INSURANCE NEWS FLASH May 15, 2014
Table of Contents Sales & Marketing ................................................................................................................. 3 Finance ............................................................................................................................... 10 Technology .......................................................................................................................... 17 Strategy .............................................................................................................................. 22
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Sales & Marketing Africa Gets First-Ever Natural Disaster Insurance Pool May 15, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/15/africa-gets-first-ever-natural-disasterinsurance?ref=rss Several African nations – including Kenya, Mauritania, Mozambique, Niger and Senegal to start -- are now better protected from extreme weather events as a result of a new African catastrophe insurance pool, launched Thursday by the African Risk Capacity (ARC). The goal, according to backers, is to reduce African governments’ reliance on external emergency aid in the event of natural disasters. “The creation of the first ever African catastrophe insurance pool is a transformative moment in our efforts to take ownership and use aid more effectively,” said Dr Ngozi Okonjo-Iweala, Chair of the ARC agency board, in a statement. “It is an unprecedented way of organizing ourselves with our partners, with Africa taking the lead – taking our collective destiny into our own hands, rather than relying on the international community for bailouts.” Germany and the UK provided US $200 million in startup capital for the mutual, which is initially domiciled in Bermuda, and the policies will provide a total of US $135 million in drought coverage tailored to the specific needs of each insured country. Industry partners in the effort include Stroock & Stroock & Lavan LLP, Appleby Bermuda, Marsh IAS and Willis Group. “Droughts undermine our hard-won development gains, just as Africa is beginning to realize its vast potential,” said Henry Rotich, Kenya’s Cabinet Secretary for the National Treasury. “ARC will help us build resilience among vulnerable populations, protect our agriculture investments, thereby increasing productivity, as well as promoting fiscal stability by preventing budget dislocation in a crisis.”
Nationwide's Thresher: Best Agents Growing in Commercial and Financial Services May 09, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/09/nationwides-thresher-best-agents-growing-incommer The best Nationwide agents are growing their agencies in commercial and financial services, recognizing that direct-channel preference means there are fewer personal-lines customers, Nationwide’s CFO Mark Thresher tells PC360. He says Nationwide has seen continued growth in its direct channel. Sometimes, the direct channel acts as a lead for agents, he notes. “We still have a fairly high percentage of customers who start on the Internet that actually either bind in our call center or bind with a local agent, so the agents are benefitting from it in that sense.”
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But he adds that the company’s best agents are adapting to the marketplace. “I think they also realize that the future for agents is in financial services and commercial,” Thresher says. “Customers are deciding to go direct for personal lines, and that’s their choice. So our best agents are growing their agencies in commercial and financial services, and still serving the customers who want an agent in personal lines—there just are fewer of those today.” Weather losses hurt P&C Q1 results For the 2014 first quarter, Nationwide saw net income fall to $140 million compared to $484 million in 2013’s first quarter, with property and casualty results taking a hit from weather losses in January, Thresher says. “Clearly for us this year, January was probably as high of weather losses as we’ve had historically.” P&C losses and loss expense climbed to $2.9 billion compared to $2.6 billion in 2013’s first quarter. Consequently, P&C 2014 Q1 operating income fell to $140 million compared to $484 million the year before. “It’s really weather year-over-year,” Thresher says. “Last year was probably a more normal first quarter of weather-related losses, maybe even a pretty good one compared to some historical ones.” Thresher does not feel Nationwide is overexposed to weather losses in any one region. Rather, he says the prolonged freeze this winter simply impacted such a wide portion of the U.S. He notes that even Atlanta and areas south of there were affected. “If you look at the winter freeze, it was just so widespread and lasted so long. That was unusual,” Thresher says. “We’re really pretty comfortable with our geographic spread of business and we manage that carefully.” He adds, “Even if we look at April weather storms and tornadoes—we’ll have our share of losses, but nothing overly significant there.” Nationwide also reports net realized investment losses, net of other-than-temporary impairment losses, of $326 million compared to a gain of $80 million in Q1 2013. Explaining this figure, Thresher says, “It’s actually losses on some of our risk-management programs where we’re hedging against movements in interest rates. And we’re actually trying to protect statutory capital from a rise in interest rates in our variable-annuity business, and so when rates dropped this quarter we actually have a loss on the hedge. But we have offsetting movements on statutory liabilities that maintain capital that way.” He notes that the company saw the opposite impact in Q4, when rates went up “we saw gains in those programs that offset other movements in statutory. So it’s not really losses on sales of securities or impaired securities, it’s just part of our risk-management programs.” In general, Thresher says he’s “very pleased with the results in the first quarter,” stating that they represented a good recovery after a “tough January” with the weather losses. Overall, he says he sees “strong momentum across the board from a sales standpoint.” He says the strongest growth was seen in the company’s financial-services business, which was up 12% year-over-year. In P&C, he says the company grew most in standard commercial, in Scottsdale’s excess and surplus lines business and in Nationwide Agribusiness.
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Workers' Comp Market Seeing 'Balance,' but Challenges Remain in 2014 May 09, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/09/workers-comp-market-seeing-balance-butchallenges The calendar-year combined ratio for private workers’ compensation carriers was 101 in 2013, a seven-point improvement from 2012 and a 14-point improvement from 2011, according to the National Council on Compensation Insurance. “We are finally starting to see an industry in balance with these results,” NCCI President and CEO Steve Klingel said in a statement as the group released its annual “State of the Line” workers comp. market analysis. “Today, industry costs are largely contained, claims frequency continues to decline, and the system in most states is operating efficiently. In short, the market is operating as it should on behalf of most stakeholders.” 2013 by the numbers According to the NCCI analysis, the 101 combined ratio compares to a total P&C combined ratio of 96. Like the workers’ comp. combined ratio, the P&C combined ratio improved by seven points. Of seven lines listed in NCCI’s analysis, commercial auto was the only one to report a higher combined ratio at 105. Net written premiums in workers’ comp. for private carriers increased 5.4% to $37 billion in 2013. The percentage increase beat the P&C average of 4.6%. Workers’ comp. carriers also saw an operating gain of 14% for the year, the industry’s highest since a gain of 16.7% in 2006 and the first double-digit return since 2007 (11.3%), says NCCI. The group attributes the strong gain to underwriting results as well as According to NCCI, lost-time claim frequency declined by 2%, on average, in in 2013, which the group said “is within NCCI’s long-term annual estimate of a of 2–4% decline per year.” The rate of decline moderated from 6.1% in 2012. Lost-time claim frequency for losses $50,001 and over have declined by 7% from 2009-2012. It has increased by 3% for losses ranging from $2001 to $50,000 and for losses $1 to $2,000 over that time. Medical claim severity increased in 2013, NCCI’s analysis shows, with the average medical cost per lost-time claim growing 3% in the year, the same rate of growth see in in 2012. NCCI says the growth in severity remains “stable.” From 1995 to 2012, the average annual change is 6.7%. From 2009 on, the annual increases have been below that threshold. Residual market growth NCCI says the workers’ comp. residual market showed significant growth in 2013, with premiums growing by more than 30%. This is the second year in a row the residual market grew. After holding steady at a 5% market share, from 2009 to 2011, market share rose to 7% in 2012 and to 8% last year. The growth in 2013 was mostly in larger accounts, with risks of $100,000 and greater growing by 42%.
