since the House of Lords restated the core principles underlying divorce settlements. A distinguishing feature of the Charman case was that a large proportion of the assets were in a £68m Bermuda-based discretionary trust, which Mr Charman said he had established for the benefit of future generations of the family. The judge refused to exclude this from the pool of assets to be divided. "I hope that by appealing against this order I will be able to help bring some clarity, fairness and coherence into the law," said Mr Charman, a former deputy chairman of Lloyd's insurance market, yesterday.

Financial Times

The Office of Fair Trading has extended the deadline for consideration of Catlin’s acquisition of Wellington by ten days. The deadline is now 15 December. Catlin’s £591m bid for Wellington was accepted at the end of October. The acquisition will make Catlin the largest underwriting operation at Lloyd’s.

Insurance Times

A.M. Best Co. placed its ratings of HCC Insurance Holdings Inc. and its affiliates under review Wednesday with negative implications, meaning they could be downgraded. A.M. Best cited HCC's announcement of the results of an investigation of its stock option practices on Nov. 17. The Houston-based specialty insurer had said it would take a pretax financial charge, and Chief Executive Stephen Way resigned. A.M. Best said the ratings are likely to remain under review pending HCC's quarterly filings, which have been delayed. It said it would also look at lawsuits, regulatory penalties, HCC's independent investigation and the delayed filings in making a determination. If HCC delayed its federal filings beyond the end of the year, it would be an "event of default," and holders of its two outstanding debt issues could force HCC to pay back the issues, which total nearly $300 million, the rater said.

Business Insurance

Risk Management Solutions has reaffirmed its medium-term five-year view of land falling hurricane risk for the period of 2007-2011. The company is projecting higher modeled annualized insurance losses by 40% on average across the Gulf Coast, Florida, and the Southeast, and by 25-30% in the Mid-Atlantic and Northeast coastal regions relative to those derived using long-term 1900-2006 historical average hurricane frequencies. RMS first released this view of risk before the 2006 hurricane season, for the five-year period of 2006-2010. "As part of our annual review of medium-term landfall frequency in the Atlantic, RMS held its second expert elicitation in October 2006, presenting a range of statistical models to a panel of seven of the world's leading hurricane scientists," said Joshua Darr, director of model management at RMS.

Post Magazine

The chief City regulator has fined General Re, a subsidiary of Warren Buffett's Berkshire Hathaway group, more than £1.2m for arranging two "improper" reinsurance contracts. The fine is the second largest the Financial Services Authority has ever levied against an insurer, and the largest imposed on a non-life insurer. It also comes just a few weeks after another Berkshire Hathaway subsidiary, National Indemnity, struck a deal to take on Lloyd's pre-1993 claims. The FSA said the two reinsurance contracts were "designed without legitimate commercial purpose and effect, and therefore represented improper reinsurance transactions".

Financial Times

Lloyd’s of London insurer, Kiln P.L.C. has raised a further $30 million in capital through a bond issue. The capital will be used to support Kiln’s growth plans for its managed syndicate. The London based company issued the subordinated debt on Monday. The notes, which mature in 2036, qualify as lower tier two regulatory capital. They have been assigned a rating of bbb by A.M. Best Co. Inc. The proceeds of the debt issue will be used to increase Kiln’s participation on Lloyd’s syndicate 510 and to fund its increased funds at Lloyd’s requirements for the 2007 year of account, according to Best. In June Kiln announced that it would increase its capacity in the Lloyd's market to over £1 billion for 2007, an increase of 25% on 2006. At the time the company said in a statement that it intends to increase the capacity of syndicate 510 by almost 18% to £735 million ($1.4 billion) while almost doubling the capacity on its catastrophe syndicate 557.

Business Insurance

Sir Richard Dearlove, former head of MI6, the British intelligence agency, is turning his sights to Ascot Underwriting where he becomes the next chairman. Sir Richard has links with the insurance industry through his membership of the international advisory board of AIG, the US insurance group that backs Ascot.

Financial Times

The founder and chief executive officer of HCC Insurance Holdings Inc., Stephen L. Way, has resigned after an independent probe uncovered improper stock option granting practices by the insurer. The probe found that HCC "used incorrect measurement dates for certain stock option grants covering a significant number of employees during the period from 1995 through 2006," the insurer said in a statement. Corrections for the errors will likely cost Houston-based HCC no more than $37 million pretax, HHC said. Whether or not a restatement of previously filed earnings is necessary has yet to be determined, the insurer said. Under the terms of his resignation, effective last week, Mr. Way will continue as a director of the company and serve as non-executive chairman of the board of directors. Replacing Mr. Way as CEO is Frank J. Bramanti, an HCC board member since 1980 and former chief financial officer and interim president at the company.

Business Insurance

Attempts to allow US insurance companies to choose whether they are regulated federally or by individual states could receive a boost in the next Congress after the incoming head of a finance sub-committee said he would put the issue high on his agenda. Paul Kanjorski, a Pennsylvania Democrat, told the Financial Times he was "looking seriously" at creating an "optional federal charter", a structure that has long been considered as an alternative to the current regulatory regime. He said: "It's something I think we have to make a decision on. We can't hold an entire industry captive to indecision. It's time to face it." The issue has long generated controversy as insurance companies are the only significant part of financial services that remain regulated state-by-state. Insurance companies argue that this is burdensome, requiring separate registration in each state and adding to administrative costs. However opponents of any change argue that offering insurers a choice between state and federal regulation would result in companies cherry-picking between the most lenient regimes, weakening overall oversight.

Financial Times

The new chief executive of Lloyd's of London, Richard Ward, conceded yesterday that his insurance market had "forgotten what its customers want and need", claiming its pace of modernisation and change was still too slow. Speaking at a conference in Brighton, Mr Ward said that while Lloyd's was proud to have some of the most innovative insurance solutions in the world, its administration continued to be "archaic". "We have a reputation for having some of the most archaic back-office processes, which mean that some insurance policies have expired before the policy documents are actually delivered to the customer," he said. "I'm afraid we simply can't continue to fool ourselves that one makes up for the other. We are basically a service industry that seems to have forgotten what its customers want and need. In recent years, there has been evidence that things are changing, but progress is still too slow." Mr Ward, who took over as CEO in April, told the conference that he intends to make Lloyd's the "marketplace of choice". Earlier this year, Lloyd's chairman Lord Levene admitted that the market needed to pull itself out of the "dark ages".

