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Issue 108 - 2nd July 2010
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Internal Models “Crucial” In Boosting Reinsurance Value, says Aon Report
A new report from Aon Benfield, assessing the framework of Solvency II, has described partial internal models as “crucial” in obtaining a more accurate picture of premium risk.
As its 2012 implementation draws nearer, Aon’s guide to Solvency II is aimed at assisting reinsurance managers as they prepare for its inception. It states that the Standard Formula “fails to provide adequate credit for non-proportional reinsurance on casualty lines.”
The 63-page study offers a thorough overview of the incoming protocol and examines it from a number of different angles; including a rating agency and captive perspective.
Entitled ‘Solvency II for Reinsurance Managers’, the report also recommended counterparty default capital requirement for insurers with a well-diversified portfolio of reinsurers, saying “It accounts for approximately 5-10% of total required capital and can be 40% lower than a portfolio of less diversified counterparties.”
The study revealed how Solvency II will heighten the importance of reinsurance by “proving its value as an efficient form of capital, which can be demonstrated through a partial internal model.”
Aon also stressed that catastrophe risk will become one of the main drivers for capital, with the benchmark to withstand a one-in-two-hundred-year event.
Marc Beckers, Aon’s Head of EMEA Analytics, said: “In a Solvency II world, reinsurance is the most obvious place to start with an internal model. Under the current proposal, the benefit of an internal model compared to the Standard Formula is largest for reinsurance, particularly for non-proportional property cat and casualty reinsurance.
“Rather than looking to raise capital to fund any shortfall in net assets, companies may consider reinsurance options to reduce their capital requirement. Furthermore, volatility of earnings will increase as a result of fair value accounting (Solvency II and IFRS Phase II) and reinsurance is the cheapest and most efficient way to reduce this volatility.”
Insurance Workers Top List Of Stressed Professions
Work in the insurance industry is more stressful than any other profession, a new survey has revealed.
The study, undertaken by healthcare cash plan provider Medicash, reported that 17% of insurance workers admitted to feeling stressed “all the time” - a higher proportion than representatives from any other industry.
Of the 3000 people quizzed for the survey, one in three insurance insiders said they have broken down in tears from pressure at work and as much as 20% are under so much strain that they regularly phone in sick.
Insurance professionals were also most likely to hit the bottle after work, with one if four admitting to drinking on most evenings. Only construction workers are more likely to head for the pub after work, the survey said.
Sue Weir, chief executive of Medicash, was keen to stress that alcohol is not the answer: “The odd drink can help us to relax but if this turns into a reliance on alcohol then the effect on health can be extremely detrimental. Adopting a preventative approach to healthcare, exercising regularly and eating healthily can play an active role in helping to redress the balance.”
Those working in research and development were singled out for praise, with nearly half of them claiming to use exercise as a means of relaxation, whilst 20% of staff in the electronics field said they use meditation to combat work-related stress, compared with just 4% of bankers.
At the other end of the stress spectrum, lawyers are the most likely to keep a cool head – with 11% claiming they never experience stress.
Ms. Weir concluded: “Small amounts of pressure at work can enhance our performance but if that pressure becomes unremitting, it can lead to sickness and long term absenteeism which is not good for either employer or employees.”
Torus Completes Glacier Insurance Acquisition
Torus announced that it has completed its acquisition of Glacier Insurance AG, a subsidiary of the Glacier Group.
The deal, which will see Glacier Insurance AG renamed Torus Insurance (Europe) AG, is an extension of Torus’ European growth strategy and follows the recent establishment of new offices in Amsterdam and Paris.
In a statement, a Torus spokesperson said the deal will “provide customers and brokers with enhanced products and capacity.”
Allaying fears that Glacier Insurance’s branch offices would be closed, the announcement confirmed they will be retained and that their operations and underwriting teams will now join Torus, along with Glacier Chief Executive, Richard Etridge, who is to become Torus’ Chief Operating Officer of Continental Europe, and global head of Aviation.
Torus has sought to impose its presence in the continental Europe market by launching a professional lines insurance operation, specifically targeting Germany and France.
In June 2010, three senior managers were appointed to head the operation from its new office in Paris: Mathieu Borneuf was installed as Head of Management Liability, Jerome Gillet was chosen as Head of Professional Liability and Tobias Klein was confirmed as Senior Underwriter, overseeing professional lines in Germany. All three report to Marc van der Veer, Torus’ Chief Underwriting Officer for Specialty Europe.
In addition to its new Dutch and French offices, the specialty insurer also has branches in Zurich, Cologne and London and its existing headquarters is in Vaduz, the capital city of Liechtenstein.
Chief Executive of Glacier Group, Todd Hart, said: "Glacier Insurance and Torus' operations are extremely complementary and we believe this transaction will be beneficial for the Glacier Group's clients, staff and shareholders. The Glacier Group will focus on the growth and development of its reinsurance business, which has a strong operating platform and is well-established in its chosen markets."
Chile Earthquake Fails To Shake Property Catastrophe Pricing
Huge losses from the Chile earthquake have not had a major impact on pricing in the global reinsurance market, a new report from Willis Re has revealed.
The quake hit in February of this year and further first-quarter losses were incurred when storms battered Australia in March, but Willis’ study shows that the market has continued to soften this renewal season.
Entitled “Running on Empty”, their report, which tracks reinsurance rate movements across numerous territories and product classes, found there has been no general market move to increase prices in property catastrophe lines. This is despite the total combined Chilean and Australian losses being sufficient to erode the entire 2010 catastrophe excess of loss premium base outside of the USA.
The one exception was on Chile specific renewals, where rates have increased as much as 70% in places.
Willis said that reinsurance capacity from capital markets is growing steadily and that the products being structured are becoming increasingly attractive for issuers, in terms of both pricing and coverage.
Other renewal trends highlighted by the Willis study are that competition remains fierce - with substantial capacity-chasing premium volume in many lines of business, especially in areas of perceived diversifying risk, such as the Middle East.
As expected there has also been a significant rate decline on US property renewals, with rate reductions as high as 25% being obtained in Florida.
The potential impact that prolonged soft pricing could have on the global reinsurance market, in the event of a major catastrophe, continues to be obscured by a combination of excess capital, stable investment returns and limited growth prospects, said Willis Re.
The UK Met Office has warned that the 2010 hurricane season, running from June to November, will be “exceptionally active” in the Atlantic region and fears abound that a period of similar turbulence may await reinsurers.
Peter Hearn, CEO at Willis Re, said there is a “growing nervousness” in the market, and added: “There is a concern that the longer the wait for any upturn in the reinsurance market, the more abrupt it will be once it eventually arrives.”
Jon Guy
Editor
Global Broker & Underwriter
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