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Still, despite that growth, NCCI says the combined ratio for the residual market was unchanged from 2012 at 109. That figure is the same as 2009. In 2010 and 2011, the combined ratio increased to 115 and 114 respectively. The residual market saw an underwriting loss of $98 million in 2013, up from $73 million in 2012. Going forward “Overall, the workers compensation line showed a number of positive results in 2013,” Kathy Antonello, NCCI chief actuary says in a statement. But she adds, “Going forward, however, some challenges remain. Slow growth in employment is impeding robust premium growth. And, while investment gains are strong, current yields are likely not sustainable in today’s low-interest-rate environment. “Also, the pending expiration of the Terrorism Risk Insurance Act (TRIA) continues to be a concern, as does the uncertain impact of the Affordable Care Act (ACA) on workers’ compensation.” Speaking to PC360 shortly before the 2014 RIMS Annual Conference and Exhibition, Pamela F. Ferrandino, national casualty practice leader, placement, for Willis North America also mentioned the ACA as a potential driver in workers’ comp. She said, “We’ve seen some micro trends in California where the [Workers’ Compensation Insurance Rating Board] has released data showing an increase in [claim] frequency.” She explained the frequency increase is being seen primarily in sectors that are making adjustments to their workforces to minimize employee hours and stay under the ACA’s 30-hour threshold. “In those sectors where we were seeing a greater utilization of part-time employees, we were starting to see some increase in frequency.” Ferrandino also said rate increases appear to be moderating. “In June 2011…I saw on average rate increases of about 2 1/2% for large national accounts,” she said. “When we look at what the trends were for June 2012, we saw average rate increases probably closer to 5 1/2% to 6%—close to 50% of clients were getting rate increase in that range. “When we move to June ’13, we started seeing a little bit of a softening or shifting back. So some— about 30% of clients—were getting about a 2 1/2% rate increase and some clients—maybe about 35-40%—were getting a rate increase in that 5 1/2% to 6% range.” Moving to March '14, Ferrandino said about 55% of Willis clients in the large-account space got a rate increase of about 2 1/2%. “So clearly the amount of increase coming through comp. is backing off significantly from where it was a year ago,” she said.
Report Reveals Common Car Insurance Misconceptions May 07, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/07/report-reveals-common-car-insurancemisconceptions Nearly half (43%) of all Americans incorrectly believe their income impacts how much they pay for car insurance, a new insuranceQuotes.com report reveals.
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According to two surveys conducted for insuranceQuotes.com by Princeton Survey Research Assocs. International, many Americans are confused about which factors insurers take into account when setting premiums for a driver. Factors such as gender, residence ZIP code and income are some of the factors that consumers question when it comes to auto insurance rates. To address the concerns of consumer, insuranceQuotes.com released a detailed report that indicates which factors come into play when car insurance companies determine level of risk. A blog post on insuranceQuotes.com written by Allie Johnson quotes Insurance Information Institute Senior Vice President and Chief Communications Officer Jeanne Salvatore as saying car insurance companies use their own claims data, collected over many years, to figure out how driver characteristics affect risk. “All these factors are based on actual claims experience,” Salvatore says in the blog. When setting a driver’s rate, insurers typically consider the following factors: 1. Age Age is one of the most important considerations, as drivers tend to be better as they gain more experience behind the wheel. How long a client has been driving is a factor that all insurers consider, and insuranceQuotes.com’s survey reveals that 83% of Americans acknowledge the importance of driving experience. 2. Gender Gender is a major factor in car insurance rates, the study claims, but many Americans think that this practice is unfair. 43% of respondents claimed that charging young men the highest rates is discrimination. Some states, such as Hawaii and Montana, however, do not allow car insurers to consider gender in their assessments. 3. Credit History Poor credit can nearly double car insurance rates, and even so-so credit can increase rates by approximately 25% more than what those with excellent credit would pay. “As a group, people with better credit get into fewer and less severe accidents than those with poor credit,” Salvatore said. Insurers take raw data from clients’ credit histories and use its own methods to create an individualized insurance credit score. Red flags include bankruptcies, late or missed payments and cancelled credit card accounts. California, Massachusetts and Hawaii, however, do not permit insurers to use credit as a factor in car insurance rates. 4. Marital Status Married drivers tend to drive more safely, and that is why auto insurance applications often ask for a driver’s marital status. Because young, married people often tend to be driving their spouse and children, they’re less likely to be driving recklessly. 5. Location Address can play a big role in insurance rates.
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“If you live in an area with high crime, extreme weather or high accident rates, you’ll pay more for car insurance,” Salvatore said. 6. Car The make and model of the car can play a role in insurance rates. Expensive cars will cost more to insure. The safety record for the vehicle, the likelihood of the vehicle being stolen, and other factors impact rates. 7. Education According to insuranceQuote.com’s survey, more than half of respondents claimed that they did not believe that education level impacts their car insurance rates. Contrary to this belief, education is actually a factor considered by some insurers in certain states. While all of these factors could be taken into consideration when determining car insurance rates, there are several factors that do not come into play. According to the survey, 43% of respondents wrongly believe that income affects how much drivers pay for car insurance. Similarly, 34% of Americans do not know or incorrectly said that retirement savings impact their rates.
Commercial Auto Remains Under Pressure as Rate Hikes Wane and Severity Increases May 02, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/02/commercial-auto-remains-under-pressure-asrate-hik The U.S. property and casualty industry reported a significant underwriting gain for 2013 and enjoyed its best year since 2007. But the combined ratio for commercial auto remained over 100 at 106, improving only slightly from 107 in 2012, Fitch Ratings says in a new report. “Commercial auto underwriting losses are a function of multiple years of significant price deterioration prior to 2011, combined with an erosion of underwriting standards to retain business in the economic downturn of 2008-2009,” says Fitch. In addition, insureds are pressured in the current economy, limiting expansion of underwriting exposures for insurers. Loss reserves are swinging toward deficiencies due to recent increases in claims severity as well, Fitch says. “Incurred losses in accident years 2010-2012 have developed unfavorably since inception for the industry in commercial auto,” says the ratings agency. “Further recognition of inadequate loss reserves is likely to hinder near-term earnings improvement in this segment.” Rate increases, which were already more muted compared to other underperforming commerciallines segments, are showing signs of waning even further, reducing “the likelihood that the commercial auto line will quickly revert to an underwriting profit position in 2014,” Fitch reports. Pamela F. Ferrandino, national casualty practice leader, placement, for Willis North America, recently told PC360 that some of Willis’ lead markets had tried to push rate increases in the range of 7+% last year, but have backed off this year. She said most clients on average are seeing 2% to 2 1/2% rate increases for primary auto polices.
