Insurance Jottings

Prince Charles Launches Partnership with Insurance Industry to Tackle Climate Change

His Royal Highness the Prince of Wales launched his Sustainable Markets Initiative (SMI) Insurance Task Force during a visit at Lloyd’s on the 24th June.

 

The SMI Insurance Task Force, convened by Prince Charles and chaired by Lloyd’s, is comprised of executives from many of the world’s largest insurance and reinsurance companies, providing an influential platform for the sector to collectively advance progress towards a resilient, net-zero economy. (See below for a list of the members of the SMI task force).

 

The global insurance industry has a critical role to play as a result of its unique view of the climate crisis – via decades “of providing support to communities, businesses and economies in the face of increasingly severe and frequent weather events…,” Lloyd’s said in a statement.

 

The SMI Insurance Task Force published its Statement of Intent, which commits to provide climate positive financing and risk management solutions to support and encourage individuals and businesses around the world to accelerate their transition to a sustainable future.

 

During the visit by Prince Charles, the Lloyd’s Lutine Bell rang twice to mark “the new and significant global insurance industry commitment to drive climate positive action,” through a number of key initiatives for commercial and individual customers.

 

These actions include adapting and expanding coverage for offshore wind projects in

response to rapid growth and new technologies, alongside the implementation of “build back better” claims clauses in home insurance policies to encourage customers to rebuild sustainably.

 

The SMI Insurance Task Force will also work with governments to establish a public-private disaster resilience, response and recovery framework, which will help protect developing nations from the evolving economic and societal impacts of climate change.

 

To support the rapid growth of green projects and innovation, the SMI Insurance Task Force will develop a framework to help unlock the more than US$30 trillion in assets under management, increasingly directing capital towards investments that drive climate-positive outcomes in both developed and developing nations.

“The insurance industry is exceptionally well placed to understand the impact of climate change and the damage it can cause to us all if we don’t take action now,” commented HRH the Prince of Wales.

 

“This is why I am so pleased that a large number of the world’s leading insurance companies have joined together to identify how the insurance industry can help put Nature, People and the Planet at the heart of our entire economy.”

 

Lloyd’s Chairman Bruce Carnegie-Brown added: “As the world begins to recover from a pandemic which has caused significant and far-reaching financial and societal challenges, it does so with an opportunity to build back with sustainability as a foundation and guiding principle.

 

“Although climate change poses unprecedented systemic risk, it is one which – through partnership and accelerated action – we have the means to address. As a task force, we are making a resolute commitment to be a catalyst for action to help create a more sustainable future through the risks we manage and the capital we invest.”

 

The SMI Insurance Task Force’s members are:

 

  • AIG: Peter Zaffino, president and CEO

 

  • Allianz: Oliver Bäte, CEO

 

  • Amwins: Scott Purviance, CEO

 

  • Aon: Greg Case, CEO

 

  • Ascot: Andrew Brooks, CEO

 

  • AXA: Sean McGovern, CEO AXA XL

 

  • Beazley: Adrian Cox, CEO

 

  • Conduit Re: Neil Eckert, CEO

 

  • Direct Line Group: Penny James, CEO

 

  • Hiscox: Bronek Masojada, CEO

 

  • Howden Group: David Howden, CEO

 

  • Legal & General: Nigel Wilson, CEO

 

  • Lloyd’s: John Neal, CEO

 

  • Marsh McLennan: Dan Glaser, president and CEO

 

  • Munich Re: Joachim Wenning, CEO

 

  • Phoenix: Andy Briggs, group CEO

 

  • Tokio Marine Kiln: Brad Irick, CEO

 

BHSI launches London energy and technical lines unit

Berkshire Hathaway Specialty Insurance has established a London-based energy and technical lines unit with the recruitment of four underwriters including Axa XL’s Oliver Brown.

 

7 Major Cyber Insurers Form Company to Coordinate Cyber Analysis, Risk Mitigation

With cyber-attacks and insurance claims on the rise, leading cyber insurers AIG, AXIS, Beazley, Chubb, The Hartford, Liberty Mutual Insurance and Travelers have formed a company to pool their data and expertise and take collective efforts to enhance cyber risk mitigation efforts across the insurance industry.

 

The new entity, called CyberAcuView, will compile and analyse cyber-related data to enhance value and service to policyholders and help insurers sustain a competitive market for cyber insurance.

 

CyberAcuView’s activities will be conducted under strict antitrust review and guidance, according to the announcement.

 

Mark Camillo, most recently head of Cyber, EMEA at AIG, has been appointed CEO.

 

CyberAcuView is 100%-owned by the founding seven member carriers, six of which are among the top 10 insurers in the market based on 2020 direct written premium, according to AM Best. (Liberty Mutual ranks 14th)

 

The new company will invite other direct writers of cyber insurance to be associate members, according to its website.

