Sutherland insights insurance news flash apr 30, 2014

INSURANCE NEWS FLASH April 30, 2014

Table of Contents Sales & Marketing ................................................................................................................. 3 Finance ................................................................................................................................. 8 Technology .......................................................................................................................... 12 Strategy .............................................................................................................................. 16

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Sales & Marketing Marine Safety and Shipping: Emerging Risks in the Pipeline April 29, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/04/29/marine-safety-and-shipping-emerging-risksin-the-p?ref=rss Allianz Global Corporate & Specialty (AGCS) recently released its second annual Safety and Shipping Review, which analyzes reported shipping losses of vessels over 100 gross tons. The report revealed that 2013 losses had declined by 20% from 2012 figures to 94 large losses. The 2013 accident year also represents a significant improvement on the previous 10-year loss average, with total worldwide shipping losses declining 45% since 2003.

With over 90% of global trade carried by sea, the safety of international shipping and routes is critical to the health of the global economy. And although the long-term downward trend in shipping losses is encouraging, there is more work to be done to improve the overall safety of these vessels as well as their cargo, crew and passengers.

While foundering (sinking or submerging) remains the most common cause, accounting for almost three-quarters of all losses, the report identified several emerging risks that are becoming a concern for the marine industry.

Mega Ships Pose New Risks Last year marked the arrival of Mærsk’s Triple-E class, the largest container vessel on record, over 400 meters long and boasting container carrying capacity in excess of 18,000 TEU (20- foot container). This trend is set to continue. AGCS estimates capacity growth by around 30% every four to five years, meaning the arrival of 24,000 TEU carriers can be anticipated around 2018. These “mega ships” pose unprecedented risks and challenges in terms of operating safety and salvage efforts in the event of a casualty.

As very few ports in the world have the necessary infrastructure to handle the Triple E series, they have to restrict the number of containers that can be loaded for some calls. While ports are working to improve handling capacity, this issue raises the wider concern on the number of ports that can offer a safe place of refuge to a mega ship in distress. The current practice concerning places of refuge is a concern to insurers and while regulation exists to require states to offer a place of refuge, these are not being applied in all cases.

New Fuels Increase Safety Questions The demand for larger ships is in part related to the operational savings that they offer and the drive for ever greater efficiencies and cost savings, in tandem with a strict regulatory environment, has led to a rise in demand for “greener” fuels.

Bio-fuels, hydrogen, compressed natural gas and liquefied natural gas (LNG) all offer viable solutions to power the global shipping fleet. Of these fuels, LNG has captured the imagination of shipping lines. Last year Bloomberg reported that the global fleet of 42 LNG-powered ships will almost triple by 2014 and increase 42-fold to almost 1,800 vessels by 2020, according to DNV GL, the largest company certifying the merchant fleet for safety.

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Refueling of these ships is expected to take place at ports, and some European and Asian ports are already preparing themselves to supply LNG. There are safety concerns with this move, as the industry will see the rise of ports that have never previously handled LNG providing bunkering (fueling) stations in the port.

Experts question whether this shift might compromise LNG’s unblemished safety record. The Lloyd’s Market’s Joint Hull Committee has nominated a committee to find out more about the risks associated with LNG as a fuel, which will complement research already completed, including the creation of a code by classification societies on gas-fueled ships.

Arctic aspirations Although innovative designs and alternative fuels can help improve profitability, potential new trading routes offering reduced passages further boost savings. One area that is being keenly watched is the Arctic, but an interest in the creation of trade routes in this region as the permanent ice pack recedes brings with it environmental protection concerns, salvage restrictions, navigation complications, and operations in freezing conditions.

According to the IMO, there has been a tenfold increase in the number of vessels using the Northern Sea route (a shipping lane officially defined by Russian legislation running from the Atlantic Ocean to the Pacific Ocean) during recent years, with 46 ships recorded in 2012, compared with 34 in 2011 and only four in 2010. The latest figures show 71 large ships, working mostly with Russian icebreakers, navigated the route in 2013, but Russia expects a 30-fold increase in shipping by 2020, and ice-free water over most of its length by 2050.

Meanwhile, the Arctic Institute notes that the polar research institute of China has suggested that by the year 2020, 5% to 15% of China’s trade value—about $500 billion—could pass through the Arctic. Development of logistics, supplies and infrastructure, special qualifications for ships’ officers, and the provisions of adequate ice-breaking capacity all need consideration in such a remote area, as do rescue and salvage operations. Navigational technology in the high north is constrained as GPS is not dependable at that latitude.

Additional concerns include the lack of good charts, communication systems and other navigational aids, all of which pose challenges for mariners. Indeed, shipping casualties (incidents) in the broader Arctic waters have increased to an average of 45 per year during 2009 to 2013 from only seven during 2002 to 2007. Damage to machinery caused a third of these incidents, higher than the average elsewhere, reflecting the harsher operating environment.

In recognition of the shift in traffic to these inhospitable regions, the IMO has been proactively working to establish a Polar Code. This draft international code of safety for ships operating in polar waters will cover the full range of design, construction, equipment, operational, training, search and rescue and environmental protection matters relevant to ships operating in the inhospitable waters surrounding the two poles.