The Independent

Mitsui Sumitomo Insurance Co. Ltd. is banking on a healthy reinsurance market by boosting the capital in its Bermuda subsidiary. The Tokyo-based insurer is adding $100 million to the capital of MS Frontier Reinsurance Ltd., bringing the reinsurer’s capital to $300 million. MS Frontier writes property catastrophe reinsurance. Mitsui Sumitomo said in a statement that “the natural catastrophe reinsurance market is turning around” and it expects that the demand for “highly-secured reinsurance capacity would remain very strong.” MS Frontier’s additional capital gives it the ability to take advantage of market conditions and “react in a more agile and flexible manner,” the insurer said.

Business Insurance

Net profit at Zurich Financial Services Group jumped more than expected in the first nine months, helped by low claims, and the Swiss insurer unveiled a new three-year plan to cut costs. Net profit was $3.3 billion (€2.57 billion) in the period, the company said on Thursday. Its 2007-2009 efficiency programme would lead to after-tax improvements of $2 billion (€1.56 billion), $700 million (€546.6 million) of which would be generated already next year. "These efforts in general insurance are expected to translate into a contribution to combined ratio improvement of two percentage points," Zurich said in a statement.

Reuters

Lloyd’s (re)insurer Ascot Underwriting has announced plans to open an underwriting operation in Singapore. The new office is Ascot’s first overseas expansion on its direct account and it will initially write property, cargo, hull, energy and terrorism business. The group hopes to open the office early December and accept business from the beginning of 2007, subject to approval from Lloyd’s and the Monetary Authority of Singapore (MAS). Subject to approvals, Ascot also announced two appointments for the new office. Scott Stewart is to become the operation’s principal officer from next year. Scott will join Ascot from Jardine Lloyd Thompson where he is managing director of Energy and Industry Risks in Singapore. Charles Tindall, who currently underwrites Energy insurance for Ascot in London, will be seconded to Singapore to oversee the opening of the office and, subject to Lloyd’s and MAS approval, act as Principal Officer pending Scott’s arrival.

Post Magazine

Glacier Reinsurance A.G. has launched a primary insurer, Glacier Insurance A.G. to write marine and energy, property and casualty, aviation, space and war and terrorism business. Glacier Insurance is based in Liechtenstein and is licensed by the country’s Financial Market Authority to underwrite insurance policies in Europe, Glacier said in a statement. The company is expected to write gross written premiums of $20 million (€15.6 million) in its first year of business, according to the statement.  The new company will be protected by a quota-share reinsurance arrangement provided by Glacier Re and a stop-loss reinsurance agreement. Glacier Insurance is the next step in the natural evolution of the Glacier Group. It enables us to extend our product offering to direct insurance customers in Europe,” said Robbie Klaus, chief executive officer of Glacier Re and Glacier Insurance. “Furthermore, it provides us with a platform to diversify our portfolio, further reducing overall group volatility,” he added.

Business Insurance

American International Group (AIG), the world's largest insurance company by value, was the latest firm to unveil strong third quarter results on the back of a benign 2006 claims environment. At $4.22bn, third quarter net income was more than double the storm-ravished third quarter last year, when the firm made $1.75bn, and, at $1.61 per share, earnings were above analysts' consensus of around $1.42 per share. "The key was a dramatic improvement in AIG's property-casualty business - which basked in the same hurricane-free sunshine as most other property-casualty insurers," commented Celent analyst Donald Light. This time last year, the company had already notched up $1.57bn in catastrophe related losses, net of tax, and the final bill was to total $2.11bn including reinstated reinsurance coverage.

Insurance Insider

Lloyd’s underwriters are to provide the capacity for what is believed to be a world first for ship owners. The policy, Seacure60 is a cancellation insurance that protects a ship owner from losing a charter because of the non-performance of a ship. The policy is aimed at the larger vessel market and has a policy limit of up to $25m. Seacurus director Thomas Brown says the policy was devised in response to fears that overcrowded shipyards are resulting in delays to repairs which put the owner at risk of the charter getting impatient and walking away if a vessel is delayed at a yard. Brown explains “This is a specialist cover which will indemnify the owner for the difference between the original time charter rates and the new market rate. “We have a lead syndicate on the product but with limits up to $25m for the higher end of the policy limits there will be additional syndicates participating on the slip.”

Insurance Times

Royal & Sun Alliance said it was confident of completing the disposal of its US arm by the end of this year, despite an objection to the proposed deal from General Motors, which is embroiled in a separate legal battle with RSA. GM is seeking to be made an "interested party" at a public hearing later this month called by the Delaware insurance commissioner to approve the sale of what is left of RSA's US business to its management there for a deferred payment of £158m. Andy Haste, chief executive of RSA, unveiling a 21 per cent increase in operating profit in the first nine months of this year, said: "The fact that people object is not a surprise. The fact that it's GM is not a surprise."

Financial Times

The Commercial Court has delivered its judgment on the attempt by a group of Lloyd's Names to pursue a claim against the government for losses arising out of an alleged failure to implement a European Directive relating to insurance. The action, which was brought by a group of over 1,000 Names, stated that the government had failed to adequately regulate the Lloyd’s market, and as a result massive losses had been incurred by the Names. In a lengthy judgement, Mr Justice Gordon ruled that that the DTI (which was responsible for insurance regulation until 1997) had not misled the Names nor lulled them into a false sense of security. Furthermore, he said that the government was not in any way responsible for the Names' delay in bringing this action and that the government was not being unreasonable in denying liability for losses suffered by the Names.  A Treasury spokesperson said: "The government welcomes this judgment which upholds the arguments presented by the Government. The Government denied every element of the claims which were based on a misunderstanding of the terms of the EU Directive and the obligations of the Member States under Directives."

Insurance Times

Axis Capital Holdings has said its president and chief executive John Charman intends to sell shares in the Bermuda-based insurer from time to time, in order to fund his $91m divorce. Proceeds from stock sales will be used for personal reasons, including for divorce payments, the filing said. Axis did not detail the number of shares Charman would consider selling. Based on Axis Capital's closing price of $30.54 on Monday, Charman would have to sell nearly 3 million Axis shares to fund the full judgment amount. This is roughly 2% of total Axis shares outstanding.

