Insurance Jottings

Berkshire Hathaway gets Dubai licence

Berkshire Hathaway Specialty Insurance Company (BHSI) has opened a new office in the Dubai International Financial Centre (DIFC), while naming Alessandro Cerase as its senior executive officer (SEO) and Neeraj Yadvendu as deputy SEO and head of third party lines for the Middle East.

The move comes after BHSI received an insurance licence from the Dubai Financial Services Authority, according to a statement on the 12^th February.

The new operations will provide a suite of specialty and commercial re/insurance products to its network of brokers and ceding companies with a focus on construction, energy, property, marine, casualty and executive and professional lines.

Mr Cerase joins BHSI with 20 years of global experience spanning both the engineering and underwriting sides of the insurance business. He was most recently global head of energy and engineered risk at AIG.

In addition to being the SEO, he will be leading first party lines for BHSI’s broader Asia Middle East region, which includes its other regional hubs of Hong Kong and Singapore as well as its operations in Malaysia and Macau.

Ms Yadvendu joins BHSI after two decades in the insurance industry, most recently as regional head of casualty and financial lines at AXA Asia.

London Market simplifies claims handling

A single claims agreement party model has been launched aiming to simplify how claims within the London market are handled.

The process will enable quick and efficient authorisation of claims by allowing policy leaders to agree non-complex payments up to £250,000 on behalf of following carriers, according to a Lloyd’s Market Association (LMA) press release on the 1^st February.

Participation in a single agreement arrangement will be optional and considered by brokers and carriers at point of placement.

The move represents a significant step in making the London market more competitive and enhancing its position at the centre of the international insurance industry through the implementation of efficient working practices, according to the LMA.

Christopher Croft, CEO of the London & International Insurance Brokers’ Association (LIIBA), commented: “The broking community is delighted that we can move forward with the Single Claims Agreement as it will expedite the handling, agreement and payment of small to medium-sized losses under London subscription market placements to the benefit of clients.”

Lloyd’s CEO Inga Beale said: “In a competitive global sector, customers want and expect the London market to be easier to do business with. By ensuring that the most critical part of our business offer, the resolution of claims, can be done in a more straightforward manner, this will mean London can continue to remain an attractive proposition.”

Under the Lloyd’s Claims Scheme, following syndicates are already bound by the decision of the lead Lloyd’s underwriter for ‘standard’ claims within a set class of business thresholds, typically below £250,000.

However, a lead agreement model is not typical in the company market, and each IUA carrier has agreement rights to the claim for their proportion.

The new single claims agreement arrangement and the related model will allow the (London) slip lead to bind all followers on risk, if carriers accept the arrangement and the clause as a policy term at the point of placement.

IUA highlights challenges for cyber growth

The rapid growth of cyber threats has created challenges for the insurance industry in developing underwriting talent, acquiring claims data, establishing modelling techniques and securing reinsurance capacity, according to the International Underwriting Association of London (IUA).

In a new report by the IUA’s Cyber Underwriting Group urges national authorities to help address some of these issues and raise awareness of liabilities. Cyber is seen as a major growth area within the re/insurance industry.

The document states that traditional classes of insurance business do not usually provide comprehensive cover for cyber incidents. Policies contain gaps in cover that require extensions or the support of specific cyber products.

There is a wide and competitive range of cyber insurance products available in the London Market. However, more work needs to be done on collecting data about the frequency and cost of cyber claims. The IUA’s Cyber Policy Positions paper calls for a more coherent and consistent recording of cyber incidents.

“Collating data on cyber incidents is often made difficult by differing terminologies and claims notifications are sometimes put on hold as long-term investigations into the causes take place,” said Matthew Hogg, chairman of the IUA’s Cyber Underwriting Group. “The IUA’s Cyber Underwriting Group would welcome the establishment of a registry system which collects and shares statistical information on the cost and frequency of cyber losses and claims across Europe.

“The role of government, regulators and others will be critical in establishing useful data for underwriting purposes, as well as for risk management advice.”

The Policy Positions Paper also strongly supports efforts to companies at operational risk management level and in the boardroom about their cyber risk exposures. As part of this wider education process, the Cyber Underwriting Group recommends continued analysis of existing cyber products and extensions to traditional policies.

“As the market for cyber insurance matures it will be important to review any gaps in coverage and uncertainties as new threats emerge,” Mr Hogg noted.

“Continuous professional development of insurance practitioners is also essential. We need an educated marketplace which has rigour in its approach to provide meaningful cover for all clients.”

Rising piracy on Indian Ocean could raise insurance premiums, Kenya fears

Cases of piracy in the Indian Ocean off the Somalian coast increased in 2017, raising fears that sustained attacks could raise insurance and freight costs for Kenya importers.

A recent report from the International Maritime Bureau (IMB) noted that nine piracy attacks were recorded off Somalia in 2017, up from two in 2016, even though global attacks dropped to a 22-year low. Rising piracy on Indian Ocean could lead to high insurance charges, IMB said

IMB director Pottengal Mukundan said that “the dramatic incident, alongside our 2017 figures, demonstrates that Somali pirates retain the capability and intent to launch attacks against merchant vessels hundreds of miles from their coastline.”

The increase in such attacks usually comes with costs such as increased insurance premiums, longer freight routes as vessels avoid hot spots and the additional cost of hiring private armed guards.

Kenya’s Daily Nation noted that, “for a country that imports more than KES1.3 trillion worth of consumer and industrial goods, the increased cost is eventually passed to the consumer through higher retail prices.”

Drones create gap in traditional aviation cover

Traditional aviation insurance policies are unlikely to address all elements of emerging risks from the rapidly increasing use of drones and general liability underwriters will have an important role to play in providing cover, according to a new report from the International Underwriting Association (IUA).