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Auto insurance hike prevention efforts taken on by Michigan April 29, 2014 | Live Insurance News http://www.liveinsurancenews.com/auto-insurance-hike-prevention-efforts-taken-michigan/ Rep. Marilyn Lane (D-Fraser) originally introduced H.B. 5456 on April 17, with the goal of stopping auto insurance companies from being able to change the premium, surcharge, or rating classification of policyholders based on having made a claim regarding pothole damage to a vehicle. What this means is that the bill, should it pass, would stop an insurer from raising premiums in the case that they are required to make a payment for a claim for pothole damage to a covered vehicle.

The auto insurance bill was inspired by a fellow House member who was heard discussing this type of rate rise.

Lane explained that she created the bill and introduced it after she heard a fellow member of the house talking about a rate increase that was applied to a policy following a pothole damage claim.

This is what made her aware that the problem existed in the first place. The bill has now shown to be quite popular among the Michigan legislators, as 50 have already added their own signatures as cosponsors.

That said, the support for the insurance rate hike preventing bill is not without its controversy. The director of the Insurance Institute of Michigan, Pete Kuhnmeunch, has expressed that it doesn’t make a great deal of sense, as “Some insurance companies don’t charge for pothole claims and some do.” He also said that “Policyholders should check to see what their policy does and doesn’t cover.”

In Kuhnmeunch’s opinion, the auto insurance policies that do provide this protection are also frequently based on an opinion that the majority of pothole damage can be avoided by keeping a safe distance between vehicles so that potholes can be spotted before they are struck, and to drive more slowly so that the opportunity for damage isn’t as great. That said, he also acknowledges that avoidance isn’t always an option for drivers in every circumstance.

Customers Starting to Feel They’re Not Getting the Savings Promised in Auto Insurance Ads April 24, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/04/24/customers-starting-to-feel-theyre-not-gettingthe?ref=rss Auto-insurance consumers are bombarded with advertisements promising savings—and most who shop for coverage do indeed tend to choose the cheapest option—but more customers are beginning to feel they’re not getting quite the amount of savings they should, a study says.

New-buyer satisfaction scored 821 on a 1,000-point scale, says J.D. Power in its 2014 U.S. Insurance Shopping Study, down from 828 in 2013. The biggest driver for this decline was a 17-point drop in satisfaction with the new price for customers that switched.

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It’s not that shoppers aren’t saving: J.D. Power says customers who switched insurers in the past 12 months saved $300 on average. In fact, Colleen Cairns, research manager at J.D. Power, tells PC360 that this is virtually unchanged from recent years when satisfaction was higher. But the savings are not meeting customer expectations. “What we see is more of a customer perception,” Cairns says.

Jeremy Bowler, senior director of the insurance practice at J.D. Power, expands on that thought in a statement, “The insurance industry spends billions of dollars each year on advertising, and over the last seven years many of those ads have tried to entice customers with big savings. While switching to a new insurer usually results in savings, the ads make promises of savings that a growing number of new customers don’t believe they’ve received.”

Cairns says rate increases in general in the auto-insurance space have also contributed to the drop in satisfaction among shoppers who feel the overall cost for insurance, even after saving some money by switching, is too expensive.

Customers who were with their prior insurer for 11 years or longer saw the greatest savings—and average of $426 compared to $291 for customers who were with their insurer for under two years before switching. J.D. Power says this is likely because the longer-tenured customers had been experiencing rate increases for a greater period of time.

According to the study, 30% of auto customers shopped for a new provider in 2013. Of that number, 36% switched. Eight in ten customers that switched picked the insurer that offered the lowest price.

Customers did show a willingness to absorb a premium increase from their current insurer. J.D. Power says customers receiving a premium increase shopped at a rate of 13%. By comparison, customers who had a poor experience with their insurer—the leading reason customers shop— looked for a new provider at a rate of 28%.

Cairns tells PC360 the amount of the increase has a lot to do with whether a customer will shop. She says for those receiving an increase of $50 or less, only 9% switched carriers. For those getting an increase of $50 to $100, the figure doubles to 18%. Those receiving an increase of more than $200 switched at a rate of 33%.

Insurer rankings Erie Insurance led all auto insurers in satisfaction with a score of 843. MetLife and State Farm were second at 839, followed by American Family and Ameriprise at 835. The industry average was 821.

Mercury (774), Travelers (788) and 21st Century (800) scored the lowest among the insurers J.D. Power ranked.

USAA was not included in the rankings since it is only open to U.S. military personnel and their families, but the insurer earned a score of 876.

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Flood insurance rates in Florida significantly reduced by Lloyd’s of London April 22, 2014 | Live Insurance News http://www.liveinsurancenews.com/flood-insurance-rates-florida-significantly-reduced-lloydslondon/ The National Flood insurance Program (NFIP), which is a part of FEMA, is now quoting rates that are significantly higher than what is available elsewhere for many Florida consumers. For example, for a home in the St. Petersburg Shores Acres section, coverage for $250,000 was quoted by NFIP to be $4,846 per year. However, the rate that was quoted for that same property by Lloyd’s of London was a notably more affordable $2,123.

Private flood insurance companies are now starting to scoop up consumers who can’t believe the NFIP rates.

The decreases that are being seen in the quotes for flood policy premiums aren’t anything to shrug off. For instance, the rate from Lloyd’s for $146,000 worth of coverage in St. Petersburg was $1,367, whereas NFIP had quoted a renewal rate of $6,685. Similarly, Lloyd’s quoted $1,489 for $188,000 of coverage for a St. Pete Beach house, whereas the NFIP quote was a staggering $9,004. A Tampa home needing $250,000 worth of coverage was quoted $2,192 by Lloyds and $6,342 by the flood program.