Post Magazine

General Motors, the giant US carmaker, is taking legal action to derail Royal & Sun Alliance’s plan to sell its troubled American business. The move comes just five weeks after the UK insurance group agreed to offload its American operations to Arrowpoint Capital, a vehicle set up by its local management, for a deferred payment of £158m. The deal would rid R&SA of its US liabilities, free it from making future provisions for claims and leave a series of legal cases with the new owners of the American operations. GM, which has been embroiled in a separate, long-running legal battle with R&SA over claims, on Friday filed a motion with the Delaware insurance commissioner. Under the motion, GM is seeking to be made an “interested party” at a hearing called by the commissioner to approve the sale of the R&SA American businesses to Arrowpoint. If its motion is approved, GM would be able to present evidence and mount a challenge to the deal.

Sunday Times

The proposed acquisition of Lloyd’s of London insurer Cathedral Capital P.L.C. is the latest in a string of mergers and acquisitions announced this month in the 300-year-old insurance market. Cathedral’s independent directors have recommended that shareholders in the company accept the 140 pence per share offer from Disciple Holdco Ltd., a newly incorporated company funded by the Alchemy Investment Plan. The offer values Cathedral at £113 million ($215 million). Shareholders representing 71% of Cathedral Capital shares have already accepted the Alchemy offer, according to a statement released by Cathedral. Cathedral said that, once the offer becomes unconditional, the company’s management and employees of Cathedral Capital intend to "continue building a strong independent franchise in the London market." Mr. Patrick, currently chairman of Cathedral, and Peter Scales, currently chief executive officer of Cathedral, will join the board of Disciple.

Business Insurance

The Supreme Court in Sydney has ruled that the collapsed insurance company HIH can sue Lloyd's of London Limit Syndicate 386 for millions of dollars in unpaid reinsurance contracts. The judge rejected the defendant's argument that the case should go to the international court of arbitration. He said the case should proceed because its eventual outcome could affect the recovery of uncollected amounts from other reinsurance contracts, at an estimated worth of more than A$210 million. If HIH successfully sues the syndicate it could recover nearly A$54 million for its creditors and the decision could also set a precedent for future insurance company insolvencies. The case would resolve the question of whether HIH needed to have actually paid out its own insurance clients before it was entitled to be compensated by the Lloyd's syndicate.

ABC

The government is to come to the aid of Names at Lloyd's of London hoping to shake off their exposure to the insurance market by proposing a change in the law that will allow them to transfer their liabilities to Warren Buffett's Berkshire Hathaway.  Ed Balls, the economic secretary to the Treasury, is today expected to launch a consultation on changes to the Financial Services and Markets Act, which was passed in 2000. The change is designed to fix a clause that could prevent some Names from transferring all their liabilities. The move comes two weeks after Berkshire Hathaway outlined a deal that would see it provide $5.7bn (£3bn) of additional cover to Equitas, the company set up to manage Lloyd's pre-1993 liabilities.

Financial Times

The head of Marsh & McLennan yesterday dismissed speculation that the world's largest insurance broker would be purchased in a leveraged buyout deal or that a competitor would acquire it. In a call with analysts to discuss third-quarter earnings, Michael Cherkasky, chief executive, said: "The value of MMC has been depressed by well-known but solvable problems. Over the past two years, we've navigated a challenging time and stabilised the company. We like the direction we're heading in." He seemed to be referring to recent news reports that the company had held talks with buyout firm Kohlberg Kravis Roberts, and that KKR and Willis, a smaller competitor, had made an informal bid earlier this year and were turned down. Mr Cherkasky took over at Marsh in late 2004 after the company was hit by an insurance bid-rigging scandal. Since then, he has embarked on a massive restructuring effort. Yesterday, it appeared that his cost-cutting efforts were paying off, with profits more than doubling in the third quarter from the year before. Net income increased to $176m, or 31 cents a share, from $69m, or 12 cents.

Financial Times

Insurers of World Trade Centre buildings destroyed in the Sept. 11 attacks won a victory when a federal judge Tuesday ruled they need not pay policy holders an extra $700 million to make a rebuilt complex better than it was. Judge Harold Baer of the U.S. district court in Manhattan accepted the insurers' arguments the three "replacement cost" policies capped payouts at what it would cost to rebuild the site precisely as it existed prior to Sept. 11, 2001. He rejected arguments by developer Silverstein Properties Inc. that it should recover the additional $700 million to make a rebuilt complex safe, modern and politically acceptable. "Insurance against technological change and shifts in the political winds may very well exist in the marketplace," Judge Baer wrote in his 26-page decision. "But no court has ever found that such coverage is included in a replacement-cost policy." The judge said the policy entitled the insured's to new buildings, not new and improved buildings.

Reuters

AM Best has commented that the ratings of Catlin Group and its subsidiaries remain under review with negative implications following today’s announcement of an offer for Wellington Underwriting. The agency said that it needed to complete its review of the likely impact on Catlin’s consolidated risk-adjusted capitalisation of future major events, particularly the impact of stress scenarios. However, it added that the enhanced diversification that may result from the proposed acquisition could have a positive impact on this analysis.

Insurance Times

Catlin, the Lloyd’s of London insurer, said this morning it had made an offer to buy its smaller rival Wellington Underwriting, in the first significant deal in the Lloyd’s insurance sector for several years. The deal would create the largest syndicate in terms of underwriting capacity and one of the largest Lloyd’s insurers by market value. It may also spark expectations of a wave of merger activity among Lloyd’s insurers. The cash and shares offer, which has been approved by the Wellington board, values the company at £591m and values each Wellington share at about 121p. Wellington shares added 4½p to 116p in early London trading. Bermuda-registered Catlin said the offer represented a premium for Wellington shareholders of about 25 per cent to the closing middle market price of Wellington on October 23. Wellington shareholders, who will own about 34 per cent of the enlarged group, will receive 0.17 new Catlin shares and 35p in cash for each share they own.

FT.com

Willis became the latest of the international brokers to announce job losses as part of an efficiency drive with confirmation by the company yesterday that it would cut 400 positions. The announcement came as the broker unveiled a near doubling of third-quarter net income of $89mn helped by a one-off contribution from the sale of its landmark Trinity Square headquarters which added $99mn in the quarter. This was countered by $84mn of pre-tax expenses in the group's "Shaping our Future" initiatives, which included $25mn spent on an international efficiency review. The job cuts would be primarily in the UK, both in its retail and London market operations, explained the company yesterday. In recent years, Marsh and Aon have both announced significant job cuts in a bid to cut costs following their decisions to abolish lucrative contingent commissions.