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Four Common Lines for Risk Managers and Where Rates Are Heading The insurance pricing cycle has wandered into unfamiliar territory, with insurers in many cases pushing for rate while market realities... About 25% of Willis clients, she said, are seeing flat rates, and some are even seeing rate decreases, “which we haven’t seen in a while,” Ferrandino said. Ultimately, Ferrandino said, rates depends on retentions and loss experience. Despite the headwinds, Fitch says some commercial-auto insurers have been able to report strong underwriting results from 2009-2013, led by Berkshire Hathaway Group, Progressive Corp. and Erie Indemnity Company, according to Fitch. On W.R. Berkley Corp.’s Q1 investor conference call, COO W. Robert Berkley called commercial transportation “a great puzzle to us,” noting that the line has seemed ripe for more hardening for some time, but that has not happened.
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Finance Reports Analyze P&C Q1 Results, Potential 2014 Headwinds May 15, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/15/reports-analyze-pc-q1-results-potential-2014headw?ref=rss Insurers appear to have reported a year-over-year Q1 decline in earnings, and decelerating pricing across most lines, an inflow of third-party capital, reserve risks and volatile weather are creating a turing point for the property and casualty industry, according to recent reports. In a Q1 review, Moody’s Investors Service says its rated P&C insurers reported 11% lower earnings in 2014 Q1 compared to the same period last year. Moody’s attributes the drop primarily to higher weather-related losses and elevated non-catastrophe losses. In its own Q1 recap, Keefe, Bruyette & Woods offers a mixed view of the perceived headwinds facing the P&C industry, and the firm says it is not “taking a broad-brushstroke approach to the P&C sector, or even across personal lines, commercial lines, specialty, reinsurers or the brokers….” Regarding the inflow of third-party capital, KBW says concerns are justified that this phenomenon is significantly shifting property-catastrophe reinsurance market dynamics, and the firm questions the response by some reinsurers. “In our view,” KBW says, “the attempts by a few reinsurers to stymie the premium pressure by loosening terms and conditions and coverages are a dangerous, and under appreciated, side effect of current pressure on property cat rates.” KBW expects pricing outside of property catastrophe to continue decelerating, justified by improving core-underwriting margins, but the firm says soft interest rates and inadequate return-on-equity levels should keep increases “modestly positive” over the next 12 months. Moody’s likewise says it expects commercial-line rate increases to slow further, but to remain above the trend in loss costs for the rest of the year. Moody’s analyst Ji Liu says in a statement, “Based on commentary from the insurers' quarterly earnings calls, commercial-rate deceleration is trickling down from large property accounts to middle market accounts as carriers push for greater retention, now that a majority of their business has achieved rate adequacy. Still, the competitive environment remains rational as the most challenging lines such as commercial auto and workers' compensation command further rate increases.” Drilling down into specific lines, KBW says rate increases in specialty lines appear to be more modest than in the recent past, homeowners rates appear set to decelerate at a faster pace over the next 12 months, and property catastrophe “is nearly in free-fall.” Personal auto, says KBW, “feels more competitive within the independent-agency channel.” Moody’s says the line is experiencing competitive pressure a direct writers continue to gain market share and large agency writers compete on price to pursue growth again in 2014.
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On industry reserves, KBW says it believes 2013’s “prominent reserve implosions” are companyspecific, rather than a broader shift in reserving practices. The firm says that in Q1 2014, commercial-focused insurers, excluding AIG, experienced a 13.4% year-over-year increase in netfavorable development. Looking at the reserve performance for these insurers from Q1 2011 to Q3 2013, a KBW chart shows a downward trend in the number of companies reporting less-favorable development and adverse development. In Q4 2013, the trend appeared to reverse, with the number of companies reporting less-favorable development climbing from 30% to 54%, and the number of companies reporting adverse development rising from 8% to 17%. But in Q1 2014, the numbers dropped again to 29% reporting less-favorable development and 10% reporting adverse development. KBW says, “While Q1 2014 is simply one data point, it’s nonetheless a data point that’s contrary to Q4 2013’s brief trend departure, and one that perpetuates the longerthan-expected streak of favorable reserve development in light of what’s been a remarkably benign loss-cost environment.”
Zurich Insurance Quarterly Net Rises 20% on Capital Gains May 15, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/15/zurich-insurance-quarterly-net-rises-20-oncapital?ref=rss (Bloomberg) -- Zurich Insurance Group AG, the biggest Swiss insurer, said first-quarter profit rose 20%, helped by capital gains on investments. Net income rose to $1.27 billion from $1.06 billion in the year-earlier period, the Zurich-based company said in an e- mailed statement. That compares with the $1.08 billion-median estimate of four analysts surveyed by Bloomberg. Zurich Insurance said in March it plans to save $250 million annually by cutting as many as 800 jobs after lowering its profit goal in December and announcing restructuring charges of $400 million to $600 million. Charges in the fourth quarter were $318 million and the firm said it booked about $20 million in the first quarter, with another $250 million expected in the remainder of the first half. “It’s a good start to the year,” said Stefan Schuermann, a Zurich-based analyst with Vontobel who has a hold rating on the stock. “Overall the result is a bit better than expected, helped by one-off gains.” Zurich Insurance shares rose 0.6% to 259.50 Swiss francs by 9:12 a.m., trimming the loss over the past year to 4%. That compares with the 13% advance in the 33-company Bloomberg Europe 500 Insurance Index in the period. Realized gains rose to $326 million from $79 million in the year-earlier period, driven by an asset allocation “rebalance” in which the company sold government bonds, Chief Financial Officer George Quinn said during a conference call. The results was also helped by a one-time pension gain in Switzerland of $130 million, he said.
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‘Positive signs’ “This is a solid start to the year,” said Quinn, who took over as chief financial officer in April, leaving the same position at Swiss Re. “We see some early positive signs in the execution of our strategic targets for 2014 to 2016.” In general insurance, it’s biggest unit, operating profit rose 5% to $845 million, helped by low catastrophe losses. Operating profit in the life unit rose 4% to $319 million. Zurich Insurance is seeking return on equity, a key measure of profitability, of 12% to 14%in the three years through 2016, down from a previous 16% target, it said in December.
Allianz Q1 Operating Profit Down; P&C Unit Net Down 37%; Asset Management Down 29% May 15, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/15/allianz-q1-operating-profit-down-pc-unit-netdown?ref=rss Allianz SE, Europe’s biggest insurer, said profit at its asset management unit, which includes Pacific Investment Management Co., slid 29% on client withdrawals, fueling a decline in total earnings. Net income in asset management dropped to 406 million euros ($557 million) in the first quarter from 568 million euros reported a year earlier, the Munich-based insurer said in a statement today. Pimco had net outflows of 21.7 billion euros, while Allianz Global Investors had net inflows of 1.9 billion euros. Michael Diekmann, 59, Allianz’s chief executive officer, had to defend Newport Beach, Californiabased Pimco at the insurer’s annual general meeting in Munich last week against shareholder criticism over declining returns and management infighting. Pimco has been a very profitable investment since the German insurer took it over in 1999, Diekmann said. Pimco’s performance fees in the first quarter of last year were boosted by non-recurring carried interest from “certain private funds,” Allianz said in February. “As expected, the results in asset management came in lower, but the business is in line with our target for the year,” Allianz Chief Financial Officer Dieter Wemmer said in the statement. “Given its solid performance and the outperformance of both of our insurance segments, we remain on track to achieve our operating profit outlook.” El-Erian Allianz targets operating profit of 9.5 billion euros to 10.5 billion euros this year. The asset management unit’s contribution to the earnings increased to about 31% in 2013 from 12% five years ago, helped by expanding assets under management and lower payouts of profit participation rights for the firm’s senior management, granted as part of Pimco’s acquisition by Allianz. As Pimco struggles to navigate rising interest rates and client withdrawals, the unexpected resignation of CEO Mohamed El-Erian amid reports of clashes with founder Bill Gross spurred an overhaul of top management.