As private insurers start to make their way into the Florida market, thousands of homeowners who had previously been facing serious financial challenges could now be seeing much bluer skies.

Floridians who thought that their coverage would be prohibitively expensive because their homes had been constructed many years ago in low lying areas are suddenly seeing much more affordable rates. Those who were terrified that their property values would plummet due to the cost of insuring it are now seeing that this may no longer be the case.

Flood insurance has been available in Florida from Lloyd’s of London since last summer. The massive institution is now improving things even further by instructing its insurance agents to “significantly” decrease its rates now that it has broadened its reach into other states, decreasing its risk from any single catastrophic storm.

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Finance Aon Q1 Profit, Revenues Rise April 25, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/04/25/aon-q1-profit-revenues-rise?ref=rss Aon says 2014 first-quarter net income attributable to shareholders was $325 million, compared to $261 million in the previous year’s first quarter as revenues and operating income increased in both the Risk Solutions and HR Solutions segments.

For its Risk Solutions segment, Aon says revenue was just under $1.99 billion compared to $1.97 billion in 2013’s first quarter. Commissions and fees grew 1% to $1.6 billion, and grew 2% in reinsurance to $409 million.

Operating income in the segment increased by 10% to $445 million.

For HR solutions, revenue increased 1% to $965 million, while operating income increased 31% to $67 million.

Greg Case, Aon president and chief executive officer, says in a statement, “Our first-quarter results reflect a solid start to the year with double-digit earnings growth, highlighted by strong performance across Risk Solutions and effective capital management.

“We are returning a record amount of capital to shareholders, highlighted by the repurchase of $600 million of ordinary shares in the quarter and the recently declared 43% increase in our quarterly cash dividend, while continuing to invest in innovative solutions across the firm to strengthen our industry-leading platform for long-term growth, strong free cash flow generation and increased financial flexibility.”

On a conference call, Case said organic growth was 2%, including 3% organic growth in Risk Solutions.

CIAB: Commercial Lines Rate Hikes Moderate Again; Large Accounts See Decrease April 25, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/04/25/ciab-commercial-lines-rate-hikes-moderateagain-la?ref=rss Commercial lines rate increases moderated in Q1 2014 to 1.5%, compared to 2.1% in Q4 2013, and capacity in most lines remained abundant, although that could vary by risk depending on the loss history, according to a recent broker survey.

The latest Council of Insurance Agents and Brokers rate survey shows a steady moderation trend over the last year. In Q1 2013, the survey showed rates up by 5.2%. In the second quarter last year, rates increased by 4.3%, and by 3.4% in the third quarter.

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As in CIAB’s Q4 survey, small accounts saw the steepest increases in 2014’s first quarter. In fact, small accounts saw on average a greater increase in the first quarter at 3% than they did in Q4 2013 (2.6%). Rates for medium accounts increased by 1.6% in Q1, compared to 2.4% in the previous quarter, and rates for large accounts actually decreased by 0.1% compared to a 1.4% increase in Q4 2013.

By line, directors and officers, employment practices and workers’ comp. saw the steepest increases at 5.2%, 4.9% and 4.1% respectively. At the other end of the spectrum, commercial property rates were flat.

While rate increases for workers’ comp. moderated on average to 4.1% compared to 4.9% in Q4 2013, CIAB says brokers it polled indicated underwriting standards have tightened in California. CIAB says workers’ comp. “continued to be a tough line to write coast to coast.”

Speaking to the commercial-lines market overall, CIAB President and CEO Ken A Crerar says in a statement, “Last year was good to the carriers, which the survey numbers reflect. Catastrophe losses were low, profitability rebounded as a result of higher premiums, and the economy greatly improved. All of that, coupled with ample capacity and more competition in the reinsurance market, no doubt had a dampening effect on price increases.”

Chubb’s Profit Falls 32% on Higher Catastrophe Losses April 24, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/04/24/chubbs-profit-falls-32-on-higher-catastrophelosse?ref=rss Property and casualty insurer Chubb Corp reported a weaker-than-expected first-quarter profit, hurt by higher catastrophe losses related to severe winter in the United States.

On an operating basis, Chubb earned $1.50 per share, below analysts’ average estimate of $1.56 per share, according to Thomson Reuters I/B/E/S. “Results were adversely impacted by several factors, including catastrophe and non-catastrophe losses related to severe winter weather in the United States. Chubb also suffered an unusually high level of homeowners’ fire losses...,” Chief Executive John D. Finnegan said in a statement.

Chubb’s combined loss and expense ratio for the first quarter was 93.2%, compared with 84.6% a year earlier.

Combined ratio is an indicator of the total claims and expenses incurred over net earned premiums.

A combined ratio over 100 indicates that an insurer has an underwriting loss.

The company’s underwriting income fell 57% to $208 million.

U.S. property and casualty insurer Travelers Cos Inc reported a 17% rise in first-quarter profit, helped by higher underwriting gains and an increase in net investment income.

Chubb’s net income fell to $449 million, or $1.80 per share, for the quarter ended March 31, from $656 million, or $2.48 per share, a year earlier.

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Shares of the Warren, New Jersey-based insurer were down about 3% in extended trading, after closing at $91.73 on the New York Stock Exchange.

Travelers Profit Rises 17% on Investments, Margin Expansion April 22, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/04/22/travelers-profit-rises-17-on-investmentsmargin-ex?ref=rss Travelers Cos., the only property- casualty insurer in the Dow Jones Industrial Average, said profit climbed 17% to a record in the first quarter on investments and expanding margins.