Insurance Insider

Reliance National Insurance Company (Europe) Ltd. has entered into a solvent scheme of arrangement, having received approval from the English High Court late last week. RNICE was the London-based European subsidiary of Philadelphia-based Reliance Insurance Co., which went into runoff in 2001 when the company was subject to a rehabilitation order by the Pennsylvania insurance commissioner. In spite of opposition from some policyholders, the majority of creditors of RNICE approved the proposed scheme of arrangement at a meeting in February this year. The Court approval of last Friday went through unopposed, as several policyholders had either withdrawn their opposition or had since commutated their policies with RNICE. With the final hurdle now overcome, the scheme became effective as of October 20, 2006.

Business Insurance

Canopius acquires Creechurch.

Canopius, the specialist Lloyd’s underwriting group has announced that it has agreed to acquire the entire operations of fellow Lloyd’s business Creechurch. Creechurch manages Syndicates 1607 and 3786 for the 2006 year at Lloyd’s with combined premium capacity of £90 million. The syndicates specialise in marine and energy, personal accident, and UK liability and professional indemnity insurance. UK personal accident, liability and professional indemnity business is distributed under the brand names of Impact and Charrington. For the 2007 year, all of the Creechurch business will be written through Canopius’s flagship Syndicate 4444. In parallel with this acquisition, Canopius intends to increase Syndicate 4444’s gross premium capacity from £300 million to £450 million for 2007.

Post Magazine

Catlin in talks over £550m deal for Wellington.

The prospect of consolidation in Lloyd's of London has been raised once again by takeover discussions between two of the market's biggest insurers that could lead to Wellington Underwriting being acquired by Catlin in a £550m deal. Wellington said it was in talks that could lead to a cash-and-shares offer by Bermuda-registered Catlin. The talks are believed to be at an advanced stage, according to one person familiar with the situation. Confirmation of the talks came after Wellington's shares rose 105p during the day. They closed up 16½p, or nearly 17 per cent, at 113¾p, valuing Wellington at about £554m. Shares in Catlin also rose 10½p to 479½p, valuing the group at £814m, on expectations that a deal would be positive for the insurer, which could enjoy greater tax benefits from putting more business through its Bermudan platform. The deal would also create the largest Lloyd's syndicate in terms of underwriting capacity and one of the largest Lloyd's insurers by market capitalisation. Cost savings would be expected from the combination. Catlin would also obtain Wellington's US operation, which generates premium of about $200m (£107m) a year. As for Wellington, it would get access to a Bermudan platform and may also be able to buy out the Names (private investors) that back its syndicates.

Financial Times

Wellington confirms it is in takeover talks with Catlin.

Lloyd's insurer Wellington plc has confirmed it is in takeover talks with rival Catlin Group Ltd.  In a statement to the London Stock Exchange this afternoon, Wellington said it would need to be satisfied that the “business plan for the enlarged group is likely to deliver greater value to Wellington shareholders than Wellington's standalone strategic plans.” Wellington - which has been mooted as a possible takeover target following its post-Katrina profits warnings - said that in the absence of an offer from Catlin it would continue “towards the delivery of its stated strategic objectives as set out in its interim results for the six months ended 30 June 2006.” The insurer's share price is up almost 8 percent at 105p on today's trading while Catlin's is up 2 percent to 496.75p.

Insurance Insider

The head of Marsh has insisted that neither the insurance broker, nor its parent Marsh & McLennan Companies, is for sale. Brian Storms, chief executive of Marsh, MMC's insurance broking unit, told the Financial Times there was no interest on the part of the broker or its parent in selling. However, MMC is known to be in the sights of Willis, the world's third-largest insurance broker, and Kohlberg Kravis Roberts, the US private equity group. They made an approach to MMC earlier this year, which was rejected by the MMC board. A person familiar with the situation indicated that Willis and KKR continued to maintain an interest in MMC, and would be watching the group's forthcoming third-quarter results closely. Willis and KKR declined to comment. Mr Storms would not comment on the approach. However, he insisted that Marsh was "absolutely not" for sale, and neither was MMC.

Financial Times

Fitch has revealed it is likely to upgrade Lloyd’s rating one notch once phase one of the Berkshire Hathaway and Equitas deal is complete. The news comes as the agency said it has today placed the franchise on rating watch positive. "Fitch has historically viewed Lloyd's potential exposure to an Equitas shortfall as a negative rating factor and therefore takes a positive view of the proposed transaction," said Chris Waterman, senior director in Fitch's Insurance in London. "Phase I will significantly distance Lloyd's members from an Equitas shortfall and then remove this exposure should Phase II be completed. The rating action reflects this positive development."

Post Magazine

Berkshire Hathaway Inc. has proposed a multi-billion dollar deal to reinsure and run off the liabilities of Equitas Ltd., which would mark an end to the long-tail liability of individuals reinsured by Equitas and eliminate any potential exposure of Lloyd’s of London to the run off vehicle. Under the arrangement, announced Friday, the liabilities of Equitas Ltd., the run off reinsurer for the pre-1993 longtail liabilities of Lloyd’s of London syndicates, will be transferred to Berkshire Hathaway unit National Indemnity Co. If the deal receives U.K. regulatory approval, National Indemnity will reinsure all of Equitas’ liabilities, provide up to $7 billion (8.82 billion euros) of reinsurance coverage to Equitas, and assume current staff and operations of Equitas to conduct the run off of its liabilities.

Business Insurance

Bermuda-based insurer Catlin Insurance Company Ltd had its A financial strength rating placed under review with negative implications by rating agency AM Best today. AM Best said: “The ratings have been placed under review due to AM Best's concerns relating to the level of Catlin's consolidated catastrophe exposure and the likely future impact of major events on risk-adjusted capitalisation. As part of the financial strength rating evaluation process, AM Best intends to assess the benefit, if any, to Catlin Insurance of its proposed catastrophe swap agreement.” As announced last month, Catlin is entering into a catastrophe swap agreement that will provide it with coverage of up to $200.25mn for global natural catastrophes In addition to the Bermudian company, AM Best has also placed its A rating of the UK insurer, Catlin Insurance Company (UK) Ltd, under review with negative implications.

Insurance Insider

XL gets approval for Dublin reinsurance move.

Bermudian (re)insurer XL Capital has received approval for XL Re Europe, its new Dublin-based European reinsurance platform. Previously announced in August, XL Re Europe has $1.5bn of capital and surplus. XL said Standard & Poor’s has confirmed that it will be rated A+, in line with XL's other Reinsurance entities. XL Re Europe Limited has formed two new branches in the UK and France to facilitate the assumption of business previously underwritten by the UK branch of XL Re Ltd and XL Re Europe SA. The non-life business of the UK branch of XL Re Ltd will be transferred into XL Re Europe Limited on January 1, 2007 under a 'Part VII' transfer. The scheme has been approved by the High Court of Justice (UK). David Watson, previously XL Re Ltd's General Manager in London, has relocated to Dublin to become President and CEO of the new company.

