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Issue 110 - 15th July 2010
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US Insurance tax bill debate gets bitter as opposition mounts
The bill which would see an additional tax placed on foreign insurers and reinsurers operating in the United States has come under attack by consumers and risk managers amid fears that any attempt to impose a tax would see capacity leave and prices soar. The House of Representatives’ Committee on Ways and Means, has been staging its own enquiry in the proposals and heard from Florida Insurance Consumer Advocate Sean Shaw who hit out over the proposal and what it will mean for the market. He said there was real concern that the proposal would have damaging effects on consumers in Florida and other disaster-prone areas and echoed opposition from consumer advocates, trade experts, economists, business leaders and others. In his testimony before the House Ways and Means Subcommittee on Select Revenue Measures, Mr Shaw pointed to recently released data that predicted that the plan could increase insurance costs nationwide by $11 - 13 billion. “Especially in hard times, international insurers and reinsurers are indispensable for high-risk states such as Florida and for a heavily populated, highly industrialized, and increasingly vulnerable nation, such as the United States,” said Mr Shaw. “On behalf of consumers in Florida and all across America, I ask you to reject this tax by recognizing that it will do nothing more than increase the pricing power of a handful of large and already hugely profitable insurers who want to put a crimp on their competitors.” According to a study released earlier this month by economists at the Brattle Group, consumers living in Florida would be especially hard hit by cost increases from the bill, paying an additional $266 million to insure their homes and $264 million to insure their commercial properties. “The insurance commissioners in Louisiana, Mississippi, North Carolina and South Carolina all oppose this tax increase. These insurance regulators protect the public. Because they are responsible for approving affiliated reinsurance transactions, they understand that the purpose of these transactions is insurance risk management. They know that, on average, domestic reinsurers use affiliated reinsurance to the same degree or more than foreign insurers,” said Mr Shaw, highlighting the strong opposition to this plan. The Risk and Insurance Management Society, has also voiced its opposition to any effort to move forward “legislation that would increase taxes on foreign-based insurance companies and, therefore, the cost of insurance to its members”. “The global insurance market insures Americans against the economic costs of these natural disasters and terrorism events,” said Scott Clark, RIMS secretary and director of RIMS External Affairs Committee and Risk and Benefits officer for Miami-Dade County School Board. “RIMS membership ranges from small businesses to Fortune 100 companies to universities, hospitals and public sector entities, and they all will feel the repercussions of this legislation. With a national economic recession and an international financial crisis, we don’t need to raise taxes on international insurers, as is proposed.”
Lloyd’s launches globalisation risk report
Lloyd’s was packed with underwriters brokers and business leaders this week for the launch of its new report on the impact of globalisation and the growing threats from systemic risk. The report, Globalisation and Risks for Business, described globalisation as having “surged like a tidal wave”, over the past two decades. “Whilst it has made the majority of us healthier, wealthier and wiser about our planet, the financial crisis has shown it also leaves society exposed to systemic risks that, if the wave breaks, require international co-operation to predict and prevent rather than react and solve,” it added. “Over the past 20 years, as national barriers to the flow of goods, capital and people have broken down; the world has become increasingly interconnected. The removal of these barriers has helped businesses to expand and economies to grow, but has also created pathways across borders for new risks to spread.” It warned that businesses must manage more complex supply chains. “Outsourcing and the internet have made companies more vulnerable to infrastructure failure and criminal attacks, and pandemics can be propelled around the world in days by the flow of carriers through busy transport hubs,” it added. Analysing the new risks to business at the conference in London today, Chairman of Lloyd’s, Lord Levene, said: “Distance is no longer nature’s insurance policy which insulates you from the disasters and tragedies happening halfway around the globe. From pandemics, to supply chain failures, globalisation means that businesses are exposed to events which happen far away from their head offices. However, we remain strong advocates of world trade and free markets. We cannot go backwards. We should not be protectionist. Instead we must manage these risks better. Business models, and particularly our risk management systems, must change as the risks change.” Lord Levene warned that the financial crisis was only the first example of the systemic shocks of globalisation. The report calls for governments and businesses to work together at an international level to predict and prevent the aggregation of these risks in the future. Dr Ian Goldin, report author and Director of the University of Oxford’s James Martin 21st Century School, said: “The political, economic and technological revolution, together with population growth and urbanisation, has brought huge benefits. However, it also has transformed the nature of risk. Physical and virtual proximity has led to new forms of systemic risk, which transmit much more rapidly and further, leapfrogging traditional risk boundaries. Businesses and governments failed to keep pace with the rapid growth of globalisation leaving blind spots in the supervision of systemic risks. This presents unprecedented challenges which need to be addressed.”
