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Issue 100 - 7th May 2010
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Rates set to rise as cat losses bite says CEO
Stephen Catlin, Chief Executive of Bermudan underwriting group Catlin has said the catastrophes which have rocked the industry in the first four months of the year will drive pricing corrections as insurers seek to mitigate the costs of claims, with two thirds of the year yet to go. Mr Catlin was speaking at his company put out its interim management statement in which it says the Deepwater Horizon loss was now shaping up to be the biggest energy claims since the Piper Alpha disaster of 1988. The firm says the Horizon loss had prompted the insurer to refuse contracts as it sought to assess the full effect on the energy markets for the next eight months.”The explosion of the Deepwater Horizon drilling rig on 20 April, combined with the resulting oil spill, is likely to be the largest loss impacting the energy insurance market since the explosion of the Piper Alpha oil drilling platform in 1988,” it said. “Catlin estimates its exposure to physical damage and liability claims arising from the Deepwater Horizon disaster to be approximately US$40 million, net of reinsurance and reinstatements.” Mr Catlin added: “Catlin’s underlying performance during the first quarter of 2010 was strong. The rating environment remains good overall, although there is negative pressure on pricing in certain areas of the portfolio. The volume underwritten by our London hub decreased as intended, but each of our non-London underwriting hubs recorded strong increases in gross premiums written, supporting the Group’s decision over the past several years to invest in these hubs. So far this year, the property/casualty insurance market has witnessed two exceptional losses: the Chilean earthquake, which is one of the most devastating earthquakes in the past century, and the Deepwater Horizon oil rig disaster, which is the largest energy market loss in more than 20 years. Both of these losses are within Catlin’s planning margins, although further exceptional losses during 2010 will likely have an impact on the Group’s financial results for the year. Whilst large, these are the types of losses for which policyholders purchase insurance, and we anticipate that these two losses will have a positive impact on pricing and demand for coverage over time. Based on this expectation, along with the overall level of rate adequacy and the underlying performance of our business during the first quarter, Catlin looks ahead with confidence.”
Thiele calls time on ten year tenure
Patrick Thiele, President and CEO of Partner Re has said a decade at the helm of the firm is long enough after announcing his intention to retire at the end of the year. The reinsurance group issued a statement this week to say Mr Thiele will step down effective from December 31. Mr. Thiele will also step down from the company’s board of directors at that time. Commenting on his decision to retire, Mr. Thiele said: “I have always believed that ten years is an appropriate amount of time to serve as a CEO, and given the position Partner Re is in today, this is the right time for the company too. By the end of 2010, I will have had the privilege of working with some of the most talented professionals in the reinsurance business for ten years, and I am proud of what we have created together – a company that has the strength and depth to take on whatever the market may send its way. I look forward to working with my successor on a smooth transition in leadership, and then to a ‘lower-risk’ life with my family.” John Rollwagen, Chairman of Partner Re’s Board, said, “Patrick is an outstanding leader for Partner Re, and is responsible for transforming the company into one of the world’s leading global reinsurance companies, with total capital of more than $8 billion. Partner Re’s track record, position in the market and reputation as a well managed company all speak directly to Patrick’s leadership. Most importantly, Patrick has fostered an organization and culture with the principles and values that will sustain Partner Re’s ability to thrive far into the future. The Board of Directors joins me in thanking Patrick for his contribution to Partner Re’s success, and looks forward to working with him for the remainder of the year.” The reinsurer said its board of directors had anticipated Mr Thiele’s decision to retire and is executing its CEO succession plan. “The board expects to announce a successor following the Company’s Board meeting that will take place on May 12,” it added.