Post Magazine

Lloyd's may benefit from 'lighter tax' pledge.

The government has pledged to examine the business environment for commercial insurance, which the industry understands to include the tax regime. The government will also examine, together with the Financial Services Authority, lightening the regulatory burden for parts of the insurance industry with little impact on consumers, or risk to the broader financial system. In return, Lord Levene, chairman of Lloyd's, will work to speed up reform in the London insurance -market, building on recent developments in electronic trading. London is facing increased competition from insurance markets with lighter tax and regulatory regimes. In the past month, two Lloyd's insurers have said they will move their head offices to Bermuda to take advantage of the island's zero per cent corporation tax regime. Lord Levene has pledged that Lloyd's' case will be "fully argued" through his membership of the high level group, with the question of taxation already on the agenda. He said yesterday that the government was "in receive mode, rather than transmit".

Financial Times

Hawaii quake caused more than $40m damage.

Last Sunday's 6.7-magnitude Hawaiian earthquake, the most powerful in the Pacific archipelago in two decades, caused more than $40 million in damage, according to preliminary estimates Tuesday. Hawaiian officials said they expected the figure to rise as Red Cross, federal emergency teams and engineers scour the islands to assess damages to roads, bridges, schools and other buildings. No deaths or serious injuries were reported in the quake, but repeated aftershocks have jolted Hawaiians as they struggle to return to normal. The biggest—a 4.0-magnitude temblor—hit the islanders early on Tuesday morning.

Reuters

The chief executive of Allianz, Europe's largest insurance group, yesterday called for a “single European financial services authority” to take over the job of monitoring and supervising the region's big cross-border banks and insurers. Michael Diekmann, who took the helm at the German group three years ago, said: “In Europe, Allianz reports today to 48 different national supervisory authorities across three financial sectors. Our cross-border experience at Allianz shows us that we need a lead supervisory concept and, ultimately, a single European financial services authority.” European governments, regulators and industry executives have long been divided over the need for such a central financial supervisor, which Mr Diekmann suggested could be based in Brussels. Many large European banks and insurers like the idea of a single authority because it would reduce compliance costs and cut complexity. But national supervisors are reluctant to hand powers to a new pan-European body, not least because they want to maintain the right to intervene to protect domestic investors and clients.

Financial Times

Marsh & McLennan has rejected an informal approach from rival Willis Group, the Sunday Times reported. The plan would have created an insurance-broking group worth over $21 billion. Willis is prepared to make a cash-and-shares offer, with private equity group Kohlberg Kravis Roberts financing the cash element of the bid, the unsourced article said. Both Marsh and Willis declined to comment, it said.

AFX

FSA talks contract certainty with regulators.

The London-based Financial Services Authority is working with European and U.S. insurance buyers and regulators to ensure that its tough new contract certainty targets for the United Kingdom market do not result in an “uneven playing field” for the companies it regulates. John King, manager of the regional broker team at the FSA, told delegates at a Fédération Européen de Risk Management Associations seminar in Brussels that it is keen to ensure that the U.K. approach to contract certainty does not result in excessive gold plating and disadvantage UK companies.  “We are discussing this with our fellow regulators wherever possible to ensure that the global insurance industry is mobilised into action and the U.K. market gets the benefit of greater efficiency without losing out to competitive markets as brokers take their business to markets where it is less effort—but not necessarily safer or more efficient—to do business,” said Mr. King.

Business Insurance

Wellington opening Bermuda operation "highly likely".

Wellington Underwriting plc is "highly likely" to join its Lloyd's rivals Amlin plc, Hiscox plc and Omega Underwriting Holdings plc by opening a Bermudian operation by the end of the year, according to Numis Securities' analyst Nick Johnson. In a 'reaction' note, Johnson said: "Wellington has openly said that it is looking to establish new trading platforms. With favourable trading conditions and potential tax savings we think it is highly likely that the next step will be Bermuda (the group already has a US platform) and would envisage a move before December in order to capture important January renewal business." The analyst added that as well as providing a channel for growth a Bermudian operation would pave the way for Wellington to redomicile its holding company to the island. "We believe there is a strong case for a move given the high proportion of Wellington's business that already emanates from the US (around 70 percent)," said Johnson.

Insurance Insider

Warren Buffett has told managers at his Berkshire Hathaway group to redouble efforts to crack down on unethical behaviour, warning that practices such as stock options backdating cannot be justified because "everybody else is doing it". In a strong memo sent on September 27 to an elite group of Berkshire managers dubbed "The All-Stars", the veteran investor said "bad behaviour" among its 200,000-plus employees is "inevitable". The memo - seen by the Financial Times - went on: "But we can have a huge effect in minimising such activities by jumping on anything immediately when there is the slightest odour of impropriety. . . Berkshire's reputation is in your hands." The "Sage of Omaha" said poor corporate governance cannot be forgiven just because it is widespread. "The five most dangerous words in business may be 'everybody else is doing it'," wrote Mr Buffett, who has long been sceptical of stock options to remunerate executives. "A lot of banks and insurance companies have suffered earnings disasters after relying on that rationale. Even worse have been the consequences from using that phrase to justify the morality of proposed actions," the memo said.

Financial Times

A number of (re)insurers are growing significant reserve redundancies, potentially using them to support margins and returns as the market softens, according to research by analysts at Morgan Stanley. But the analysts warned that, while reserve redundancies are a healthier position than inadequate reserves, the situation may lead to accelerated competition in the sector. In a note last week reviewing the release by Bermudian ACE of its global loss triangles, analyst William Wilt highlighted that the company’s reserves may be overstated by more than 10 percent, potentially understating book value by up to 15 percent.

Insurance Insider

The former company secretary of failed insurer HIH Insurance Ltd. pleaded guilty Friday to four criminal charges related to the company’s collapse. In the Supreme Court in Sydney, Frederick Lo admitted three counts of making false or misleading statements and one of failing to properly exercise his powers as an officer of the defunct insurer between May 1999 and October 2000. A sentencing hearing was slated for January. HIH became Australia’s largest ever corporate collapse when it went under in 2001. Several former executives of HIH have faced criminal charges, and some have been jailed or banned by the country’s insurance regulator for their role in the company’s downfall.