In the past, the general liability market has normally sought to exclude liabilities arising from the use of any aircraft, states the new publication ‘Unmanned Aerial Vehicles (UAVs) – Opportunities and challenges for general liability insurers’.

But a growing use of drone technology by businesses has led to an expansion in demand for cover and this is now often satisfied by specific policy extensions or endorsements.

There are, however, a number of obstacles in the way of developing a more comprehensive insurance market, the report observes. These include regulations struggling to keep pace with technological advancements and a lack of available information on drone usage and claims data.

Chris Jones, IUA director of legal and market services, said: “The drone market is a classic emerging risk which presents significant underwriting opportunities across a range of insurance classes. This is particularly true for general liability insurers who are expected to provide a significant proportion of policies not covered by the traditional aviation insurance market.

“There are challenges, however. The current regulatory regime for drones is essentially a safety one that does not really address non-aviation issues such as privacy, security and nuisance risks like trespass. It is also essentially a manned aircraft regime with additional measures tacked on for unmanned aircraft.

“General liability underwriters deal with a huge number of business sectors with many different potential uses of drone technology. It will be important, therefore, to establish sound policy provisions so that insurers can estimate potential liabilities and provide a product that meets client needs.”

Drone regulation is largely based on the weight of aircraft with those weighing less than 20kg subject to much lighter supervision. As technology evolves, however, much lighter aircraft may still be able to cause considerable damage depending on how and where they are used. General liability insurers, therefore, need to be vigilant of rules in place and the potential damage that drones of all sizes can cause, the IUA’s report concludes.

2017 becomes costliest nat cat year on record

Weather disasters in 2017 added up to US$344 billion in global economic losses, according to the latest Aon catastrophe report.

The report reveals that there were 330 natural catastrophe events in 2017 which generated economic losses of US$353 billion – of which 97 percent (US$344 billion) were due to weather-related events, including hurricanes Harvey, Irma and Maria in the US and Caribbean, plus typhoon Hato in China and cyclone Debbie in Australia.

The 2017 natural catastrophe losses were 93 percent higher versus the 2000-2016 average.

Insured losses to the private sector and government-sponsored programmes were among the costliest ever incurred, reaching US$134 billion in 2017 – just behind the record US$137 billion in 2011.

The 2017 insured losses were 139 percent higher than previous year’s $56 billion, primarily due to high insurance penetration in the US which suffered a very active Atlantic hurricane season, severe weather events and wildfires.

“While 2017 was an expensive year for the insurance industry, the reinsurance market had an estimated US$600 billion in available capital to withstand the high volume of payouts,” said Eric Andersen, CEO of Aon Benfield. “Most critically, the US weather and wildfire events in particular have demonstrated the value of reinsurance, with claims being paid in an average of eight days to augment the recovery process.”

Aon’s ‘Weather, Climate & Catastrophe Insight: 2017 Annual Report’ also shows that 36 percent (US$80 billion) of economic damage from Hurricanes Harvey, Irma and Maria were insured.

Wildfires caused US$14 billion of insurance losses in 2017 – the highest on record for the peril.

Overall, 10,000 human fatalities were caused by natural disasters, with the deadliest event being a massive landslide event in Sierra Leone when more than 1,100 people lost their lives.

The report noted that 2017 was the third warmest year on record since 1880 for combined land and ocean temperatures.

Steve Bowen, Impact Forecasting director and meteorologist, said: “The high cost of disasters in 2017 served as a reminder that we continue to face increasing levels of risk as more people and exposures are located in areas that are particularly vulnerable to major, naturally occurring events.

“As weather scenarios grow more volatile in their size and potential impact, it becomes more imperative than ever to identify ways to increase awareness, improve communication, and lower the insurance protection gap. We know natural disasters are going to occur. The question is how prepared are we going to be when the next one comes along.”

London market broker SSL in exclusive sale talks

The independent London market marine broker SSL has entered into a new set of exclusive takeover talks with a private equity firm that – if successful – will lock in co-founder Andrew Sturdy and his colleagues for a minimum of three years.

According to sources, after recently agreeing a period of exclusivity in the fourth quarter 2017, the unnamed private equity firm is now undertaking due diligence.

SSL – which was founded by ex-Willis broker Andrew Sturdy in 2003, together with Roger Spicer and Eddie Leigh – reported revenues of £9.1 million for the year ending March 2017, up 11 percent on the previous year. Pre-tax profits were also up from £1.37 million to £1.41 million.

According to banking sources, SSL is projecting Ebitda of up to £2.5 million for the financial year ending March 2018.

SSL represents some of the largest ship-owners and fleet managers in the world but it also provides coverage in other marine classes, including war, and specie and has diversified the book to include some non-marine classes such as financial institutions and political risks.

The talks follow an aborted sale process last year run by the corporate boutique Opus Corporate Finance which saw Ed, and its private equity backer Lightyear Capital, get close to a transaction before talks broke down.

Lightyear is not thought to be the party this time round. It is not clear whether AssuredPartners and Besso-owner BGC Partners – two firms that also got close with SSL last year – are again involved this time.

According to sources, Mr Sturdy – who owns a majority stake in SSL – has no desire to leave the firm but is keen to find a backer who will support SSL’s growth aspirations.

News of the talks breaks on the eve of an expected £110 million+ sale of fellow Lloyd’s broker Tysers to the private equity backed Integro, as first revealed by this publication on 5 October 2017

Private equity investors have continued to show an interest in the London wholesale market with major acquisitions including Lightyear Capital’s purchase of Ed in 2013, Calera Capital with RFIB, Aquiline with Beach Associates and the aforementioned BCG Partners with Besso.