Net income rose to $1.05 billion, or $2.95 a share, from $896 million, or $2.33, a year earlier, the New York-based company said today in a statement. Operating profit was also $2.95 a share, beating the $2.16 average estimate of 26 analysts surveyed by Bloomberg.

Chief Executive Officer Jay Fishman, 61, has been selectively raising insurance rates to boost profitability as claims from storms pressure returns. He’s also been cutting costs to help increase the company’s return on equity, which climbed to about 17% in the first quarter from 14% a year earlier.

“Our very deep agent, broker and customer relationships, highly segmented pricing strategies and expense discipline continued to deliver strong and improving underwriting results,” Fishman said in the statement. Travelers is “well positioned to deliver on our goal of producing a mid-teens operating return on equity over time.”

Travelers made 14 cents for every premium dollar it collected in the first quarter, compared with 11 cents a year ago. Net investment income rose to $736 million from $670 million, driven by gains in private equity and real estate partnerships.

Catastrophe costs Those increases helped mute $149 million of costs associated with catastrophes in the quarter, compared with $99 million a year earlier. Industrywide, winter weather in the U.S. caused $2.6 billion in insured losses as of March 31, insurance broker Aon Plc said in a report this month.

Burst pipes, falling trees and roof collapses fueled costs for property insurers. Slick roads, potholes and impaired visibility led to auto accidents.

“It was just kind of cold and sloppy for the better part of 2 1/2 months,” Mark Dwelle, an analyst at RBC Capital Markets, said in an interview before results were announced.

Travelers’ book value, a measure of assets minus liabilities, rose 4.1% to $73.06 per share.

The insurer had slipped 4.6 percent this year through yesterday in New York trading after gaining 26% in 2013. That compares with the 0.8% drop in the 30-company Dow since Dec. 31.

Fishman has been diversifying beyond U.S. commercial coverage, the insurer’s largest business. The company will seek more international deals after expanding last year by purchasing a business in Canada and in 2012 by increasing its stake in a Brazilian venture, he wrote in a letter to investors this month. The acquisition helped boost policy sales to $5.87 billion in the first quarter from $5.6 billion a year earlier.

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Travelers also increased its quarterly dividend to 55 cents a share from 50 cents.

KBW: Reinsurance, Personal Auto and Commercial Rates All Under Pressure April 16, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/04/16/kbw-reinsurance-personal-auto-andcommercial-rates?ref=rss Reinsurance pricing could see double-digit decreases in June and July, commercial-lines pricing will continue to decelerate and personal auto price competition is likely to intensify.

Against this backdrop, though, most insurers and reinsurers are expected to report solid Q1 earnings, according to a Keefe, Bruyette & Woods Q1 preview titled, “Bad Weather, Low Yields, Softer Pricing—What Could Go Wrong?”

On pricing trends, KBW says, for reinsurance, some had believed pricing declines at Jan. 1 would stabilize by mid-year. But the firm says that seems increasingly unlikely. Pointing to a Willis Capital Markets and Advisory analysis citing “meaningful pent-up demand for non-U.S. wind-exposed bonds, KBW says there may still be “a ways to go for third-party capital’s influence on reinsurance pricing.”

KBW notes supply in the reinsurance market is depressing rates beyond just U.S. Southeast property-catastrophe risks, and as a result, some insurer/reinsurer hybrids are allocating capital toward specialty-commercial insurance instead, pressuring rates in that market.

But commercial rates are affected more by the industry’s improved 2013 underwriting results, says KBW. “On the other hand,” the firm says, “given still-low yields and the back-burner risk of accelerating loss-cost inflation, insurers simply aren’t abandoning price discipline, and fankly, we don’t think they will.”

For personal auto, KBW says the market appears to be in the early stages of more aggressive pricing environment. “Travelers is lowering both expenses and rates to attempt to stanch its double-digit policies-in-force declines each quarter of 2013,” says KBW. The firm says other insurers will respond as Travelers continues its rollout of Quantum 2.0, a product designed to allow independent agents to bring new features and benefits to customers, such as accident forgiveness and disappearing deductibles.

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Technology Is the Future of Insurance in the Internet of Things?

April 29, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2014/04/29/is-the-future-of-insurance-in-the-internet-ofthin Technology is continually evolving, and as a result, the world is becoming more connected. The digital world is becoming bigger and bigger, allowing people, places and things to easily exchange digital information and data. The digital information, which is stored and analyzed, provides predictions, feedback, and a means of control for the various parties involved, and consequently, the Internet of Things is making (or should be making, at least) the world safer and healthier.

There is a downside to this.. The massive amount of connectivity could lead to a potential intrusion, and unwelcome constraints on individuals’ actions, speech, and even thoughts.

Celent, in its recent report, “The Internet of Things and Property/Casualty Insurance: Can an Old Industry Learn New Tricks,” reveals why and how the Internet of Things (IoT) will fundamentally impact the property & casualty insurance business.

“From an insurance perspective, what is new and different and critically important about this data is that it can provide a much more accurate picture of the exposures, hazards, and risks of what is being insured,” said Donald Light, director of Celent’s Americas Property/Casualty Practice and author of the report.

“These analytically driven findings create the second critically important consequence of the IoT: insurers can create feedback and control processes to command or request things to change their loss-related behavior and performance,” he said.

Related Science Fiction as Reality: The Internet of Things and Its Impact on Subrogation As the IoT grows, subrogation professionals expand their evaluations to non-traditional entities.