Business Insurance

Court ruling boost for Hank Greenberg.

The former chief executive of the American International Group, Maurice “Hank” Greenberg, has, according to the New York Times, won the right to see memos that were turned over to the New York attorney general, Eliot Spitzer, before the state accused Mr Greenberg of fraud. In a ruling Justice Charles E. Ramos of State Supreme Court in Manhattan said that Mr Greenberg was entitled to some memos drafted by lawyers working for AIG that were later used by Mr Spitzer as part of his settlement with the insurance company. “This is another important ruling in Mr Greenberg’s favor that allows us to lay the groundwork to dismiss what’s left of this case,” said Nicholas Gravante, a lawyer for Mr Greenberg. “Mr Greenberg isn’t sitting back just because he’s been vindicated of most of the charges. We won’t rest until the remaining charges are thrown out.”

Post Magazine

AIG marine unit buys Arch's U.S. marine portfolio.

American International Group Inc.’s global marine unit has struck a deal to purchase Arch Insurance Co.’s U.S. ocean marine book of business, AIG said Monday. The terms of the deal—which is effective immediately—were not disclosed, according to an AIG spokesman. Among the lines of coverage included in Arch's U.S. marine portfolio are ocean cargo, hull protection and indemnity, and marine liabilities. Under the agreement, all U.S. ocean marine insurance policies underwritten by Arch Insurance Co., a unit of Hamilton, Bermuda-based Arch Capital Group Ltd., will be serviced by AIG Global Marine.

Business Insurance

AIG to launch takaful insurance unit.

American International Group Inc., the world's largest insurer, said on Sunday it will offer its first insurance coverage complying with Islamic law, tapping a market that could be worth $15 billion by 2015. AIG's Enaya unit will offer Islamic insurance coverage, or takaful, for areas such as health, autos and property to Gulf Arab customers, Abdallah Kubursi, Enaya's regional vice-president, told Reuters. The market for takaful, which is based on a concept similar to mutual funds, is growing at about 20% a year and could expand six-fold from about $2 billion now, Mr. Kubursi said. "With the boom of Islamic finance and insurance in the region, there is an inherent need for sharia-compliant products," Mr. Kubursi said. AIG could expand the offer to Muslims in Asia, followed by Europe and the United States, Charles Bouloux, AIG president for the Middle East, Mediterranean and South Asia, told Reuters.

Reuters

FSA threatens fee disclosure.

Insurance brokers are facing the looming prospect of mandatory fee disclosure after being warned by John Tiner, chief executive of the Financial Services Authority, about the industry's failure to improve transparency for customers on its own. Amid concerns over the size and nature of commission payments between brokers, insurers and insurance buyers, the FSA last year ordered the industry to come up with its own solutions. But in a speech yesterday Mr Tiner brandished the threat of intervention, which he once described as a "last resort", and said: "We feel the time has come for us to take a more objective and forensic look at the possibility of mandating commission disclosure." It had become clear that an industry-led solution was "light years away" because the respective incentives of the underwriting and broking communities were "locked in conflict", he said.

Financial Times

Chaucer branches out into Asian market.

Chaucer Syndicates has announced plans for the formation of a new Singapore-based company to underwrite Asian risks. The proposed new company, which will initially underwrite offshore energy and other marine lines on behalf of Chaucer Syndicate 1084, will appoint Chris Wildee as chief executive. Mr Wildee is an energy underwriter with over a decade of Lloyd’s market experience. Creation of the new company and appointment of the chief executive is subject to the regulatory approvals of the Monetary Authority of Singapore and Lloyd’s. The new venture, which the insurer said complements its Danish operation, supports the long-term objectives of broadening the distribution channels to increase the breadth and quality of business shown to the Group. Mr Wildee, said: “Forming this company in Singapore offers Chaucer an excellent platform from which to expand its presence in the Asian marketplace. This new office will mean we can offer a closer level of service to existing and new clients alike.”

Post Magazine

Goshawk announces interim results.

The group has continued in a fragile state since we last reported, on 1 September 2006, in respect of the year ended 31 December 2005.  However, since then the principal event has been the agreement by shareholders, on 26 September 2006, to the proposed rights issue for the purpose of raising £19.8m (net of costs).  The net proceeds of the rights issue will be received by the end of October allowing $24.7m, the first agreed repayment, to be made to the banks and for the on-going loan to move to more commercial terms.  The balance will remain within the company and will not be passed down to Rosemont Re, or any other group subsidiary. The post tax loss of the group for the six months ended 30 June 2006 was $3m (2005:$0.5m) which represents 0.2c per share.  The main drivers for the loss were the continued high levels of both expenses and financing costs, due to the default rates being charged on the group loans.  Group net assets reduced from $29m at the year end to $28m (2005: $171m) representing 16c per share.

Company Statement

House approves insurance regulation reform bill.

The House of Representatives has approved a bill that would streamline the regulation of reinsurers and surplus lines insurers. The 417-0 vote in favor of the Non-admitted and Reinsurance Reform Act came early Wednesday evening. Among other things, the bill would create a uniform system for regulating and taxing the surplus lines insurance industry by making non-admitted insurance subject to regulation only in the policyholders’ home states. It also would give a reinsurer’s state of domicile sole authority for regulating the reinsurer’s solvency under most circumstances.

 Business Insurance

American International Group Inc. will immediately begin refunding or crediting $13.6 million to its Florida workers compensation policyholders under an agreement with the state’s insurance regulation office, Florida Insurance Commissioner Kevin McCarty announced Tuesday. The settlement stems from charges that the New York-based insurer’s business units failed to justify rates "or used excessive and unfairly discriminatory rates on coverage required by the federal Terrorism Risk Insurance Act," according to the commissioner. Under terms of a consent order, AIG also will pay $300,000 to the Florida Office of Insurance Regulation for costs related to the settlement. The insurer also will refund about $100,000 plus interest to policyholders that purchased lines of coverage other than workers compensation.

Business Insurance

Lloyd’s this morning announced half-year pre-tax profits of £1.35bn – marginally down on the £1.38bn booked at the same stage last year – as strong underwriting results in benign conditions were offset by a fall in investment income. In a statement to the London Stock Exchange, the corporation said the result, with a 20 percent improvement in underwriting profit, underpinned the market’s consistency. Underwriting profit of £852mn for the six months ending 30 June 2006 compared to £708mn recorded in the same period last year. It also pointed to a combined ratio of 86 percent – lower than the 87.3 percent in the prior-year period – that was “better than those recorded by all of its major peer groups” The rise in underwriting profit and healthy combined ratio were generated from gross premiums written that were up 19 percent to £9.97bn against the prior-year period, against a backdrop of 2006 loss experience described as “relatively benign” and prior-year loss development that has “not been significant”.

