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Issue 107 - 25th June 2010
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AXA Axes Pension Businesses In £2.75 Billion Sale
AXA has announced it is selling its UK-based life and pensions businesses and its annuity businesses to Resolution in a deal worth £2.75 billion (€3.3 billion / $4.1 billion).
Resolution Ltd, owned by the entrepreneur Clive Cowdery, will also receive AXA’s IFA protection and corporate pension business.
News of the sale, which will see over two thousand AXA employees transferred to Resolution once the transaction is completed, was broken in an internet statement.
"As we have shown in the past, we are committed to focus on business that benefit from the right combination of scale, competitive position, growth prospects and profitability, as this is the best way to create sustainable value for our clients, our distributors, our staff and our shareholders," said Henri de Castries, AXA Group Chairman and CEO. "With this transaction, we are selling to Resolution business, notably protection and group pensions, which will benefit from Resolution's bigger scale in these activities. We will focus on our UK wealth management business where we are among the leaders and plan to continue to grow fast.”
AXA's U.K. life operations will now merge with Friends Provident, the life insurer bought by Resolution last year for £1.86 billion. The purchase shows a continuation of Resolution's strategy of consolidating in the U.K. life-insurance and asset-management industry, with the goal of creating a new entity within the next year or two.
Nicolas Moreau, CEO of AXA UK added: “This is a significant step in AXA UK's strategy that sharpens our focus on future profitable growth and builds on the market leading position that we have developed in our wealth management business, as well as in our other businesses: general insurance, healthcare insurance and Bluefin. This transaction does not call into question the AXA Group's continuing long-term commitment to the UK market going forward.”
LORD LEVENE AND BOB DIAMOND SPEAK AT LLOYD’S NYC DINNER
Lord Levene introduced keynote speaker Bob Diamond at the third annual Lloyd’s New York City Dinner on June 22nd.
The Lloyd’s Chairman and the Barclays President both spoke on the evening’s topic of discussion: ‘Globalisation and how it affects finance and business’.
In his speech, Lord Levene called for insurers not to lose sight of their moral compasses, referencing Cuthbert Heath’s decision to pay customers, irrespective of their terms, in the aftermath of the 1906 San Francisco earthquake. “I believe that Heath was motivated as much by doing what is right as by profit.”
He said that the US market now accounts for more than forty per cent of Lloyd’s business and that history shows they have stood “shoulder to shoulder with American industry” during previous times of difficulty, and stated that their ethos remains the same in light of the current financial fears.
“Economic uncertainties remain with us and the international community, and domestic governments, continue to grapple with what should be the role and responsibility of the global financial services industry and, in particular, the banking community.”
”Globalisation brings great benefits,” he continued.”Being global means thinking global. I probably spend as much time in meetings in New York, Beijing, Rio, Paris or Moscow as I do in my office in London. And when I am there, many of my visitors are not British. The truth is that the world of international business - for man or woman - is one where the colour of their passport matters less and less and their acumen and competitive urge matters more and more.”
The Lloyd’s Chairman was keen to stress that this is not a threat, but instead offers a great opportunity. “I stand here in New York, which along with London is the pre-eminent financial centre in the world. And I wonder if, and how, we will remain so? The emergence of Singapore, Shanghai, or even Moscow as another great financial centre is an opportunity to be able to trade capital and financial services in more venues. I firmly believe that China’s rise is inevitable, but America’s decline is not.”
McGavick Reveals Solvency Fears
XL Capital CEO, Mike McGavick, fears that the Solvency II Directive could lead to a riskier environment for the insurance industry if it is applied “in the wrong way”.
Speaking at a Summit in the Bermudan capital, Mr. McGavick warned that if incorrectly implemented, the new ruling could undermine Hamilton’s attractiveness as a centre of competition and that a “European strategy” was, effectively, being forced on Bermuda because the prize of freer trade is considered too great to resist.
“In essence, [the European Union] is saying ‘well, we have written a rulebook we like for ourselves and everyone else should follow suit.’ First of all, there seems to be a natural resistance to a sense of it being imposed. After all, the rest of the world feels like big boys and girls too.”