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Investors including Union Investment, Allianz’s ninth- biggest shareholder according to data compiled by Bloomberg, used the firm’s annual general meeting on May 7 to highlight deteriorating fund performance and asked whether Allianz plans to change a hands-off approach toward Pimco, as assets surged to almost $2 trillion under its ownership. Pimco acquisition Allianz acquired a majority stake in Pimco in 1999 for $3.3 billion. Pimco managed about $256 billion at the time. The insurer gave the fund manager, which Gross co-founded in 1971, greater independence in 2011 by separating it from its other asset managers, which are combined in the Allianz Global Investors unit. El-Erian, who had shared the role of co-chief investment officer with Gross, has continued to work forAllianz as chief economic adviser. Since El-Erian’s resignation, Pimco named six new deputies and Gross has said his firm is now in better shape than before. Net income at Allianz’s property and casualty insurance unit, typically the most important in terms of earnings, fell 37% to 645 million euros in the first quarter from a year ago. Lower non-operating realized gains and “a one-off effect from inter-segment pension revaluation recorded in the nonoperating administrative expenses” contributed to the decline, the insurer said in its quarterly report. Profit at the life- and health-insurance division was little changed at 629 million euros. Allianz reported last week that first-quarter operating profit fell 2.9% to 2.72 billion euros. The shares lost 6.4 percent this year, valuing the company at 56 billion euros. That compared with a gain of 0.8% for the Bloomberg Europe 500 Insurance Index.
Insurance Brokerage Fee Income at Bank Holding Companies Essentially Flat in 2013 May 13, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/13/insurance-brokerage-fee-income-at-bankholding-com Bank-holding companies reported $6.22 billion in insurance-brokerage fee income for 2013, up slightly from $6.2 billion in 2012 as increases by most bank-holding companies were offset by declines at some of the larger ones. An analysis, the “Michael White-Succeed Advisors Bank Insurance Fee Income Report,” prepared by Succeed Financial Advisors and Michael White Associates, points out that the flat year-over-year performance “was attributable generally to 20 big banking companies that collectively accounted for a decline of $732 million in insurance-brokerage income.” Wells Fargo & Company reported the most insurance brokerage fee income, at $1.46 billion, a 5.98% decrease from 2012. BB&T Corp. was second with $1.38 billion, a 10.54% increase from the year before. BB&T owns more agencies than any other financial-holding company, the analysis notes. Citigroup Inc. placed third with $733 million, a 37.4% decrease compared to 2012.
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Wells Fargo and Citigroup alone accounted for a $531 million drop in insurance-brokerage income, the analysis says. Bank of America Corp. ($289 million), American Express Company ($184 million), Regions Financial Corp. ($114.4 million), Morgan Stanley ($99 million), BancorpSouth ($98.1 million), Discover Financial Services ($78.9 million) and Frist Command Financial Services ($76.7 million) rounded out the top ten. Bank-holding companies with over $10 billion in assets, which had the highest participation in insurance-brokerage activities at 81.3%, reported $5.25 billion in insurance-fee income, a 0.8% decline from 2012. Companies with assets between $1 billion and $10 billion reported $725.4 million in insurance-fee income, up 5.7%. Companies with assets between $500 million and $1 billion reported $244 million in insurance-fee income, up 9.9%.
Berkshire Profit Slips 3.8% on Insurance May 05, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/05/berkshire-profit-slips-38-on-insurance Berkshire Hathaway Inc. reported a 3.8% decline in first-quarter profit, as underwriting results declined at insurance businesses and on reduced earnings from Chairman Warren Buffett’s derivatives wagers. Net income slipped to $4.71 billion, or $2,862 a share, from $4.89 billion, or $2,977, a year earlier, the Omaha, Nebraska-based company said yesterday. The decrease in profit was the first since 2012. Buffett, who welcomed shareholders to Berkshire’s annual meeting May 3, has been expanding in businesses like energy and railroads that provide opportunities for billions of dollars in capital spending and relatively stable returns tied to the U.S. economy. Results can be more volatile on Buffett’s financial- market bets and in reinsurance, in which the company takes on risks from other insurers in the U.S. and beyond. “When you get a substantial portion of your earnings from insurance, you live with the fact that the numbers bump around,” Bill Smead, chief investment officer at Smead Capital Management, which oversees about $950 million including Berkshire shares, said in an interview. Underwriting profit declined 49% to $461 million at the insurance segment, on smaller gains from the reinsurance group. The group benefited last year from a gain on a contract with Swiss Re Ltd.
Insurance float Float from insurance units including car insurer Geico has provided Buffett with funds to amass the largest equity stakes in companies including Coca-Cola Co., Wells Fargo & Co. and American Express Co. Float, which counts money held to back obligations to policyholders, was $78 billion as of March 31, up from about $77 billion at the end of 2013. Berkshire’s stock portfolio was valued at $118.5 billion on March 31, up about $1 billion from the end of 2013. Berkshire spent $1.2 billion on equities and $2 billion on fixed-maturity securities in the quarter.
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The allocation to foreign-government debt climbed to $12.2 billion from $11 billion in December. The U.K., Germany, Canada, Australia and the Netherlands represented 75 percent of that portfolio as of March 31, down from 78 percent on Dec. 31. Berkshire posted a $132 million pretax loss from equity index puts in the three months ended March 31, compared with a $1.25 billion gain a year earlier, the company said in a regulatory filing. Buffett, the chairman and chief executive officer, uses the contracts to wager on gains in stock markets. Credit-default contracts, in which Buffett bets on the ability of borrowers to repay debt, contributed $373 million, compared with a loss of $14 million a year earlier. Book value Book value, a measure of assets minus liabilities, rose in the quarter to $138,426 a share from $134,973 at the end of last year. The cash pile grew to $48.9 billion from $48.2 billion on Dec. 31. Class A shares rose 8.1% this year in New York, beating the 1.8% gain in the Standard & Poor’s 500 Index. Stimulus from the Federal Reserve, a pickup in consumer spending and a recovering housing market have bolstered the U.S. economy. Berkshire stands to gain from those trends because its subsidiaries include a railroad, a home builder, a trucking company, electric utilities, manufacturers and retailers. The Burlington Northern Santa Fe railroad, which was Buffett’s biggest takeover, contributed $724 million to quarterly earnings, down from $798 million a year earlier, as winter weather and rising cargo shipments disrupted operations. Carl Ice, the CEO of BNSF, said last month that the railroad will need the rest of the year to untangle train tie-ups in the corridor that serves North Dakota’s Bakken shale region. Operating profit Berkshire’s operating earnings, which exclude some investment results, were $2,149 a share, missing the $2,171 average estimate of three analysts surveyed by Bloomberg. The utility unit added $452 million to Berkshire’s earnings, compared with $394 million a year earlier. The business benefited from demand driven by cold weather, according to the filing. The subsidiary completed its acquisition of Nevada’s largest electric utility in December and announced a deal this week to buy SNC-Lavalin Group Inc.’s AltaLink for about $2.9 billion to expand in electricity transmission in western Canada. Berkshire’s stake in ketchup-maker HJ Heinz Co. added $188 million to earnings in the quarter, mostly from dividends on a preferred stake. Buffett’s company and 3G Capital took Heinz private last year in a $23.3 billion deal. Buffett, 83, has touted business prospects in the world’s largest economy, where most of Berkshire’s operations are based. He said in his annual letter to shareholders that his company has plenty of opportunity to invest in plants and equipment. ‘Mother lode’ “Though we invest abroad as well, the mother lode of opportunity resides in America,” Buffett wrote in the letter posted March 1.