According to the report, the Internet of Things has three, interdependent components: things with networked sensors, data stores, and analytic engines. In some cases, the IoT will provide more accurate data about various pricing factors that insurers are using, and in others, it can provide new kinds of data that could directly impact how insurers price.

The report reveals that the potential of the IoT to change the way insurers do business is immense, and explores the ways that this potential can be realized. Celent’s report details how the IoT will give insurers first order data on a great many hazards and risks, and the ability to create feedback control processes to substantially reduce losses.

The IoT will change every part of the insurance value chain, including product design, pricing, underwriting, service and claims. The value to policyholders (in terms of reduced premiums and other costs of risks) and to insurers (in terms of reduced loss costs and expenses) must be balanced against the cost of retaining, maintaining and utilizing the IoT for success, the report reveals.

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Over time, insurance premiums will decrease proportionately to decreases in losses. The report questions, though, will the insurance industry pursue an operating strategy that makes it smaller?

And furthermore, if reduced premiums are materially large, will the industry accept a smaller role in the economy? Will it find alternative sources of revenue that build on the loss reduction role in the IoT?

Retail Shortfall in Assessing Cyber Threats: Willis April 24, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2014/04/24/retail-shortfall-in-assessing-cyber-threatswillis The retail sector estimates their cyber exposures are greater than their non-retail peers listed in the Fortune 1000, according to recent research. However, some retailers have remained silent concerning the issue of cyber risks altogether, suggesting that there may be a shortfall in assessing cyber risk threats in the retail industry.

Part of an ongoing effort to examine cyber risk in the retail sector, Willis published their recent report, “How Retail Companies Describe their Cyber Liability Exposures,” which details cyber risk disclosures made by the retail sector of the Fortune 1000.

The study, which is part of an ongoing analysis of financial documents for major retailers, revealed that 57% of retail firms disclosed their cyber exposures as significant, serious, material or crucial. At the same time, 9% of the firms did not disclose any risks related to cyber exposures, a result that Willis views as “surprising,” given that the retail industry has been the target of some of the highest profile system breaches in recent years, resulting in the many of the largest losses.

“The results underscore a potential shortfall by some firms in the retail sector in assessing cyber threats,” said Ann Longmore, executive vice president of FINEX, Willis North America and co-author of the report. “In addition to the potential impact a cyber-event could have on their operations, firms that fail to disclose known cyber risks in their public disclosures could face additional exposures in the form of Directors & Officers liability suits, should a loss occur.”

According to Willis’ findings, the top three cyber risks identified in the retail sector include the privacy and loss of confidential data (74%); reputation risk (66%) and cyber liability (61%). However, cyber risk at the hands of “outsource vendors” was a concern for only 9%. Given the level of outsourcing across the sector and an overall dependence on third-party technology partners, this result is surprising.

In combatting cyber risks, the survey revealed that almost half of the respondents cited the use of technical safeguards, which is greater than the rest of the Fortune 1000. Despite this, 17% of retail companies reported inadequate resources to limit cyber losses. This is a potential cause for concern, Willis suggests, as technical protections may not be able to effectively contain the effects of some cyber or technological events. Similarly, only 9% of the sector indicated they have purchased insurance for cyber exposures.

“Addressing the evolving set of cyber threats facing the retail sector must remain a top priority. It is encouraging to see some retail industry leaders take steps to better prepare for and defend themselves against the increasing wave of targeted attacks via information sharing arrangements,” said senior vice president of National Resource E&O for Willis, Chris Keegan.

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At the same time, however, Keegan indicates that there is room for improvement.

“In Willis’ view, the sector is slightly behind the curve in taking proactive steps,” he said. “A series of recent high-profile cyber breaches have pointed a government spotlight at the sector and Willis expects this scrutiny to continue. Our advice for retailers is: don’t wait for the SEC to come knocking on your door.”

Willis’ Special Report, “10K Disclosures - How Retail Companies Describe their Cyber Liability Exposures” is part of an ongoing Willis series analyzing how U.S. public companies describe their cyber risks in financial documents required by the U.S. Securities & Exchange Commission since October 2011.

Settlers Life Adopts Automation for Agents April 22, 2013 | Insurance and Technology http://www.insurancetech.com/distribution/settlers-life-adopts-automation-for-agen/240167144 Settlers Life Insurance Company has chosen the iGO system from iPipeline to automate and accelerate the processing of multiple Final Expense life products. Over 3,000 insurance producers throughout 36 states will use the solution. iGO, an electronic fillable form, will allow Settlers Life to bypass legacy system integration and minimize IT involvement while achieving straight-through processing. This deployment also includes the iGO Disconnected version so producers without Internet access will still be able to work. [ Machine-to-Machine: Insurance Applications Emerging. ] “At Settlers Life we focus solely on final expense and the agent partners who offer our products to the marketplace. That is why we are very pleased to offer the iGO electronic application solution to our partners,” says Michael Lowe, Settlers Life president, in a statement. “We believe it will be a great addition to their ‘agent toolbox’, helping to guide them through our applications, auto-filling many sections, and simplifying the sales and submission process.”

Lowe also noted that Settlers Life is extending its collaboration with iPipeline to further enhance the iGO tool.

Western National Prepares Data for Billing Revamp April 22, 2013 | Insurance and Technology http://www.insurancetech.com/management-strategies/western-national-prepares-data-forbilli/240167147 With the company in the midst of implementing a new billing system, Western National Insurance Group has selected Strategic Insurance Systems Initiatives Group (SiSi Group) to provide data conversion services.