Perils place $250 million
Perils, the independent Zurich-based company providing industry-wide European catastrophe insurance data, has announced that in the first six months of 2010 the total placements of insurance risk transfers based on Perils industry loss index exceeded $250m. The latest transaction concerns a private placement between Allianz Risk Transfer (ART) and Munich Re, arranged by Willis Re. In a statement Perils revealed: “The reinsurance transaction provides Euro 50m of protection to European wind risk. Perils is providing an independent estimate of the insured property industry loss in case of a windstorm event. This loss estimate is used as the trigger for the transaction. Commenting on the transaction, Brian Kirwan, Head of Insurance Linked Markets at ART said: “Allianz Risk Transfer is excited about this new transaction and believes that the use of Perils greatly improves deal execution in this space. The Allianz Group is one of the founders of Perils and we believe the increasing use and acceptance of the Perils index is an integral part of the future growth of trading in the European windstorm market.” Hans Joachim Thoenes, Head of Retrocession at Munich Re, added: “This is the second transaction involving Munich Re where the Perils index is used as the trigger. Our main objective remains to contribute to the creation of a more liquid and standardised ILS and ILW market for European windstorm risk which is for the benefit of our clients in the insurance industry, potential investors and Munich Re.” Colin Kiddie, Managing Director of Willis Re commented: “We are delighted to have worked closely again with the Perils team and to reinforce the longstanding need for an independent European Windstorm Industry Loss index. We are also pleased to have worked with Munich Re and Allianz Risk Transfer, two of the Global leaders in the ILS marketplace.”
Aon kicks off shirt deal
Given the new four year sponsorship deal and the fact that the club’s pre-season tour takes them to the United States Manchester United and Aon teamed up this week to launch the club’s new kit in Chicago. Kit manufacturer Nike has a major store in the “windy city” so players and senior members of the Aon management team were on hand to unveil the new look kit which has a retro look and has been made out of recycled plastic. The kit will feature the Aon logo on the shirts and the broker is delighted to be associated with the Manchester United brand. "The Manchester United shirt is an iconic image in the world of sport, and we are honoured to appear on it," said Greg Case, President and Chief Executive Officer of Aon. "Starting today millions of people worldwide will begin to know yet another leading team: Aon." First up will be the company’s 36,000 staff worldwide each of which has been presented with a shirt. The new home kit combines elements of the club's history with new age technology. While the style and white collar reminds the club’s fans of the kit the team wore in the 1970s every shirt has been made entirely from recycled polyester and each created from up to eight plastic water bottles as part of Nike's "Considered Design" program. Mr Case added: "Our sponsorship of Manchester United is an important amplifier of our Aon United vision – to work together as one team for clients, for colleagues and for communities in order to grow our firm. This shirt sponsorship creates an opportunity for us to unite our firm while telling the world who we are and the value we bring to clients." Aon had made July 15 Aon United Global Day with a series of charity initiatives across the world. In Chicago, a series of events will take place at Millennium Park to support children of the Chicago Park District and Special Olympics Chicago, as well as LifeSource Blood Centre. Around the world, Aon staff will be participating in fundraising and volunteer activities, including supporting hundreds of schools, children's hospitals, orphanages and community centres as well as more well-known organizations such as Big Brothers Big Sisters Clubs, Junior Achievement, Ronald McDonald House, Special Olympics, UNICEF, United Way, and the YMCA.
Jon Guy
Editor
Global Broker & Underwriter
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