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Issue 95 - 1st April 2010
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Reform chief spells out why London has to make a splash
The Chairman of the London market Group has said the market has to take the plunge and immerse itself in the drive to reform the market’s processes. Barnabas Hurst- Bannister was speaking at the Insurance Institute of London when he the likened the market to a group of schoolchildren standing round a pool holding hands each one waiting for the next to be the first to jump in. In a rallying cry tot he market Mr Hurst-Bannister said: “There is still too many people waiting for someone else to make the first move and take the plunge. 2010 is the year when we will all take the leap on market reform. My message is ‘come on in the water is fine’. We can no longer slouch or stumble on the path to progress, the train to the brave new world of progress in now leaving and it is a case of ‘all aboard’.” He added that the market had made significant progress and had done so by making small and sure steps along the way to the point where the momentum was not at a stage where is was almost unstoppable in the need to deliver reform. “We have achieve a great deal by taking these small but certain steps and now is not the time to change the way in which we have made that progress,” he explained. No longer could the technology be seen as the hurdle to progress. “The current technology is slicker, and more importantly cheaper than it has ever been,” explained Mr Hurst Bannister. With electronic claims file used across the market the focus had to be on the front end of the process and the use of structure data to aid in the placement of business, he added. When asked whether he could see a time when there would need to be a mandate for the market to adopt process reform he said that the pace of change was such that the move towards reform was now unstoppable. However he admitted there were still those that had their doubts. “I suppose the biggest issue has been the initiatives which have not succeeded in the past,” he said. “It is frustrating if you light the blue touch paper only to see the flame fizzle out. It can mean that you are sceptical when you are approached to be told that there is another sparkling rocket all ready to be launched.” Interestingly he revealed that research was underway to examine just what tasks needed to be handled centrally in the new post reformation market with the LMG’s special committee headed by Tim Carroll expected to report back by year end on what it believed would to remain centralised.
New UAE laws poses regulatory challenges to firms warns broker
Firms have been warned that they could fall foul of new corporate governance rules and corporate discipline regulations in the United Arab Emirates (UAE) unless they adopt a more systemic approach to managing risk. Marsh has issued the warning following the publication of Ministerial Resolution No. (518) of 2009 Concerning Governance Rules and Corporate Discipline Standards, which has been created by the Emirates Securities and Commodities Authority. It will come into force on 30 April across the UAE, after that date, companies listed on the Abu Dhabi Securities Exchange and Dubai Financial Market will have to comply with new regulations, which are designed to establish new corporate governance standards in the UAE. The regulations, which include fines for non-compliance, will also apply to listed companies that are partially government owned. Commenting on the new legislation, Domenic Antonucci, a Senior Risk Analyst with Marsh Risk Consulting in Abu Dhabi, said: “For the first time all listed UAE companies, and those aspiring to that standard, have been given a clear legislative driver to implement effective risk management systems across their organisations to promote better corporate governance. Good risk management delivers benefits far beyond compliance, such as competitive advantage and influencing an organisation’s total cost of risk and cost of capital. These new regulations will ensure that greater emphasis is placed on risk management and improving corporate governance in UAE in the long term. Corporate governance is still in its infancy in the UAE. These new regulations will present many organisations with a very steep learning curve in order to comply with its requirements.”
Energy slump as recession bites
The global economic crisis and the drop in the market price for oil and gas have resulted in a sharp downturn in offshore rig utilisation rates in all exploration and production areas of the world, according to the International Union of Marine Insurance in a provisional assessment of 2009. Statistics compiled and analysed by IUMI’s facts and figures committee from several authoritative sources and released today reveal that the worldwide utilisation rate stood at 75% in 2009, down from 84% in 2008. The Gulf of Mexico rate was 49%, against 75%. For the rest of the world the rate was 79%, down from 87%. The IUMI committee added that rig day rates continued to climb in 2009, to in excess of $350,000 on a worldwide basis, but only for drillships and semi-submersibles. Day rates for jack-ups declined in all areas, reflecting that robust exploration activity continues in deepwater regions. Drillships and semi-submersibles are designed for this, whereas jack-ups are limited to water depths of 450 ft or less. The number of attritional claims over $1m fell in 2009, but total claims costs were spiked significantly because of the large loss attaching to the West Atlas incident in the Timor Sea. It is estimated that losses of mobiles in 2009 could hit approximately $800m. The IUMI report added: “The average claim cost, not including West Atlas, was slightly higher in 2009, continuing an upward trend since 2005. The reason is the continued increase in the cost of labour and materials due to hurricanes and greater activity overall in the oil patch, up until the economic downturn. Given the upward trend in the average claims cost, it is apparent that deductibles are not keeping up with claims inflation.” Total claims over $1m for platforms and pipelines are estimated to be around $850m, largely due to the loss of a platform in the North Sea. The size of the world fleet increased again in 2009 to just over 700 units of all types, although the offshore rig count in the Gulf of Mexico has been falling since 2002. Contracted rig numbers fell slightly in 2009 to approximately 550 rigs under contract. However, IUMI said the surge of commissioned newbuilds continued; there were 55 new rig deliveries, up from 41 in 2008. And there are 65 newbuilds scheduled for delivery this year, but then the number drops off significantly.
Reinsurance rates still on the slide for April renewals
Reinsurance rates across most lines of property catastrophe business around the world are continuing to see a fall in prices as the trends which defined the January 1 renewals look to have been mirrored in April. While the 1/4 renewals are dominated by Asian business reinsurance broker Guy Carpenter says the premium trends points to further pressure on rates despite the poor start to the year in terms of natural catastrophes. “The April 1, 2010 reinsurance renewals are dominated by Asia, but were conducted with one eye on the catastrophes that occurred elsewhere in the world,” said Chris Klein, Global Head of Business Intelligence, and Guy Carpenter. “Reinsurance rates in most cases declined, continuing the pattern observed at the January 1, 2010 renewals, which occurred largely due to the effects of healthier (re)insurer balance sheets. The large earthquake in Chile and, to a lesser extent, windstorm Xynthia in Europe, both striking in the first quarter of 2010, caused pause for thought. There are several significant renewals at April 1 in the U.S. that did not show signs of impact from the recent global loss activity. There was some evidence of price tightening in parts of Latin America. The Chile situation remains uncertain, and earthquake losses generally develop more slowly than wind events. Up to half of catastrophe loss ratio budgets were consumed, causing reduced headroom for a larger catastrophe later in the year. This scenario, along with buoyant balance sheets, lower investment yields and thinner reserve releases, will put pressure on returns ─ sustaining active capital management and perhaps, in time, stabilizing the market.”
Jon Guy
Editor
Global Broker & Underwriter
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