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Buffett was expected to highlight the accomplishments of Berkshire managers at the May 3 meeting in Omaha. The gathering draws tens of thousands of spectators, who come to hear him and Vice Chairman Charles Munger, 90, answer questions from shareholders, journalists and analysts. Topics at past meetings have ranged from the operating businesses to taxes and politics. Shareholders may ask this year about why Buffett abstained from voting on Coca-Cola’s executivepay plan, which he called “excessive.” Berkshire is the soft-drink maker’s largest shareholder. “People like to raise tricky issues at the Berkshire meeting, and that’s probably the trickiest one,” said Lawrence Cunningham, a professor at George Washington University. “You’ve got to decide when you’re going to throw that weight around,” he said of Buffett. Spending opportunity While investors are drawn to the weekend by the session with the executives and the chance to see old friends, many will also shop. Berkshire subsidiaries will sell products from running shoes to rubber duckies in an expo the size of three football fields. Berkshire will also host other shareholder events over the weekend, including a picnic and 5-kilometer (3.1-mile) fun run. The mood at the meeting will be “celebratory,” with the stock near an all-time high, Cunningham said. Buffett’s topics at the gathering are often similar from year to year, he said. “From one meeting to the next, the big thing that changes is size,” Cunningham said. “Everything’s bigger.”
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Technology Cutting Through Cloud Washing May 14, 2014 | Insurance and Technology http://www.propertycasualty360.com/2014/05/14/cutting-through-cloud-washing The P&C insurance industry is approaching a cloud adoption tipping point. Insurers are migrating strategic applications to the cloud in addition to non-core applications such as email and web conferencing that have become commonplace. The potential for cloud-based claims technology to create new value and competitive advantage is emerging. The potential for insurers to misfire and select second-rate technology looms. According to Aite Group, a $36 billion opportunity exists for American P&C insurers to embrace innovative claims technology. Advances in mobile devices, wireless connectivity and cloud software including mobile apps, all combine to present P&C Insurers with the opportunity to re-think and redefine the claims settlement experience in 2014. Some early adopters of cloud-based claims technology are already tapping into the billion-dollar opportunity through automation, real-time collaboration, re-wired processes and integrated mobile working. However, some insurers are experiencing sub-standard services as established P&C claims software companies migrate legacy platforms to the cloud. Technology companies that have traditionally realized success in the P&C claims sector are struggling to roll out cloud services– showcased by repetitive downtime and reverting to earlier software versions. Not all clouds are created equal With billions at stake–claims, purchasing and IT leaders need to exercise caution in their P&C claims technology partner selection. Fundamental differences exist in data ownership and management, technology integration capabilities and pricing and subscription models. Given the transformational shift that cloud computing offers, organizations are naturally concerned about the potential risks from a move to the cloud. But, cloud-based claims technology deployments are inevitable. Without significant upfront effort from the most senior and strategic claims decisionmakers, benefits of enhanced collaboration, scalability and accessibility will be replaced with downtime, sluggish integration with spiraling costs and data limitations. Leveraging the Cloud Winning customers and whipping the competition drives the need for cloud speed and agility P&C technology companies that are new to the cloud are unfortunately turning their customers into guinea pigs as they work through software bugs to find their way in the cloud and migrate from legacy technology environments. Migration from the local data center to the cloud can be complicated: error-prone, time consuming and costly for traditional technology companies. The migration process requires a lot of configuration update operations and even one incorrect update can cause the whole system to fail. Dependencies among the many enterprise system components are complicated and can be very easily broken in the migration process–creating security threats.
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Fixing bugs and updating patches in the cloud requires a different development mentality and culture than a traditional software licensing model. In the license model, the process of fixing bugs and updating patches is more predictable and linear. In the cloud, each update affects all customers and in turn forces the software developer to become much more process and quality conscious in addition to increasing agility. Outside of the insurance industry, a similar struggle is taking place with traditional technology companies that are trying to catch up to younger, faster and more innovative ‘born-in-the-cloud’ players. Oracle is a prime example. In an attempt to remain competitive in the cloud, it has spent over three billion dollars in the past three years alone, to battle Salesforce and Workday. If it was simple and straightforward for a traditional technology company to change gears, migrate to the cloud and create a cloud culture–Oracle would have figured it out–rather than repeatedly opening its check book. Getting the Basics Right A traditional client-server licensing and pricing mentality is lingering in the P&C claims sector and is restricting innovation. Believe it or not, some P&C claims technology providers aren’t offering standardized cloud services in line with today’s norms like ‘pay-as-you-go’ usage-based pricing. The status quo for claims technology purchases has been to lock insurers into long-term rigid contracts. Insurers that are duped with sales tactics to stay-the-course with traditional pricing will suffer. Data Ownership and Control Insurance claims and related data are being generated at an unprecedented rate–and this trend is expected to continue for the foreseeable future. The current value of claims data for Insurance carriers is untapped. The future value of claims data and related insight is somewhat unknown. As a starting point for all strategies, carriers must have full ownership of their data to realize its future potential. Relinquishing any ownership of data to a cloud technology provider is similar to paying a mortgage with no hopes of ever owning the land and building–or prospering from future on-site activities. The ownership and control of data should include reporting, database queries, interaction through APIs and any transfers to external environments such as a data warehouse. Drastic fluctuations in claims volume and ongoing regulatory and monetary changes require a flexible data management approach to maintain customer satisfaction and increase loyalty. Carriers must be wary of technology providers that restrict data ownership, access and usage. API: The Achilles Heel of Technology Integration Application Programming Interface (API)–The API is the Achilles Heel of technology integration and should be evaluated in detail. Integration with major first notice of loss (FNOL) and claims management systems (CMS) such as Accenture, Guidewire, SAP and custom in-house systems should be evident with any cloud-based claims technology installation.
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Data should automatically synchronize so it is always up-to-date across devices and locations. Validation of data quality and sources will increase accuracy of the claims data. Strategies to create a bi-directional data flow with CMS can reduce data entry and human error. Increasingly sophisticated techniques such as workflow notifications and queue mechanisms, defined by industry and business requirements can help avoid delays and backlogs between claims stakeholders. Integration of a cloud-based claims estimating and processing solution should generally require a carrier to dedicate one or two IT staff–with an average integration realized in 10 weeks. The mention of third-party systems integrators should set off alarm bells and raise immense doubts about the cloud technology. Technology Adoption & ROI Implementation of new technology will require an integrated strategy to convert new users and engage key stakeholders. A trend related to successful deployments is the emergence of an internal champion with the ability and authority to drive the technology implementation. Success and ROI however, will be determined by the ability of insurers to evaluate, understand and expose the gap between the true P&C cloud technology leaders and companies that are only engaging in “cloud washing” marketing campaigns.