 

The founding members of CyberAcuView said they will address cyber risk mitigation by:

 

  • providing industry best-practices to improve resilience to cyber risk

 

  • proactively engaging with regulators, law enforcement and other security agencies to counter cybercrime and the rapid rise of ransomware

 

  • developing systemic risk solutions and advancing cyber policy language to improve market efficiencies

 

  • analysing cyber trends to provide enhanced visibility on cyberattacks and the causes of loss so that insurers can identify critical controls and educate policyholders on loss prevention strategies.

 

Joining Mr Camillo on the leadership team is Monica Lindeen, former Montana Insurance Commissioner, who will serve as director of Regulatory Affairs, and James Schweitzer, a veteran of the FBI and former chief operating officer of the National Insurance Crime Bureau (NICB), who joins as director of Law Enforcement Engagement.

“The cyber landscape continues to evolve with coordinated attacks becoming more frequent and disruptive,” Mr Camillo said.

 

“Combining resources from across the insurance industry will allow us to better understand cyber trends, anticipate and potentially mitigate future attacks, and help improve overall cyber resilience.”

 

‘Grim’ Outlook

The announcement of the collective effort comes after a report by AM Best advised that the industry must totally reassess its approach to cyber risk.

 

With the cyber risk hazard environment – ransomware, business interruption and aggregation – worsening significantly, “prospects for the US cyber insurance market are grim,” according to the report.

 

According to AM Best analysts, insurers “urgently need to reassess all aspects of their cyber risk, including their appetite, risk controls, modelling, stress testing and pricing, to remain a viable long-term partner dealing with cyber risk.”

 

The reassessment is needed because cyber insurance, which began as a diversifying, secondary line and another endorsement on policies, is now a “primary component of a corporation’s risk management and insurance purchasing decisions,” notes AM Best in its report, “Ransomware and Aggregation Issues Call for New Approaches to Cyber Risk.”

 

Fitch Ratings analysts have noted that while US insurers have been raising prices and taking underwriting action in response to a spike in cyber claims, immediate improvement is unlikely this year from these actions and insurers are worried about the long-term.

 

“The cyber market faced a reckoning in 2020, as loss experience deteriorated, particularly from an influx of ransomware incidents,’ said Fitch Managing Director James Auden. ‘While cyber premium rates are rising sharply, concerns remain that underwriters can successfully price this business longer term.”

 

Cyber insurance direct written premiums for the property/casualty industry rose sharply 22% last year to over US$2.7 billion, reflecting expanding demand for coverage.

 

The industry statutory direct loss plus defence & cost containment (DCC) ratio for standalone cyber insurance rose sharply in 2020 to 73% compared with an average of 42% for the previous five years (2015-2019).

 

The average paid loss for a closed standalone cyber claim moved from US$145,000 in 2019 to US$358,000 in 2020.

 

According to Fitch, cyber insurance is a growing but relatively small business line in US P/C insurance, representing less than 1% of industry direct written premiums. Segment market share remains relatively concentrated, with the top five writers holding 50% market share and the top 20 writers maintaining 87% market share in 2020.

 

The top three US cyber writers are unchanged from the prior year: Chubb Limited (15% direct market share), AXA XL (11%) and American International Group, Inc (8%).

 

Major Reinsurers Look to Exclude Coal from Treaty Policies, as Climate Pressure Grows

Major reinsurers have already pulled back from providing bespoke cover for coal projects as part of efforts to meet global climate change commitments, but now comes the hard part – finding ways to exclude coal from bulk-buy contracts – “treaty” reinsurance.

 

Reinsurance companies help to share the burden of insurance risks by underwriting frontline insurers. Any restrictions they impose will have a knock-on impact on insurance policies on offer to companies.

 

Five of the world’s six largest reinsurers — Swiss Re, Munich Re, Hannover Re, SCOR and Lloyd’s  — have already scaled back bespoke coverage for coal projects. But only Swiss Re, in a statement in March, has said it will go further and tighten its treaty reinsurance stance.

 

Munich Re and Hannover Re told Reuters they are working with their insurance clients to cut their own exposure further.

 

“We want to keep the dialog and push for change together,” said Jean-Jacques Henchoz, chief executive of Hannover Re, although he added that: “It’s not happening in a couple of weeks, it’s taking a bit of time.”

 

Munich Re and Hannover Re said they were working out how to assess what was inside their treaty reinsurance books.

 

“For coal we are very confident that this is something we will get transparency on, but of course it’s much more difficult than doing it for the direct and facultative business,” said

Michael Menhart, head of economics, sustainability and public affairs at Munich Re. (Facultative refers to single risk cover)

 

Lloyd’s , which has around 100 syndicate members and launched a strategy on coal for the first time last year, said by e-mail that it would be producing further guidance later this year. SCOR did not respond to a request for comment.

