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Issue 84 - 8th Jan 2010
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2010 global risk report grim reading as fiscal fears still dominate
The World Economic Forum today released Global Risks 2010, its annual report on the most significant and underlying global risks facing the global economy this year and beyond and it made grim reading. Launched in London the report said the events of the past year have revealed a fundamental need to change thinking on global risks and how they are managed. The impact of the fiscal crisis and the social and political implications of high unemployment rates in several major economies were seen as key concerns. Notably, the current models for health, education and unemployment protection have been put under severe strain by the fiscal crisis, notwithstanding the longer-term implications of increasing life expectancy. Daniel M Hofmann, group chief economist of Zurich Financial Services warned that there were now countries which had pledged welfare and retirements support fore future generations that would amount to up to 600% of GDP and were simply unsustainable creating a financial time bomb for the future. “In reaction to the financial crisis, many countries have put themselves at risk of overextending their fiscal positions and being burdened with extremely high levels of debt. This could put upward pressure on real interest rates, rein back growth and lead to protracted high levels of unemployment,” he added. Swiss Re’s Chief Risk Officer Raj Sing said the world faced a huge bill if it was to upgrade infrastructures to maintain even current levels in the future, citing a figure of $35 trillion in the next two decades. “This is particularly acute for agriculture and food security,” said Swiss Re’s Chief Risk Officer Raj Singh. “We need a vast increase in food production to feed the growing world population, and a billion people are already undernourished. Billions of dollars need to be spent on water provision, energy supply, transport and climate change adaptation measures. Governments must work together with the private sector to make it happen. Insurers can provide risk management tools that create greater financial stability for farmers and the agriculture industry.” The Global Risks report is published yearly ahead of the World Economic Forum Annual Meeting in Davos-Klosters, Switzerland, and is produced in partnership with Citigroup, Marsh & McLennan Companies (MMC), Swiss Re, the Wharton School Risk Center and Zurich Financial Services.
IUA chairman urges London to grasp change
Firms in the London market were urged to grasp the opportunity that process modernisation has created for London and warned that it will take investment to realise benefits which will far outweigh the cost of progress. Steven Riley was speaking at the Insurance Institute of London this week on the issue of market reform. He told the audience at Lloyd’s that the “era of reform had passed” but added that if London was to maintain its positions at the heart of the global insurance industry it had to push on with a rolling programme of process improvement and refinement to keep it ahead of its rivals and compete against non traditional markets and new financial instruments. Mr Riley said the benefits of continued reform were there to be had but added: “A lot of the answer to how they are realised lies not with the market but with all of you. Modernisation and the role of the London Market Group (LMG) are about delivering a framework of standards and processes that facilitate efficient business. But beyond that it is down to individual firms to work out how they adapt to take advantage – how can they operate within a modern market to deliver best value to their clients and shareholders? The market itself is inanimate – it can and will evolve its structure so that different and more effective ways of working are possible; it can provide an environment such that more profitable business is achievable; but it cannot itself deliver benefit. It is up to each participant to devise its own method to reap the rewards on offer.” Mr Riley said collaborative action and joint action were vital to achieve the market’s aims. “Despite some attempts to prove otherwise, the only way to deliver that is through the model that Market Reform Group perfected and that LMG will carry forward. It can lead to some quite raw debates at times but it means we always get to where we need to be. And we get there by exploiting a key advantage of the London market – our sense of community. We all intrinsically understand the purpose and the value of co-operation – that coming together to further the interests of the market as a whole can deliver a better result than narrowly pursuing individual firm or constituency interests.”
Markel launches new division with new team hire
Markel International has launched a trade credit operation after hiring a senior figure from rivals ACE. The insurer which launched and equine and livestock division last year have recruited Ewa Rose, as managing director of the new division. Ms Rose has been involved in the credit insurance sector for over 20 years. Since 2003, she has been manager of the global trade credit business at ACE Group, having joined the insurer in 2000. Before joining Ace she was a senior underwriter and then a director of Amlin Credit, having previously spent nine years as a specialist trade credit insurance broker. President and Chief Operating Officer of Markel International, William Stovin said: “There are some very attractive business opportunities in the trade credit business which, structured correctly, can meet Markel’s demanding underwriting criteria. The development of this new business line reflects further progress in Markel International’s commitment to create a wide portfolio of specialised insurance products. We are delighted that Ewa will be leading our business in this area.” As yet the insurer ahs made no announcement on the rest of the team which will staff the division but it is expected they will also be sourced externally.
ABI says confidence low for the year ahead
Consumer confidence in the economy took a knock in the last quarter of 2009, with one-in-three consumers expecting the economy to worsen in 2010 according to research published today by the Association of British Insurers. Worryingly optimism over the economic prospects for 2010 fell significantly, as worries over job security increased. The ABI’s questioned 2,500 adults on their views on the economy, and how it affected their attitudes to saving and protection. It found Optimism over the outlook for 2010 has fallen with 31% expecting the economy to worsen in 2010. Only 39% were optimistic about the economy in 2010, down from 52% who felt the same in the previous quarter. Dr Rebecca Driver, the ABI’s Director of Research and Chief Economist, said: “Despite continued fiscal and monetary policy intervention, consumer perceptions of the economic prospects and their own job security in 2010 have deteriorated. “Seven-in-ten people feel that they would cope badly financially if they lost their job, with four-in-ten admitting that they had not made adequate financial provisions to enable them to cope with a large, unexpected expense. This is not because people are spendthrift – the majority would prefer to go without than get into debt, and there has been an increase in the number of people expecting to pay off their non-mortgage debt at a faster rate than compared to a year ago. “These findings highlight how important it is for any government to deliver policies that appeal to consumers’ increasing sense of financial responsibility, helping more people become financially independent by increasing saving as well as reducing debt.”
XL plans domicile exit from Cayman
Ireland seems to be the pace to be in 2010 as hot on the heels of Willis XL Capital announced that it proposes to change the parent holding company’s place of incorporation from the Cayman Islands to the Emerald Isle.
With the new domicile will come a new name for the parent company which will now be known as XL Group plc.
XL’s Chief Executive Officer, Michael S. McGavick, said: “We believe that changing XL’s place of incorporation from the Caymans to Ireland is in the best interests of XL and our shareholders. Among other benefits, we believe the proposed move will reduce certain risks that may impact us and offer us the opportunity to reinforce our reputation, which is one of our key assets, and to better support our global business platforms. The new XL Group name is desirable to reflect our exclusive focus on providing property, casualty and specialty insurance and reinsurance products for our customers’ complex risks.”
To enable the redomestication, a new Irish public limited company, XL Group plc, would replace XL Capital Ltd as the ultimate holding company of the XL group of companies, and the Company's ordinary shareholders would receive one ordinary share of the new Irish company in lieu of each ordinary share of the company held by them. XL expects to submit the proposal for redomestication, along with related proposals, to its shareholders in the next several months and complete the transaction on July 1, 2010. The proposed redomestication will be subject to approval by the Company's ordinary shareholders and the Grand Court of the Cayman Islands, as well as “satisfaction of other conditions”.
The company added: “XL believes Ireland offers a stable long-term legal and regulatory environment with the financial sophistication to meet the needs of XL’s global business.”
Jon Guy
Editor
Global Broker & Underwriter
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