ACORD Selects International Software to Build Next Gen Platform May 05, 2014 | Insurance and Technology http://www.propertycasualty360.com/2014/05/05/acord-selects-international-software-to-buildnext ACORD selected International Software’s platform to build the next generation Standards Development Platform (SDP) for creating, managing and publishing ACORD Standards. “This partnership with ACORD is another example of how Intentional solves problems where traditional technologies fall short,” said Magnus Christerson, executive vice president of Intentional Software. The SDP will accelerate and simplify the standards management process and create higher accuracy and usability for ACORD member organizations by refining the way ACORD records and processes its industry knowledge. “We are always looking for advancements in technology that enable us to serve our members better,” said Pete Teresi, ACORD vice president of standards and technology, and CTO. “The Intentional Platform will allow us to develop and publish standards more quickly, and give ACORD member companies a more direct way to consume and implement our standards in their business operations efficiently and accurately. That will help improve their overall business performance.” “ACORD is always in the vanguard when it comes to innovative technologies. We look forward to working closely with them on their Standards Development Platform,” said Charles Simonyi, Ph.D., founder, CTO and chairman of Intentional Software.
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The strategic partnership between ACORD and International Software was announced at the 2014 ACORD LOMA forum in Orlando, Fla.
Walmart, AutoInsurance.com to Offer Insurance Quotes Online May 01, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/01/walmart-autoinsurancecom-to-offerinsurance-quotes Walmart is partnering with AutoInsurance.com to offer auto-insurance quotes from multiple insurers online. Walmart says its customers will be able to access the AutoInsurance.com service directly from its website at www.walmart.com/autoinsurance. AutoInsurance.com, operated by New Jersey-based insurance agency Tranzutary Insurance Solutions LLC, says customers will be able to obtain multiple quotes from carriers such as Progressive, Esurance, Safeco, The General and others. The service is available immediately in Arkansas, Louisiana, Mississippi, Missouri, Oklahoma, Pennsylvania, Tennessee and Texas, “with plans to be offered nationwide in the coming months.” Joshua Kazam, founder of AutoInsurance.com, says, “Today, nearly 90% of people comparison shop online for products and services like airline tickets, but our survey data shows that only one in five comparison shop for auto insurance. We want to make comparison shopping for auto insurance much simpler and faster for everyone who wants to save money on their premiums.” According to a statement from the two companies, customers logging on to the website provide their name, address, date of birth and contact information, with an option to have the site retrieve their current auto insurance policy. “This allows AutoInsurance.com to automatically fill in most of the necessary coverage information and provide a direct apples-to-apples comparison,” says the statement. Customers will be able to either purchase the policy online immediately, speak with a licensed agent or save their information and make the purchase later. The companies say the service is launching after “a successful pilot that took place in Pennsylvania last year.”
ID Federation Launches Single Sign-On Tool May 01, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/05/id-federation-launches-single-sign-on-tool ID Federation Inc. introduced a new software tool for securely accessing multiple insurance websites with a single sign-on. The tool, SignOn Once, allows agency staff to use one login to securely access systems of multiple carrier business partners for transactions such as quoting, submission and account management.
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Using token technology to authenticate each user’s identity, the software offers greater security protection compared current process of using a different password for each carrier system, according to ID Federation leaders. The software reduces the time that agencies, carriers and solution providers spend on managing passwords in addition to the enhanced security of connections. The ID Federation is now inviting insurance carriers and other solution providers to participate in SignOn Once. By joining the ID Federation, completing the certification process and implementing SignOn Once, carriers can work to streamline access to their online tools for agent business partners. “With SignOn Once, the ID Federation aims to greatly simplify workflow and processes, saving hundreds of hours per day for everyone involved in the business of insurance, including -- most important -- agency users,” said Gray Nester, senior vice president of BB&T, an ID Federation board member. The software was developed out of a collaboration between insurance professionals and the Independent Insurance Agents & Brokers of America’s Agents Council for Technology, the Real Time/Download Campaign, ACORD, technology user groups and other communities with the aim to create a safe and standard way to secure technology authentication for as many parties as possible in the industry. “Technology offers tremendous advantages to all parties in an insurance transaction,” explained Teresa Addy, business technology analyst at EMC Insurance Companies and a leader in the development of SignOn Once. “But requirements such as signing on to individual websites of various carriers and recalling numerous passwords have worked against agency efficiency. “SignOn Once can change all of that and boost efficiency at the same time. With SignOn Once, our goal is to allow insurance professionals to spend more time with the value-added work of serving prospects and clients and less time working on managing passwords,” Addy said.
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Strategy CFA Offers Tepid Support for Senate TRIA Bill While Questioning Program's Necessity May 14, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/14/cfa-offers-tepid-support-for-senate-tria-billwhil While voicing “skepticism” over the utility of the Terrorism Risk Insurance Act (TRIA), the Consumer Federation of America voiced measured support for Senate legislation that would extend the program for another seven years. It lauded provisions of the legislation which phases in a one-third increase in the co-pay of insurers over five years: the so-called “skin in the game.” “While CFA believes that this federal backstop should be reduced even more aggressively, we commend the bipartisan sponsors of this legislation,” the CFA statement says. “We urge the House to take up a similar and even stronger approach and address the inefficiencies and unwarranted subsidies of the current system.” In response, the American Insurance Association (AIA) issued a statement contending that terrorism “remains a unique and uninsurable risk that can only be covered through the public-private partnership offered by TRIA.” The comment by Wil Rijksen, an AIA spokesman says, “As a matter of fact, the President’s Working Group confirmed in its 2014 report that the private market alone does not have the capacity to provide the levels of terrorism risk coverage currently produced under TRIA. Industry Lobbyist on Draft House TRIA Bill: 'It Is About to Get Ugly' Stakeholders seeking reauthorization of the Terrorism Risk Insurance Act are holding an emergency meeting today to discuss next steps in... “We continue to caution against any changes to TRIA that would adversely impact market capacity and undermine the program. “The partnership created by TRIA has enabled a private market to exist that has provided the certainty and capacity needed while also protecting taxpayer interests.” The CFA policy statement was released amidst the background of several developments regarding TRIA. A policy brief by the non-partisan RAND Corp. says expiration of TRIA would have a dire impact on the workers’ compensation market because state WC laws “rigidly define the terms of coverage, such that in a post-TRIA world insurance companies would limit their terrorism risk exposure by declining coverage to employers facing high terrorism risk.”