 

Slow Going

For the global reinsurance industry as a whole, treaty reinsurance typically makes up the majority of business in the US500-billion-plus market, industry sources say.

 

Swiss Re has said it will introduce thermal coal exposure thresholds in its treaty business with insurers as a first step towards full phase-out by 2040, though it has not yet specified the thresholds.

 

“We worked internally with the treaty desks around the world to understand their coal exposures,” said Martin Weymann, head of sustainability, emerging and political risk management at Swiss Re.

 

“We took quite a bit of time to filter out which risks are most exposed.”

 

Mr Henchoz at Hannover Re said in terms of excluding coal from treaty business, it was important to scratch below the surface and try to be very concrete on how to achieve an official target.

 

Lloyd’s, which industry sources say tends to be more cautious about taking steps on climate than the major European reinsurers, said its syndicate members were moving away from fossil fuels. Lloyd’s said the market wanted “to ensure that existing customers have time to transition their businesses and that we don’t create unnecessary cliff edges.”

 

Pressure group ShareAction said in a recent report that the fact that treaty reinsurance can provide cover for coal risked undermining the progress being made through restricting bespoke cover.

 

Even if more of the major reinsurers move to stop treaty cover of coal, the impact could take some time to fully work its way through the system, as other reinsurers look to take up the slack.

“In the short term, there might be some opportunistic players,” said Swiss Re’s Weymann, adding, however, that shareholders were leading the pressure for longer-term change.

 

Isabelle Santenac, global insurance leader at EY, however, said that rather than exclusion, the industry should instead use its influence to engage with corporate clients to help them to make the transition more quickly to a greener economy.

“If you stop working for those companies, those companies will find another insurer to underwrite that risk, and then you can say ‘what has changed for the planet? Nothing’.”

 

Britain Calls on EU to Open Financial Services Talks, Urging Bloc to Avoid Protectionism

Britain’s finance ministry called on the European Union to open talks on financial services, after the London Stock Exchange on the 15th June urged the bloc to avoid protectionism.

 

Britain left the EU in December, largely cutting off the City of London’s financial services centre from many of the markets it had formerly played a central role in.

 

Banks and other financial firms that used London as a gateway to Europe have set up units in the EU to avoid disruption for EU clients. Billions of euros in daily euro stock and derivatives trading have already left London for the EU.

 

Both sides have agreed to start a dialog via an informal forum for discussing financial rules, but it has yet to go live and Katharine Braddick, director of financial services at Britain’s finance ministry, said she hoped it was expedited.

 

“Once that memorandum of understanding is agreed we can get on with establishing our routine ways of engaging,” Ms Braddick told TheCityUK’s annual conference.

 

The forum, which will not decide on financial market access, but it is viewed as critical to mend bridges, would put Britain’s EU relationship on a “reliable, transparent and understandable footing” to give business certainty, she added.

 

John Berrigan, head of the European Commission’s financial services unit, said the EU remains open to the rest of the world. “This is not about disengaging,” he added.

The Commission said work on approving the forum was ongoing.

 

A pressing issue for Britain is that EU permission for the London Stock Exchange to keep clearing euros derivatives for EU customers expires in June 2022, potentially fragmenting a major market involving trillions of euros.

 

The Commission is asking banks and asset managers how quickly they can shift this clearing from London to Deutsche Boerse in Frankfurt and if legislation is needed.

 

The EU wants to directly supervise euro clearing and bolster its “open strategic autonomy” to avoid reliance on the City.

 

“I think it’s critically important for the EU to remain open and to resist the protectionist temptation,” London Stock Exchange Chief Executive David Schwimmer told a separate European Financial Services conference.

 

“What has made the EU so successful is its openness to the world and being able to embed itself in global ecosystems.”

 

EU firms should be able to access the same liquidity, services, data and technology capabilities as their peers in respect to clearing, Mr Schwimmer said.

 

“I am not arguing for an absence of control by the EU over important strategic areas,” he said.

 

Washington Wary

With Britain no longer tied to EU rules, it is reforming how it regulates the City to buttress its global competitiveness.

 

Ms Braddick said this would mean tailoring rules within a framework of global standards, and not ripping up the rulebook.

 

“Any idea there is some vast philosophical gap about risk appetite or financial regulation is really misplaced,” she said.

 

Britain’s finance ministry will make detailed proposals for wholesale financial market reform in the final quarter of 2021.

 

“We have not seen a flood of either talent or capital out of the UK into the European Union,” Ms Braddick said.

 

US officials sounded a note of caution against the EU fragmenting financial markets after Brexit.

 

“The future of our financial services relationship really needs to be based on principles of openness, financial market integration and of course competition,” Sharon Yang, deputy assistant secretary at the US Treasury, said.