Insurance Insider

Groupama Insurances has reported second quarter 2006 pre-tax profits increased by 38% over same period in 2005 from £13.7m to £18.9m. In a statement from the insurer, revenues reported were also up 25% on same period in 2005 (+12.6% on a like for like basis). "We have made an excellent start to 2006, continuing on the strong performance achieved in 2005. In increasingly challenging market conditions, we have made significant progress in both personal and commercial lines with an excellent performance in our core business areas.” said chairman and CEO, Pierre Lefèvre. 2006 net profit rose to £31.1m as a result of an exceptional tax credit of £12.1m. UK Group Revenues Total revenues increased by 25% including the effects of the acquisition of Clinicare Limited in late 2005 and the impact of a number of major scheme acquisitions.

Post Magazine

The Financial Services Authority has said that it will make a "final assessment" on whether the market has succeeded in meeting its challenge to end the practice of 'deal now, detail later' in January. At its most recent meeting of trade body, insurer and broker senior representatives last week the FSA said it had seen "sufficient progress" to keep its plan for regulatory intervention on the "back burner". However, it added: "A final push from all parts of the market is necessary in this last quarter to ensure the challenge is met. The FSA emphasised the importance of contact certainty becoming part of the natural operation of the market in 2007 and beyond". The demand came as the FSA revealed that although insurer data showed 90% of commercial contracts are being issued within the 30 days required by market guidance, the broker data suggests that only 63% of commercial contracts are actually being issued to customers within that period.

Post Magazine

Catlin close to launching cat bond.

Catlin Group Ltd looks set to become one of the first Lloyd’s (re)insurers to issue a catastrophe bond as the industry’s interest in securitising reinsurance risk continues at a pace. The proposed transaction, which is currently being marketed to prospective investors, is thought likely to be rated by Standard & Poor’s. News of the cat bond comes as plans by the insurer to raise funds in a debt issue appear to have been put on hold. In March, Catlin announced plans to raise $150mn of subordinated debt to provide “additional financial flexibility to take advantage of the underwriting opportunities Catlin sees in 2006 and beyond”. Thus far, however, the group has not proceeded with the issue. The proposed cat bond comes at a time when US catastrophe capacity is in scarce supply and an increasing number of reinsurance buyers have looked to the capital markets for substitute protection.

Insurance Insider

Glacier Re appoints energy underwriter.

Glacier Reinsurance has appointed María Arana Antelo as energy underwriter. María Arana Antelo joins Glacier Re from Infrassure Switzerland, where she was underwriter and claims manager specialised in power generation. Prior to this, she was technology team leader for Alstom and senior engineer for Siemens Westinghouse, with focus on research and development of gas turbines and power generation units. Robbie Klaus, chief executive officer and chief underwriting officer, Glacier Re, said: “María has a unique combination of underwriting and practical experience in the energy sector. This makes her a valuable addition to our growing team and we are delighted that she has agreed to join Glacier Re.”

Insurance Times

Swiss Re to cut 2,000 jobs.

Swiss Re would inform its employees on Monday with regard to staff reductions of up to 2,000 by the end of 2007, the reinsurer said, after its purchase of the reinsurance units of General Electric. The staffing reductions would lead to annual efficiency gains of at least $300 million (157 million pounds), Swiss Re also repeated. Swiss Re bought the GE units for $7.4 billion (3.9 billion pounds) late last year, making it the company with the largest reinsurance premium income in the world. But its shares have shown weakness, as analysts await the outcome of the merger. Swiss Re expects restructuring costs of $250 million (131 million pounds) from the transaction and had said it would give further details of the process in the autumn. Most of the job reductions will occur through natural attrition and the rest through layoffs and early retirements, Swiss Re said. Europe would contribute 55 percent of the total layoffs, America 35 percent. Switzerland alone would contribute 21 percent of the total reduction, it said.

Reuters

$35mn Max Re loss linked to Amaranth.

The $35mn third-quarter reverse revealed by Bermudian reinsurer Max Re Capital yesterday (20 September) has been linked to heavy energy losses at hedge fund Amaranth Advisors. Financial analysts have speculated that the loss is related to the much-publicised $4.6bn loss suffered by Amaranth as a result of the fund betting the wrong way on natural gas prices. Amaranth is selling its entire energy-trading portfolio following the loss with JP Morgan Chase and Citadel Investment Group thought to have acquired the positions. "The Amaranth news seems more than coincidental," said a Keefe, Bruyette & Woods insurance analyst. Keefe, Bruyette & Woods added: "We are reducing our 3Q06 estimate from $0.73 to $0.22 to reflect the loss, partially offset by likely strong property underwriting results so far in the quarter. Reflecting the reduction, we are cutting our price target from $27 to $26."

Insurance Insider

IRM delegates wary of Enron repeat.

In a live vote yesterday at the Institute of Risk Management’s annual Risk Forum the 94% of the 350 attendees said that they believe that the legislative changes enacted since the demise of Enron have not been sufficient to stop a similar scandal occurring again, and 86% believe that another “Enron” will occur in the next five years. “There is no doubt that the keynote address from Lynn Brewer, one of the Enron whistleblowers, dispelled any preconceptions our audience might have had that Enron was an isolated event” commented Steve Fowler, CEO of the Institute of Risk Management.

Post Magazine

Former execs of Gen Re, AIG indicted.

U.S. prosecutors have charged a quartet of former General Re Corp. executives and American International Group Inc.’s former vp of reinsurance with having engaged in a fraudulent reinsurance scheme for allegedly helping AIG structure sham reinsurance transactions. The indictment, handed down Wednesday in the U.S. District Court in New Haven, Conn., charges the former Gen Re officers—former Chief Executive Officer Ronald E. Ferguson, former Chief Financial Officer Elizabeth Monrad and Robert Graham, a former senior vp and assistant general counsel—as well as Christian Milton, AIG’s former vp of reinsurance, with 16 criminal counts including conspiracy, securities fraud, false statements and mail fraud. Another former Gen Re senior vp, Christopher Garand, was charged with 10 counts.

Business Insurance

Moody's forecasts trends for European market.