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The report goes on to say that because WC coverage is mandatory for nearly all U.S. employers, employers that cannot purchase coverage would be forced to obtain coverage in markets of last resort. “Migration of terrorism risk to these markets of last resort would increase the likelihood that WC losses from a catastrophic terror attack would largely be financed by businesses and taxpayers throughout the state in which the attack occurs, adding to the challenge of rebuilding in that state,” the report says. “TRIA, in contrast, spreads such risk across the country,” the report notes. Officials of the Property Casualty Insurers Association of America and the AIA say the report buttresses their view that TRIA must be renewed. Officials of the Coalition to Insure Against Terrorism (CIAT), which represents insureds, especially owners of commercial property such as offices and apartments, also say that the report confirms the importance of TRIA renewal. Currently, Senate Banking Committee staffers are telling industry officials they will take up their bipartisan legislation reauthorizing TRIA, S. 2244 as soon as work is completed on legislation reforming Fannie and Freddie, “but the industry is concerned about slippage,” according to the consensus of industry lobbyists. That legislation, sponsored by Sens. Tim Johnson, D-S.D., and Mike Crapo, R-Idaho, the chairman and ranking minority members of the panel, will take place Thursday. It is expected to be reported out by the minimum 12 votes and go nowhere. In the House, a leaked document outlining principles for reauthorization that would effectively seek to phase it out after three years except for nuclear, biological, chemical radiation (NCBR) events. The leadership of the House Financial Services Committee says it hopes to have a draft version of the bill available within two weeks. The House draft, called the Terrorism Risk Insurance Modernization Act (TRIM), is stirring deep concern among insurers and insureds because it reportedly has the support of the House Republican leadership. As for the CFA, it says it supports the Senate version of reauthorization despite the fact it harbors “great skepticism” about whether a terrorism risk insurance program is warranted. The CFA concern is based on its core belief that P&C insurers can afford to insure these risks without TRIA because “the industry is overcapitalized.” The CFA report says the current P&C industry surplus is $653 billion, “dwarfing the $24 billion, in 2014 prices, of after-tax insurer losses from 9/11.” The CFA contends a “safe” industry leverage ratio (net earned premiums divided by surplus) is considered to be 150% or less “but is at an ultra-safe 74% today.” It argues that over time, Congress should consider replacing TRIA with a subsidy to commercial insureds who would most certainly be charged higher insurance rates. The CFA says its alternative in a perfect world to TRIA would include a provision mandating that the Federal Insurance Office monitor any price increases “and report back to Congress on increases that are exorbitant and damaging.”
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Congress, CFA argues, “would then have specific information allowing it to craft a more targeted and appropriate risk-based program to provide assistance if it so chose.”
110 Insurance Agency Mergers & Acquisitions in First 4 Months of 2014 May 13, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/13/110-insurance-agency-mergers-acquisitionsin-firs With 110 mergers and acquisitions of insurance agencies in the first four months of 2014 throughout the U.S. and Canada, this year marks the strongest showing of industry M&As of any comperable period for at least seven years, accoding to an OPTIS Partners survey. Though it is still early to tell, the promise of trends continuing indicates that 2014 could equal 2012's record-setting year. “While it’s still early, 2014 could surpass the record set in 2012 if the rest of the year continues to perform as it has through April,” said Timothy J. Cunningham, managing director of OPTIS and NU P&C advisory board member. “Buyers continue to be hungry and aggressive for deals, and there’s a robust inventory of sellers.” Coming off the record 2012 year, and the re-grouping of early 2013, M&A activity appears to be carrying its vibrant activity level of the latter part of 2013 into the beginning of this year. On the buy side, privately held buyers and private-equity-backed firms accounted for nearly 80 percent of all announced M&A activity during the first four months of this year. At the same time, all major categories of buyers increased their transaction counts, with the exception of the “all other group,” consisting of banks, insurance companies and others, which declined in 2014. Industry leaders for M&A include Hub International and AssuredPartners, each having purchased 12 agencies thus far in 2014.
Marsh Subsidiary Acquires Midwest P&C Firm Kinker-Eveleigh May 09, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/09/marsh-subsidiary-acquires-midwest-pc-firmkinker-e Marsh & McLennan Agency (MMA), a subsidiary of insurance broker Marsh, on Friday announced that it had acquired Kinker-Eveleigh Insurance Agency, a Cincinnati-based property/casualty firm. Terms of the deal were not disclosed. “I’m thrilled that Kinker-Eveleigh will become part of MMA’s Midwest region,” said Jeff Lightner, MMA’s Midwest president in a statement announcing the transaction. “With the addition of such high-quality talent, we enhance our ability to offer a full spectrum of property/casualty and employee benefit capabilities to our clients in the Midwest.”
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Kinker-Eveleigh reportedly brought in about $3.5 million in revenue last year and will operate out of MMA’s Midwest region, which includes Brower Insurance, which was acquired by MMA in 2012. All of the existing staff and leadership will stay on as part of MMA, working out of their current office space in Cincinnati. “Our clients today are seeking advice and innovative solutions from insurance advisors to help them manage all of the increasingly complex and ever-changing risks they face,” said Kinker-Eveleigh president Sam Tuten. “Joining MMA not only provides us the resources to address these needs and concerns; it also presents opportunities for the growth and professional development of our insurance team, all while maintaining Kinker-Eveleigh’s local presence.”
XL to Sell Life Reinsurer for $570 Million to GreyCastle May 02, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/02/xl-to-sell-life-reinsurer-for-570-million-togreyc XL Group Plc reached a deal to sell a life reinsurance business for $570 million in cash as Chief Executive Officer Mike McGavick seeks to simplify the company and free up capital for share buybacks. The buyer is GreyCastle Holdings Ltd., a newly formed company in Bermuda whose shareholders include family offices and university endowments, according to a statement today from Dublinbased XL. XL is among property-casualty insurers that have been divesting life obligations as low interest rates pressure returns on funds held to back policies. Allstate Corp. agreed last year to sell an annuity business to Resolution Life Holdings Inc., and Hartford Financial Services Group Inc. reached a deal in 2012 to divest its individual life unit. “This transaction meaningfully reduces the risk profile of the company, which gives us additional flexibility to pursue capital management initiatives” such as the planned buyback of $300 million in shares beyond what XL previously expected, Chief Financial Officer Peter Porrino said in the statement. XL said it will book a $580 million loss on the deal, which it expects to complete this quarter. Citigroup Inc. and JPMorgan Chase & Co. are XL’s bankers on the deal, and the legal advisers are Clifford Chance LLP and Skadden, Arps, Slate, Meagher & Flom LLP, according to the statement.
