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Issue 94 - 25th March 2010
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Lloyd’s deliver record returns with warning of tough times to come
Lloyd’s, was quick to temper its record annual results with a warning that this year was not set to repeat the £3.8 billion profit as the economy and the potential for major catastrophes were set to test underwriters. Market Chief Executive Richard Ward was pleased to be able to deliver a record set of number for the 12 months to December 2009 but warned that the global economy was set to undergo an uneasy transition as government aid packages such as the UK’s quantitative easing were phased out. The past year was defined by the lack of catastrophe losses with just 2% of the Lloyd’s 86.1% combined ratio down to the cost of catastrophe claims against an average of 10% in the past. The work towards Solvency II would continue to be a challenge for the market in the year to come said Dr Ward, with the market’s Director of Finance Luke Savage saying he believed the market’s managing agents were now spending in excess of £50 million per year in preparation for the implementation of the European regulations. Dr Ward was asked about the proposals to scrap the Financial Services Authority if the Conservatives won the upcoming general election? He said whatever the name on the door he hoped that the FSA’s team which was working with the UK insurance industry to ensure its views were represented with the European Commission were given the full backing to carry on the task. Director of Performance Management, Tom Bolt, warned the classes which were keeping him awake at night were the casualty classes as rising claims and low past rates provided the potential for problems. He also warned that the impact of the financial crisis could start to be felt in the market over the coming 18 months. “We have seen a large number of notification but the values have not been rising which has been a concern,” he said. “What we have discovered is that the lawyers look to have been going after the low hanging fruit and now they are turning their attention to the more complex claims so we expect that we will start to see values put on the notifications we have received.”
Energy capacity now highest for a decade
Broker Willis has warned that the energy market is now at a tipping point in terms of a major softening as underwriting capacity reaches a 10-year high. It has entitled its energy market review “On the Edge of an Abyss?”, saying the abundance of capital, together with good underwriting results are driving down prices and increasing competition among insurers. Alistair Rivers, CEO, Willis Energy, said, “This may be one of the best buyer’s markets in some years, but buyers should be cautious about the long-term implications of abandoning existing market relationships in search of the lowest price. The volatility of the energy sector is such that a big loss is always looming around the corner, threatening to turn a soft insurance market into a hard one overnight. It will be those buyers who have continued to invest in long-term partnerships who will be best positioned to navigate the market cycle.” The report added capital providers are increasingly attracted to the energy sector, because of the profitable underwriting results posted by the vast majority of property/casualty insurers in the last year. Those results have been bolstered by a lack of major natural catastrophe losses, an upturn in energy industry activity and the worldwide recovery in oil prices. Willis added that, in the absence of a major catastrophic loss, a softening rate environment will likely continue into the foreseeable future, and could lead to an even more competitive market in 2010. The review found that 2009 was a relatively benign year in the energy insurance industry with $3.75 billion in losses against an estimated global energy premium income of $5 billion. With the entry of new capital, 2010 global capacity for upstream energy is at a ten-year high of more than $2.7billion for construction risks and more than $3.4 billion for operational risks. Capacity for Downstream risks is also back up to 2000 levels, with a fresh injection of capital resulting in almost $3.5 billion of International market capacity and more than $2.8 billion of North American market capacity.
EU block exemption renewed for co-insurance pools
The European Commission announced it has adopted a renewed Block Exemption Regulation (BER) which will maintain two core elements for the previous exemption but had discarded the exemptions over standard policy conditions and security systems. However the new BER, which will last until the end of March 2017, retains the exemptions on joint compilations, tables and studies, and co(re)insurance pools, with some amendments. “Certain information exchange can be justified in order to allow insurers to accurately assess risks. Pooling is also important in order to ensure that all risks can be covered,” said the Commission’s statement. “These two types of agreements justify a block exemption. Other types of cooperation may also be legal but it will be for insurers to self-assess that they comply with the general competition rules.” "The block exemption continues to be justified for pools and certain types of information exchange necessary for the industry to be able to carry out its business. This is in the interest of consumers and of the economy as a whole,” said Joaquín Almunia, Commission Vice-President in charge of Competition Policy. “The Commission together with the national competition authorities will see to it that the industry does not use the exemption as a blanket protection and will enforce competition rules where and whenever necessary.” The Commission added that it was felt that the two other exemptions in the previous BER were no longer applicable and should be addressed in a different way. “The review of the previous BER showed that neither agreements on standard policy conditions nor agreements on security devices are specific to the insurance sector,” it said. “They are therefore excluded from the new BER. The Commission, however, plans to address both of these types of agreements under the EU Guidelines on horizontal cooperation agreements, which are currently being reviewed. “
Houston Marine Insurance Seminar to tackle hot topics
The 2010 Houston Marine Seminar is to return to the Westin Galleria hotel this year with the issues of piracy and the WelCar policy on the agenda. The event was held at the Westin Oaks hotel last year due to the damage caused to the Galleria by Hurricane Ike but the return to the larger venue has enabled the organisers to enhance the facilities for delegates throughout the three day event. The seminar will be staged from September 19-21 and features a range of high profile speakers addressing key topics for the marine and energy insurance market. With the on going rise in the numbers and severity of piracy attacks across the world and in particular the Gulf of Aden delegates will hear the views of Arthur “Skip” Volkle, Vice President and General Counsel of Marine Resources Group. Mary Jones, Assistant General Counsel, and Director Insurance & Compliance at offshore solutions provider Global Industries is to speak to the seminar on the pros and cons of the WelCar construction insurance policy which has been the topic of some debate in recent months as the scale and size of projects continues to grow. Following the success of the 2009 seminar once again attendees will be able to register via dedicated website which will go live in the coming weeks.
Amlin puts pedal down for charity
Underwriter Amlin teamed up with former rugby union legend Lawrence Dallaglio on a marathon effort which raised almost £1 million for charity. Amlin threw its weight behind The Dallaglio Cycle Slam, a 2,800km cycle ride led by Mr Dallaglio, but it was more then just financial backing. As part of its sponsorship and support Amlin underwriters and guest brokers accompanied Lawrence on every day of the challenge, which took in all Six Nations stadia, and saw the riders visit Rome, Stade de France, Twickenham, Cardiff, Dublin and Edinburgh. The event raised £926,167 for Sport Relief and the Dallaglio Foundation with the final figure announced on the BBC's Sports Relief show last Friday. Richard Ohlson, head of broker relationships at Amlin, said the event was hard work but was in a worthy cause. “I took part in the Slam and it was a fantastic experience,” he explained. “I was lucky enough to get the Loire Valley stage, which saw us cycling through idyllic countryside in good weather. Some other riders did have to battle through some pretty awful weather and brave significant hills. The Slam was a great team bonding experience and Lawrence remained upbeat and full of enthusiasm – he really kept us all going."
Jon Guy
Editor
Global Broker & Underwriter
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