The outlook for the European insurance industry is stable over the short-term, according to New York-based Moody’s Investors Service, though over the longer-term rating changes are expected, thanks to pricing discipline and enhanced risk management, as well as mortality trends, the rating agency said. In its report on the European insurance industry, Moody’s said that following the problems in the earlier part of the decade, the balance sheets of European insurers have generally strengthened and risk management improved. In addition, favorable equity markets and increased interest rates, among other factors, have meant that many European insurers now are focusing on growth. Those growth plans could include mergers, acquisitions and operational restructuring, among other things, Moody’s said.

Business Insurance

Alea reports heavy losses.

A difficult start to 2006 pushed Bermuda-based reinsurer Alea into a first-half loss as the group omits an interim dividend. The report posted a pre-tax loss of $10.7m in the six months to June 30 compared with a profit of $19.5m the year before. Net insurance premium revenue fell to $209.7m from $610.7m after the group decided to stop writing new business following record storm losses in 2005 and US claims from previous years. Mark Cloutier was named CEO earlier this month, taking over from Mark Ricciardelli after two years in the job. "The first half of 2006 has been a challenging time for Alea, despite which the group's results and run-off strategy are on plan," said chairman John Reeve said in a company statement.

Sharecast

New York Attorney General Eliot Spitzer on Tuesday earned the state’s Democratic nomination to run for governor in the November elections. Mr. Spitzer—who over the past two years has led probes into insurance industry business practices, impacting a number of major brokers and insurers in the business—has served in the role of state attorney general since 1999. He will face Republican candidate John Faso in the general election of Nov. 7.

Business Insurance

Industry old hands to set up Lloyd's syndicate.

TWO of the world’s wealthiest and most experienced insurance entrepreneurs have joined forces for a new venture in the City — a £50 million insurer at Lloyd’s of London. Lloyd’s yesterday approved the new syndicate, as each small underwriting venture is known, to join the market to sell aviation, energy and marine cover. Chris Hancock, an aviation underwriter at Faraday, the Lloyd’s insurer, since 2000, has been poached to run the new syndicate, which will start taking on risks from October 1. Syndicate 1919 is backed in part by C V Starr & Co, the multibillion-dollar investment company run by Maurice “Hank” Greenberg, the recently deposed chief executive and chairman of AIG, the world’s largest insurer. Starr International Investments, a related company, will provide the balance of the finance. The syndicate will be managed by Marlborough Underwriting Agency Limited (MUAL), a wholly owned subsidiary of Berkshire Hathaway, the investment vehicle led by the acclaimed stock-picker Warren Buffett.

The Times

Kiln and Cahill launch new Singapore venture.

R J Kiln & Co Limited and the John Cahill Group will launch a new joint venture company in Lloyd’s Asia dedicated to underwriting Asian marine business. Kiln Marine Singapore Pte Ltd is due to start underwriting on 1 October 2006.  Kiln Marine Singapore is a subsidiary of International Marine (Underwriting Agency) Limited, the joint venture company operated by Kiln and the John Cahill Group. It will underwrite cargo business throughout south east Asia, with an emphasis on the frozen food industry and cargo rejection insurance, on behalf of Kiln’s Lloyd’s Syndicate 510.

Insurance Times

Unreliable modelling and aggregation could impact London Market.

London market insurers are confident that they will deliver strong returns in 2006. But today’s risk environment casts a shadow of doubt over the outlook. According to a new report by PricewaterhouseCoopers there are continuing concerns about the reliability of, and over-reliance on, catastrophe and aggregation models, as well as the lack of capacity in the retrocessional reinsurance market. PwC's fifth annual survey on the key issues affecting the London insurance market revealed that the most important management challenges for market participants included the achievement of comparable underwriting performance to prior years, institutionalising effective cycle management, embedding capital and risk management into the day-to-day running of the business and improved management information. The effective monitoring of aggregations of exposure is cited as the most important issue on the CEO agenda.

Post Magazine

The hard-pressed retrocessional sector – which was decimated by 2005’s storm losses – is now dependent upon securitised capacity for 30-40 percent of its market, a figure likely to reach 50 percent by the end of next year. And with industry loss warranties (ILWs) forming an increased proportion of the remaining 50 percent, it demonstrates the inroads the capital markets have made into cat exposed (re)insurance lines this year. Leading industry adviser Mike Millette, managing director of Goldman Sachs & Co Financing Group, predicts the continuing popularity of securitised capacity in the form of cat bonds and sidecar vehicles. Speaking at The Insurance Insider’s “Contingent Capital & Securitisation” event on 6 September, Millette revealed: “Catastrophe securitisation, including cat bonds and sidecars, is likely to grow over the next 18 months to constitute approximately 10 percent of primary reinsurance coverage and 50 percent of retrocesssional coverage to approximately $20bn outstanding by 1Q2008,” said Millette.

Insurance Insider

Lloyd's to push for competitive tax breaks.

Lloyd's is stepping up pressure on the government for more favourable tax treatment, to bolster its defences against rival insurance markets with friendlier tax regimes. Lord Levene, chairman of Lloyd's, will say this week that the market's case will be "fully argued" through his membership of a high level group, chaired by Gordon Brown, chancellor, to promote London as the world's leading financial centre. "The question of taxation is already an item of serious discussion between us," Lord Levene will say. The stepping up of Lloyd's lobbying efforts comes as it battles to withstand the threat from rival markets, such as Bermuda and Dublin, with lower tax charges. Bermudan insurers and reinsurers enjoy a corporation tax rate of almost zero, compared with 30 per cent for UK insurers. It wants to encourage the government to review Lloyd's tax regime, to ensure it is not disadvantaged. Lloyd's is overturning some if its archaic business processes to help it better compete with nimbler rivals. But Lloyd's insiders are questioning whether it can do so without tax changes. The Treasury said all taxes were kept under review and it would not comment on specific lobbying efforts.

Financial Times

Ernesto lashes coast of Carolinas.

Tropical Storm Ernesto has made landfall on the North Carolina coast, bringing heavy rains and winds just below hurricane strength. More than eight inches (20cm) of rain fell around the Wilmington area, and forecasters warned of more to come. The governors of both North and South Carolina have activated National Guard troops, while the Virginia governor has declared a state of emergency. Forecasters issued warnings of tornadoes and storm surges. Ernesto made landfall near Cape Fear in North Carolina at 2330 (0330 GMT). It is packing maximum sustained wind speeds of 70mph (113 km/h) - just below the 74mph threshold for it to be declared a hurricane. It is moving north-northwest at 18mph, said the National Hurricane Center.

BBC