Proposed GSE Reforms Could Subject Private Mortgage Insurers to Federal Approval Requirements May 02, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/02/proposed-gse-reforms-could-subject-privatemortgag Various legislative proposals to abolish the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, the housing finance giants commonly known as Fannie Mae and
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Freddie Mac, could establish a new federal presence in the oversight of private mortgage insurance (MI). Although they preserve state regulation over MI carriers generally, some of these proposed measures would require MI carriers to meet federal standards in order for the mortgages they insure to secure residential mortgage-backed securities (MBS) carrying a federal guarantee, as described below. MI carriers have historically been required to satisfy Fannie Mae and Freddie Macimposed eligibility standards in order to write coverage on mortgages aggregated by these so-called GSEs, or government-sponsored enterprises, but, generally, these have not been directly imposed or enforced by a federal agency. These proposals underscore the importance of MI in federal housing policy and are aligned with the Federal Insurance Office’s (FIO) recent statements advocating a larger federal role in MI. Housing Finance Reform and Taxpayer Protection Act of 2013 U.S. lawmakers have struggled to find a solution for Fannie Mae and Freddie Mac, which have been under government conservatorship since their near meltdown in 2008 threatened the stability of the housing market. In June 2013, Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., introduced the Housing Finance Reform and Taxpayer Protection Act of 2013, which would wind down Fannie Mae and Freddie Mac over five years, replacing them with a new government agency, the Federal Mortgage Insurance Corporation (FMIC). FMIC would be responsible for overseeing mortgage lending activities and provide guarantees to holders of certain MBS in the event of an economic crisis. In order for MBS to be eligible for such guarantee, the terms of the security, generally, must provide that holders are exposed to the first layer of loss in any event. Under this bill, the federal government would provide investors a full-faith-and-credit guarantee on such MBS and, in turn, FMIC would be required to develop and publish standards for the approval of private MI carriers to provide MI on eligible mortgages securing such MBS. Such standards would be required to include: The financial history and condition of the insurer. The adequacy of its capital structure, including whether the insurer has sufficient capital to cover the “first loss insurance obligations [that] it assumes” under Corker-Warner “and that might be incurred in a period of economic stress, including, but not limited to, any period of economic stress that would result in a 30% (or greater) national home price decline.” The general character and fitness of the management of the insurer, including compliance history with federal and state laws. The risk presented by such insurer to the Mortgage Insurance Fund (a fund established under Corker-Warner, which is to be financed by issuers of private mortgage securities and available in the event of financial catastrophe). The adequacy of insurance and fidelity coverage of the insurer. A requirement that the insurer submit audited financial statements to the FMIC Director. Any other standard the FMIC determines necessary or appropriate. Unlike Corker-Warner, the Johnson-Crapo discussion draft also makes explicit that it does not intend to depart from the historic state-centered approach to insurance regulation, stating that “the appropriate State insurance regulator of an approved private mortgage insurer has primary
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authority to examine and supervise the approved private mortgage insurer.” U.S. House of Representatives Housing Finance Reform Proposals Two separate housing finance reform proposals have been proposed in the House of Representatives as well. A Republican-led version, introduced by Reps. Jeb Hensarling, R-Tex., Scott Garrett,R-N.J., Randy Neugebauer, R-Tex, and Shelley Moore Capito, R-W.V., in July 2013, would similarly wind down Fannie Mae and Freddie Mac but would not provide such a governmental guarantee on MBS. The bill makes no explicit reference to private mortgage insurers given that the ultimate function of the approval process contained in the Senate versions (the imposition of standards on credit enhancement for the collateral supporting federally guaranteed MBS) is absent in this legislation. On March 27, 2014, Rep. Maxine Waters, D-Calif., put forward draft legislation that, while gradually shutting down Fannie Mae and Freddie Mac, would replace such entities with a cooperative of lenders that would be the sole issuer of government-guaranteed mortgage-backed securities. Rep. Waters’ legislation mirrors Corker-Warner in granting a federal agency the authority to develop standards for the approval of private MI carriers to provide MI on eligible mortgages securing a federally guaranteed MBS, including whether the insurer has sufficient capital to cover the “first loss insurance obligations it assumes” under the bill. The categories of standards required to be applied under the Waters bill is substantially identical to those in Corker-Warner. Housing Finance Reform and Taxpayer Protection Act of 2014 Last month, Sens. Tim Johnson, D-S.D., and Mike Crapo, R-Idaho, made public a “discussion draft” of the Housing Finance Reform and Taxpayer Protection Act of 2014, which, while largely paralleling the Corker-Warner bill, has important differences. Among these are the provisions outlining the standards for approving private MI carriers. Under Johnson-Crapo, these include the ones listed above from Corker-Warner, except that in place of the italicized item above, Johnson-Crapo lists: The adequacy of capital structure, including whether the insurer has sufficient capital “to protect its policyholders from loss.” The establishment and maintenance of “adequate loss reserves” for the “estimated total liability for claims.” That the private MI carrier has “the capacity to insure eligible single-family mortgage loans in a manner that furthers the purposes” of the FMIC. Johnson-Crapo goes on to provide that “nothing in [these requirements] shall be construed to prevent the [FMIC] from approving a small or specialty private mortgage insurer, provided that the private mortgage insurer has the capacity to adequately diversify its risk to meet appropriate safety and soundness concerns.” In addition, “to promote consistency and minimize regulatory conflict,” the FMIC is required to “consult and coordinate with appropriate Federal and State regulators” when developing approval standards for MI providers.
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As More Companies Go Global, Supply Chain Risks and Solutions Grow May 01, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/05/01/as-more-companies-go-global-supply-chainrisks-and Even small companies are going global today, making education about supply-chain disruptions more important than ever. Jonathan Hall, executive vice president for FM Global, told PC360 during the 2014 RIMS Annual Conference and Exhibition that the company’s Affiliated FM middle-market brand “is looking more and more at requests for global programs. So even the smaller companies today are starting to have significant overseas supply-chain issues.” Initially, it is “foreign territory” for these smaller companies to talk about global supply-chain risks, Hall said, “but I think they catch on very quickly.” He noted that the concept of risk remains the same whether a company is talking about a facility in Miami, Fla. exposed to wind or whether the supply chain is stretched out to China in an earthquake zone. The problem, he said, is that people generally learn about their risks after decisions are made about the location of facilities. To help educate clients beforehand, Hall said the company has portals— Affiliated FM Online for Affiliated FM clients and MyRisk for FM Global clients—that broker partners and clients can use. “On there, we offer all sorts of tools for people to understand risk. We have worldwide mapping of exposures, so you can understand where all the flood, wind and earthquake exposures are worldwide,” said Hall. “We offer a lot of tools to our clients, big or small, so they understand, ‘If you build that facility in China, you’re building it in a major eq risk, and you’re now creating a supplychain exposure that you need to make a conscious decision on.’” Catastrophe modeler AIR Worldwide likewise provides tools for corporations to gauge risks for a specific area or a specific facility though its Catastrophe Risk Engineering (CRE) service. Andrew Kao, manager, business development for CRE said AIR’s models typically are developed to asses catastrophe risks over thousands of locations, allowing insurers to assess risk over large portfolios. CRE acts as an extension of the models to focus on a specific location and provide insight into site-specific hazards. Kao said it can also model to what extent a particular supplier would be impacted by a hazard. He said supply-chain risks are usually analyzed based on whether a supplier is fully operational or completely taken out. “That may happen on occasion, but it’s a rare occurrence,” he said, explaining that allowing for an analysis of a partial outage gives a “realistic view of loss potential.” While these tools are available to help companies assess their supply-chain risks, Chubb’s recently released 2014 Multinational Risk Survey, which questioned 300 U.S. and Canadian companies about their international global exposures, found that 40% of companies do not require overseas suppliers to have a business-continuity plan. According to the survey, 52% of these businesses intend to increase overseas activity in 2014. The survey also revealed supply-chain failure as the top threat associated with overseas activity, as named by the companies polled.
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