Houston Marine Seminar plans taking shape
While the fall out from the Deepwater Horizon loss and the resultant threat to the US coastline has dominated the headlines for the past month plans for the 45th annual Houston Marine Insurance Seminar are taking shape with some topical sessions planned. The industry is projecting an insured loss of $1.4 billion from the Deepwater loss while the clean up operation is set to cost billions more, which will make the gathering of over 750 energy and marine insurance professional in Houston from September 19-21 the chance for the industry to full assess the insurance implications of the loss. One of the sessions during the event is a look at how claims in Alaska have been handled with the accent on the environmental issues which will be delivered by retired US Coast Guard Commander John Sepel, of marine surveyors Sepel & Sons. Seminar chairman Steve Weiss said: “The 2009 seminar was a spectacular success coming on the back of the cancelled 2008 seminar. From the seminar proceeds, we were able to continue to support 13 institutions with total grants of $110,000. The schools are truly grateful to the delegates and the seminar for that generosity.” The 2008 event was cancelled due to the impact of Hurricane Ike which badly damaged the conference venue and last year the event was moved to the Westin Oaks Hotel. However this year the seminar will be back at its traditional venue which will benefit for improved facilities. “We are returning to the newly renovated Westin Galleria,” explained Mr Weiss. “All of the rooms and the meeting spaces have been newly renovated and will make the seminar that much more enjoyable for all attendees.”
Financial institutions play Russian roulette as they cut cover to save costs
Broker Marsh has said European financial institutions are leaving themselves open to hefty costs as they cut insurance at a time when claims are on the increase. It has warned that tactic may mean that it will ease cash flow problems it exposes firms to the potential of being badly under insured if there are claims. It comes on the back of the broker’s latest research reveals that many European financial institutions are now revising or lowering their insurance spend despite a steep rise in claims notifications which, in some lines of insurance, have risen by as much as 400% in the last four years. This uptick in claims notifications has had an impact on insurance rates for financial institutions: in 2009, rates for directors’ and officers’ liability insurance increased on average between 10% to over 100%. Frédéric Boles, the Continental Europe Placement Leader for Marsh’s Financial and Professional Practice, explained: “The prevailing economic headwinds across Europe mean that firms are increasingly looking to buy the insurance coverage they need for the least possible cost. While this strategy delivers short-term savings, in the longer-term it may leave firms underinsured in the event of a claim.” The research found that the lines between credit, investment and operational risks are becoming blurred. Firms are trying to claim for losses under multiple insurance policies, in order to maximise their chances of receiving indemnification. This means that parties are focusing on policy wordings and possible interpretations meaning that legal expenses, which vary depending on the type of claim, can be substantial “The claims landscape for European financial institutions remains particularly challenging this year,” Mr Boles added. “Claims negotiations have become increasingly tough and insurers are taking a firmer stance, as the value of losses has risen sharply in the last 12 months. Insurers are also under greater pressure from their clients to settle claims faster, enabling firms to mitigate their reputational and operational risks. “The insurance industry needs to be able to articulate clearly the value of these sophisticated and complex policies to buyers. In turn, European financial institutions need to map robust claims processes to improve the claims payment cycle. Increased cooperation among buyers, intermediaries and providers of insurance is critical to extract further value in these policies.”
Dutch auction for Validus as its posts Q1 loss
Validus Holdings has revealed its board of directors has approved a self tender offer by which the reinsurer may repurchase up to $300 million in common shares. The tender offer is part of the company’s program announced on February 17, 2010, whereby its board authorised the company to return up to $750 million to shareholders through share repurchases or other means. It comes as the reinsurer announced its interim results for the first quarter of the year which showed a net loss 0f $118.4 million compared to income of $94.9 million for the three months ended March 31, 2009. “It represents a decrease of $213.3 million, or 224.7%, reflecting a decrease in operating income of $236.8 million, a decrease in net unrealized investment gains of $6.7 million, an increase in foreign exchange losses of $4.6 million,” said the firm. Validus added it has seen claims of $306.9 million from the Chilean earthquake, windstorm Xynthia and the Melbourne hailstorm. ”These amounts are based on management's estimates following a review of the company's potential exposure and discussions with certain clients and brokers. Given the magnitude and recent occurrence of these events, and other uncertainties inherent in loss estimation, meaningful uncertainty remains regarding losses from these events and the Company's actual ultimate net losses from these events may vary materially from these estimates.” It estimated that it had received claims of $293.1 million related to the Chilean earthquake, $12.6 million related to windstorm Xynthia and $18.2 million related to the Melbourne hailstorm.
Jon Guy
Editor
Global Broker & Underwriter
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