The project encompasses the conversion of both personal and commercial lines data from WNIG’s two legacy platforms. Tools used will include SiSi Group’s proprietary Data Evolver data conversion software.

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[Read Why CNA Sold a Data Center] “We knew that choosing the new billing system was only part of the battle,” says Carol Arel, WNIG’s Corporate Controller, in a statement. Migrating the data from the old systems, including all of the necessary data validation and clean up, also presented a sizable task. We are pleased to have found a highly qualified partner like SiSi Group to help us through the conversion work.”

The project will be completed in phases with personal and commercial lines data for the two legacy systems being handled each as a standalone conversion effort.

The Hanover Offers E-Training to Service Organizations April 18, 2013 | Insurance and Technology http://www.insurancetech.com/management-strategies/the-hanover-offers-e-training-toservice/240167125 Reflecting an industry trend toward offering more services than just insurance to high-value customers, The Hanover has developed online training courses for its customers that are organizations serving children, the disabled, or the elderly.

Developed by its risk solutions team, the company provides free online access to a library of short, informative courses related to child abuse and neglect, bullying prevention, mandated reporter responsibilities, and screening of employees and volunteers.

“We are committed to providing world class, distinctive services to support the customers of our agent partners,” said Scott Grieco, president of middle market at The Hanover, in a statement. “We understand how important it is for human services organizations to provide great training and quality programs for their employees and volunteers. Our risk solutions team has developed comprehensive tools that provide access to a broad range of training in the most effective and efficient way possible.”

The idea, the company says, comes out of a greater strategy within the organization to help customers with limited budgets meet requirements by offering value-added services.

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Strategy Aspen CEO O’Kane Says Ideal Partner Would Extend Insurer’s Reach April 25, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/04/25/aspen-ceo-okane-says-ideal-partner-wouldextend-in?ref=rss Chris O’Kane, chief executive officer of Aspen Insurance Holdings Ltd., says his ideal suitor would have worldly attributes. Not that his company is for sale.

Having rebuffed a $3.2 billion offer from Endurance Specialty Holdings Ltd. this month and adopted a shareholder rights plan to dissuade hostile suitors, O’Kane, who founded Bermuda-based Aspen in 2002, acknowledged what he does look for in a potential partner.

“We want to be bigger in U.S. insurance, regional insurance. We want a bigger presence in the London market,” O’Kane said today in an interview. “The problem with Endurance is, it doesn’t take us in that direction at all.”

Endurance, also based in Bermuda, offered $47.50 per share for Aspen on April 14. Aspen rejected the offer the same day, saying the “ill-conceived proposal undervalues our company, represents a strategic mismatch, carries significant execution risk, and would result in substantial dis-synergies.”

Aspen’s shares rose 2.6 percent to $45.94 at 3:15 p.m. in New York, giving the company a market value of about $3 billion.

Endurance’s offer was “not a good price at all” and came “nowhere near” what the firm is worth, O’Kane said in the interview.

Aspen offers property and casualty insurance and reinsurance in the U.K., U.S., Southeast Asia, and Latin America. The firm adopted a shareholder rights plan, called a poison pill, last week to discourage a hostile takeover by making it too costly.

Financial strength Aspen is committed to remaining independent, and its first- quarter results underscore that it has the financial strength to do so, O’Kane said.

Net income was $120.4 million in the three months through March, according to a statement yesterday, up 31 percent from a year earlier because of lower catastrophe losses and releases from its loss reserves.

The company is also on track to exceed a target it set last year of maintaining by 2014 at least a 10 percent return on equity, a key gauge of profitability, O’Kane said.

Aspen and Endurance are not actively talking, he said. He declined to say whether Aspen has been approached by other potential buyers.

“Our board is a very, very conscientious board,” O’Kane said. “It would look at and evaluate anything that comes up.”

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Leveraging the Value of E&S Wholesale Brokers to Risk Managers April 25, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/04/25/leveraging-the-value-of-es-wholesale-brokersto-ri?ref=rss According to recent quantitative analysis including A.M. Best’s 2013 Special Report on U.S. Surplus Lines, as well as observable evidence like record attendance at the 2013 National Association of Professional Surplus Lines Offices (NAPSLO) Annual Convention and 2014 Mid-Year Leadership Forum, the surplus lines industry is healthy with growing capital and significant opportunity. The E&S industry has also proven resilient over time, with no financially impaired surplus lines companies in the last nine years. We believe that stability is derived, in part, from the efficiency, cost-effectiveness and many other benefits of the wholesale distribution system.

Wholesale brokers offer risk managers access to markets and specialized coverage they can’t find in the standard market. Wholesalers often specialize in one industry or a handful of related industries and the associated product lines, enabling them to be experts in a specific area. The true value of the wholesaler is the innovation they bring to the placement of specialty insurance. For risk management professionals, leveraging that expertise is invaluable.

When a retail agent helps a risk manager with a complex exposure, by seeking the skill of a surplus lines professional, they ultimately strengthen their client relationship. A client who walks away with the right customized policy is more likely to come back for other needs. A wholesaler adds value not only in recommending the various levels of coverage and the right carrier fit, but also promotes innovation in response to the most unique and emerging risks facing their clients.

Many wholesale brokers have underwriting experience, which strengthens their ability to respond with speed and agility and also helps foster flexibility and creativity as they work in niche markets.