Whilst Mr. McGavick stated that XL was committed in its support of Solvency II, he admitted to nerves about its “ultimate implementation” and warned that it could have unintended consequences.
“If we implement Solvency II in the wrong way we will have fewer, more systemically important carriers, and therefore a riskier environment for our industry.”
The economic downturn has shown that the world is better served by having more centres of capital, he says.
“I don’t understand the idea that when London and New York went in the toilet, and dragged everyone else down, that that was a good outcome and it wouldn’t have been useful to have greater capital deposits in Singapore, in Bermuda and in the Middle East.
“If we had more capital centres they would be less prone to copycat behaviour and more likely to sustain pricing. I know that is true in the insurance industry. It is competition among these jurisdictions and creativity in those jurisdictions that brings about the products,” he concluded.
A.M. Best Reveal Surge In Property/Casualty Impairments
A report from credit rating organisation A.M. Best has shown that U.S. property and casualty insurer financial impairments have tripled since 2007.
The figure for 2009 was eighteen, an increase from sixteen during the previous year and a huge rise from five in 2007, the last full year before the current recession.
Six of last year’s impairments were homeowners and residential insurers, which affected 200,000 policyholders. The report also indentified four property/casualty financial impairments for 2010, but whether this year’s figures will continue the upward surge remains to be seen due to delays in reporting impairments.
“Lags in the reporting of financial impairments are often due to the reluctance of state regulators to publicly disclose impairments until they have exhausted all avenues to rehabilitate or facilitate a sale or merger of a troubled insurer,” said A.M. Best. “Under current economic conditions, finding a stronger insurer willing to take over the business of an impaired company appears to be less viable and, at best, the process is taking longer.”
The report, which spanned forty-one years, stated that previous periods of economic strain showed similar rises in financial impairment frequency (FIF) and that 2008 and 2009 were no exception.
It also showed that the majority of 2009’s impairments came as a result of under-reserving, under-pricing and unsustainably rapid growth in the years immediately prior to impairment. Only three of the eighteen impairments were directly attributed to investment difficulties and understated assets. A further three were related to alleged fraud, whilst two were the result of affiliate problems.
The report added: “A.M. Best expects the number of financially impaired companies and the FIF to rise in the near term as insurers absorb ongoing underwriting and investment losses, and as regulators take control of companies for which they have been unable to find buyers.”
ACFE Report Provides Insight On Occupational Fraud
European companies suffered median fraud losses of more than £400,000 (€485,000) in the last two years, according to a new survey by the Association of Certified Fraud Examiners (ACFE).
Investigating cases between January 2008 and December 2009, the study found that corruption and billing schemes were the two most common types of fraud reported across Europe, and indeed the rest of the world.
An American outfit, the Association of Certified Fraud Examiners are the world’s leading anti-fraud specialists. They published the results of the 2010 report in an 84-page document and, for the first time, included details of global data from some 1,843 cases of fraud that were studied.
Information from certified fraud examiners in 106 nations was compiled to develop the benchmarking statistics on occupational fraud losses, detection methods and guilty parties.
Key findings from the survey include the revelation that the vast majority of fraud perpetration occurs at management level or higher. In more than half of all European cases of fraud, managers were responsible and in nearly 20 percent of cases, owners or executives were responsible.
More than 82 percent of the European frauds featured in the study were perpetrated by men, marking the largest gender gap among world regions, with the exception of Asia. In North America, by comparison, less than 60 per cent of fraud cases were perpetrated by males.
Since 2002, the biannual AFCE report has become the standard bearer of fraud research and it has been modified to continue to draw more meaningful information from the experiences of certified fraud examiners and the frauds they encounter.
It is especially highly valued by the insurance industry for its insight into the implementation of anti-fraud controls, additional breakdowns of fraud statistics by geographical region and analysis of the most common behavioural traits among fraud perpetrators.
Jon Guy
Editor
Global Broker & Underwriter
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