This makes them excellent allies in preparing documentation for underwriters and ensuring that situations unique to that particular risk or industry are considered. In essence, they can become an important extension of a risk manager’s knowledge base.

For the insured, it’s important that a retail agent have a relationship with wholesalers so that when a hard-to-place risk walks through the door, the retailer is ready to respond with the help of that wholesale broker. For many agents, beginning with a NAPSLO member is all the due diligence required.

NAPSLO is a membership organization of insurance brokers, agents, underwriters and associates who are committed to the surplus lines industry and the wholesale distribution system. Founded in 1974, NAPSLO provides members with networking opportunities, regulatory and legislative advocacy and education and career development programs. NAPSLO has become the authoritative voice of the surplus lines industry, advocating for the industry’s vital role as a “safety valve” for hard-to-place and specialty insurance risks and for the industry’s importance in the insurance marketplace and global economy. Headquartered in Kansas City, MO, NAPSLO has more than 700 member firms from 1,500 offices. The membership is comprised of approximately 52% wholesale brokers and 27% companies/underwriters; the remaining members are associates.

NAPSLO members can be counted on to have the technical expertise that’s necessary to craft custom solutions for their clients. The Association’s members ultimately view themselves as resultsoriented, relationship facilitators, which is a mindset that’s beneficial to the retail agent and the insured.

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NAPSLO-member wholesale brokers streamline and add value to the process of insuring the most complex risks. Just as a medical patient expects a general practitioner to collaborate with a specialist, insurance clients should expect their agent will seek out an expert solution that’s tailormade. Wholesalers fill that role of specialist. They routinely deal in business that is nuanced and as a result are able to help efficiently discern not only what needs to be covered in a policy but also what is of highest importance to the client.

Our member firms are adept at providing coverage for risks the standard market cannot and they also must adhere to a strict set of guiding values that make them reliable resources. NAPSLO members are, first and foremost, trustworthy innovators and they are technical experts. Integrity and professionalism form the foundation cornerstones of both the Association and its membership and represent the core values clients can expect from NAPSLO member firms.

Cossio Takes over Amusement Insurance Resource’s Party Rental Customers April 24, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/04/24/cossio-takes-over-amusement-insuranceresources-pa?ref=rss The Simpsonville, SC-based Cossio Insurance Agency (CIA) on Wednesday announced that it had taken over all of Amusement Insurance Resource’s (AIR) inflatable, party rental and mechanical bull customers as part of a new agreement between the attractions industry insurers. The deal was made effective on April 1, 2014. Terms were not disclosed.

“Both companies believe that this agreement will provide the best coverage and service to existing customers while AIR focuses its business into other areas of the Amusement Industry,” Cossio wrote in a statement announcing the deal.

As of Wednesday, AIR’s website at www.insureair.com redirects to the CIA site, and AIR’s corporate parent, the insurance brokerage firm of Britton Gallagher, could not be reached for comment. Cossio said that current AIR customers will continue to receive the same level of coverage for their policies and will be given the option to renew with CIA when the time comes.

Following this development, CIA now offers insurance coverage for a range of amusements including inflatables rentals, indoor play centers, mechanical bulls, family fun parks, rock climbing walls, paintball and airsoft facilities, and special events like festivals, competitions and weddings. Brokers who are interested in working with Cossio on these new lines should visit the agency’s website for more information.

Berkley Defends Company’s Reserves; Cautions on the ‘Certainty’ of Analytics April 23, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/04/23/berkley-defends-companys-reserves-cautionson-the?ref=rss W.R. Berkley Corp. Chairman and CEO William R. Berkley vigorously defended the company’s reserving practices on an investor conference call today, stating that, if anything, the insurer leans toward being more conservative.

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“The fact is we have had over seven years of positive development, which I might point out is twice the average duration of our loss reserves,” Berkley said.

He added, “It would be hard—in spite of at least one person pointing out that they think we’re short of reserves—to continue that process if that were the case. But there are people who write fairytales as well as historical facts.”

One analyst that had questioned Berkley’s reserve strength was Deutsche Bank’s Joshua Shanker, who, according to StreetInsider.com, said in late January, “We believe prior-year reserve deficiencies have been growing at Berkley for three years. While the company continues to report net favorable prior-year reserve development, we note that the amounts are lessening. Further, we believe that reserve releases relate to short-tail lines in recent accident years, and our concerns are over longtailed reserves for more mature accident years.”

In an April 1 Industry Update, Shanker said W.R. Berkley management provided two supplemental schedules of workers’ comp data breaking out primary and excess businesses separately. That showed reserves for workers’ comp appeared to be redundant by $105 million, rather than deficient by $607 million when analyzed in the aggregate, as was reported in the National Association of Insurance Commissioners’ published Schedule P data Deutsche Bank used for its analysis.

But Shanker added in the report that, across all liability lines, the company still appeared to be deficient by about $600 million. “Though we may be less emphatic on our conclusion that reserves are deficient, we still see concerning trends in the data—albeit less than we noted in prior years,” the analysis said.

On the Q1 conference call, Berkley said, “We did have a period of time back over 10 years ago when we were concerned about our reserves, and we changed everything we did about our reserving process and practices. So now we have a tendency to be more conservative,” which in fact over the long run is probably an additional problem because we end up being more conservative than we would like to be.”

For the first quarter, W.R. Berkley CFO Eugene G. Ballard said reserve releases were $25 million compared to $23.5 million in 2013’s first quarter. He said over $25 million in domestic insurance reserve releases were slightly offset by “very modest” increases in prior-year reserves for the international and reinsurance segments.

Shanker declined to comment beyond the remarks in the April 1 Industry Update.

Q1 Results For the first quarter, W.R. Berkley reports net income to common stockholders of $169.7 million, up from $116.6 million in 2013’s first quarter.

The combined ratio improved to 93.9 in the quarter, compared to 94.7 a year ago. For domestic insurance, the combined ratio was 92.2, for international insurance it was 99.3 and for reinsurance it was 97.4. The combined ratio increased in both international and reinsurance.

Net premiums written increased to over $1.5 billion from under $1.4 billion a year ago.

State of the market and the “unforeseen event” Even in the age of analytics and big data, the “unforeseen event” will end up throwing a wrench into insurers’ plans and expectations, Berkley said.

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Speaking about the state of the market on the company’s Q1 results conference call, Berkley said, “The unforeseen event is what changes the pattern of behavior, and the advent of big data and all kinds of analytics—and people’s belief in the certainly of such—is taking us down a particular path.”

He added, “A lot of people have bet big amounts on the certainty of actuarial science and the mathematics of big data,” but he noted, “I think what’s going to surprise people is that unforeseen event when it comes.”

Judging by the history of the insurance industry, Berkley said, “you know [that event is] sitting out there,” and even so, he said it “always surprises you.”

Regarding the rate environment in the domestic insurance market, COO W. Robert Berkley said on the call it is “modestly more competitive” than the recent past, but he stated it is still possible to raise rates beyond loss-cost trends, and suggested that should continue to be the case for the rest of the year.

“Market conditions are not going to become terribly more competitive,” he said.

Expanding on insurers’ behavior in the current market, Robert Berkley, speaking generally, said large national carriers appear to be “taking their foot slightly off the rate pedal and looking for ways to not shrink their business as far as count goes” as they continue to grapple with growth and a desire for rate. But he says carriers are being selective, and only becoming “marginally more aggressive” for lines of business they believe they “have their head around.”

William Berkley pointed out problems some companies are running into as they enter a new line. He said some companies see classes of business that look attractive, but they enter the “least attractive place” in that business because that is where they can get in. “The differential between good places and good niches and bad has never been greater,” he said.

In general, Robert Berkley said casualty business and workers’ comp remain “among the most attractive,” but he said that can vary by territory or class.

Commercial transportation he called “a great puzzle to us,” noting that the line has seemed ripe for more hardening for some time, but has not. He said there is “some commonality with what we saw in workers’ comp a few years ago.”

ISO, PCI Break Down Insurers’ Strong 2013 Results April 21, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/04/21/iso-pci-break-down-insurers-strong-2013results?ref=rss Net income for private U.S. property and casualty insurers was $63.8 billion in 2013, up from $35.1 billion in 2012, thanks in large part to a $30.9 billion swing in net gains on underwriting.

ISO, a Verisk Analytics company, and the Property Casualty Insurers Association of America compiled the industry’s 2013 results, and note that insurers’ overall profitability, measured by their rate of return on average policyholders’ surplus, reached its highest level (10.3%) since 2007.

P&C insurers reported $15.5 billion in net gains on underwriting in 2013, compared to $15.4 billion in net losses on underwriting in 2012, as the industry saw premiums grow and losses drop. As a result, the industry’s combined ratio fell to 96.1 compared to 102.9 in 2012.

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Net losses and loss-adjustment expenses (LLAE) were $315 billion in 2013, a 5.5% improvement from 2012, while net-written premiums grew 4.6% to $477.7 billion.

Robert Gordon, PCI’s senior vice president for policy development and research, says in a statement, “The drop in net LLAE accounts for more than half of the improvement in underwriting results in 2013. Specifically, insurers’ combined ratio improved by 6.8 percentage points last year, with the drop in net LLAE accounting for 3.9 percentage points of that improvement.”

Michael R. Murray, ISO’s assistant vice president for financial analysis, says insurers earned net gains on underwriting in just 12 of the 55 years since the start of ISO’s data in 1959. However, he puts the 2013 underwriting results in perspective by noting that much of the improvement for the year is due to “special developments,” such as relatively benign weather, few catastrophe losses and increases in reserve releases.

Murray says, “[O]ne has to wonder just how sustainable the net gains on underwriting will prove to be.”

Aside from solid underwriting results, insurers also saw investment gains—the sum of net investment income and realized capital gains or losses on investments—rise to $58.8 billion in 2013 compared to $54.2 billion in 2012.

While there was improvement in this area, Robert Hartwig, president of the Insurance Information Institute, says “persistently low interest rates” remain a challenge for the industry.

Combined, the improved underwriting and investment results pushed pre-tax operating income to $64.3 billion in 2013 from $35 billion in 2012.

Policyholders’ surplus grew to a record $653.3 billion in 2013 compared to $587.1 billion in 2012, due largely to the industry’s net-income gain. PCI’s Gordon says the record policyholders’ surplus is a “testament to the strength and safety of insurers’ commitment to policyholders,” but he notes insurers will need to continue building their financial resources as risk models show a trend toward increasing catastrophic events.

Regarding insurers’ overall performance in 2013, Hartwig says, “Profitability surged amid lower catastrophe losses and strong prior-year reserve releases—even investment gains were up as strength in realized capital gains overcame weakness in investment income, in large part due to historically low yields on fixed income securities through much of the year. Premium growth, while still modest, is now experiencing its longest sustained period of gains in a decade.”

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