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General insurers in good shape despite disasters
Most Australian general insurers are in good financial shape despite the massive claims stemming from the natural disasters in 2011.
According to the Australian Prudential Regulation Authority’s latest General Insurance Company Level Statistics for the year to June 2011, Vero was the most profitable insurer with a net profit of $613 million.
The next most profitable was IAG with $427 million, followed by Suncorp Metway Insurance with $345.1 million.
Some insurers did report losses, with South African-owned personal lines insurer Youi leading the field with a $30 million net loss.
Other insurers clocking up significant losses were New India with $19.9 million followed by Wesfarmers General Insurance with a net loss of $16.7 million.
The major Australian-based reinsurers all reported profits, with Munich Re leading the pack with a net profit of $207 million.
Swiss Re and Hannover Re reported net profits of $147 million and $9.2 million respectively.
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Industry defends strata insurance pricing
The House of Representative inquiry into residential strata insurance has received 388 submissions, with most coming from disgruntled property owners complaining about price increases.
The industry has made just four submissions to the inquiry: the Insurance Council of Australia (ICA), National Insurance Brokers Association (NIBA), CGU and Zurich.
The industry submissions defend the prices rises, arguing it’s a case of balancing risk against return.
ICA says strata unit holders are paying the same or less than households for their insurance.
“Strata title insurance in some areas of Australia has been heavily discounted in the past, compared to the technical risk price,” its submission says.
“Recent corrections to price, while very significant, now better reflect risk levels and the cost of capital associated with providing cover.
“Strata title property-owners in high-risk areas now (on average) pay a premium comparable or lower than the premiums payable by owners of stand-alone households.”
NIBA says it accepts there have been price increases in Queensland and WA, but argues this is based on adverse claims experience.
Arguing that there is no justification for government intervention in the strata market, NIBA says insurance for these risks “has traditionally not reflected the true cost of the risk that was transferred to insurers”.
“The recent cyclones and storms have resulted in insurers and reinsurers carefully re-assessing their experience and reviewing the terms and prices on which they are prepared to offer cover in these areas.”
CGU says the significant price increases in northern Australia more accurately meet the cost of providing cover.
“The increase in premium prices for residential strata title properties has given rise to a myth that these properties have been disproportionately impacted when compared to homes and other forms of dwellings,” it says.
“The reality is that the premium increases were overdue and have resulted in residential strata insurance premiums now being more closely aligned with premiums for single dwellings of similar value.”
Zurich says that with some insurers exiting the northern Australian strata market and the increase in cyclones, the market is not as competitive as it was; but pricing now reflects the risks.
“Zurich prices according to the regulatory framework set out by APRA, which involves the use of internal and external actuarial resources,” the company says.
“While the volatility of catastrophes in north Queensland is difficult to factor into pricing, the industry has the information and tools required to price risk accurately.”
The company accepts the recent price increases will come under scrutiny, but says more consumer education is required to explain the justification for the rises.
Public hearings by the committee will be held this week in Port Douglas, Cairns, Townsville and Mackay.
Actuaries call for flood insurance pool
A temporary pool of funds should be created to subsidise the rising costs of flood insurance to consumers, according to the actuaries’ lobby group.
Actuaries Institute CEO Melinda Howes has called for a pool “to subsidise the high insurance premiums of people living in disaster-prone areas”.
“A national pool could also help those people who are not in flood areas but have seen premium increases,” she said.
The institute does not favour direct government subsidies to policyholders because it results in the money going straight to insurers, “providing no incentive for households or local councils to manage their own risk exposure”, Ms Howes said.
“It’s vital that any subsidies provided from the pool are conditional on policyholders and local councils taking action to reduce the risk of damage from flooding, such as carrying out the appropriate property renovations and building levees in high-risk areas.”
The actuaries’ call for a pool is in direct contrast to the stance by the Insurance Council of Australia (ICA), which says short-term direct government subsidies are the best mechanism.
ICA CEO Rob Whelan says a flood pool would only create another layer of government bureaucracy.
In a statement last week he reiterated the basis of ICA’s July submission to the Natural Disaster Insurance Review, proposing direct subsidies to owners of high-risk properties that would taper off after several years.
“We believe the first homebuyer’s grant scheme is an appropriate guide,” Mr Whelan said. “Policyholders and taxpayers should not pay for a pool when there are other better remedies.”
He called for the Productivity Commission to examine how best to provide affordable insurance to at-risk communities.
Insurers gouging, says Bligh
Queensland Premier Anna Bligh has called on insurance companies to be fairer on pricing policies.
Speaking in Cairns last week, she said some insurers are guilty of “gouging” customers with premium rises.
“It is clear that some insurance companies are increasing at a rate that I think is beyond reasonable,” Ms Bligh said. “Some insurance companies are lifting rates by such a high level it can only be described as gouging.”
But a spokesman for the Insurance Council of Australia told insuranceNEWS.com.au the number of natural disasters in northern Queensland was going to have an impact on residential policies.
“Typical increases throughout Australia for home and contents have been up 10%,” he said.
“The Federal Government recommendations requiring insurers to apply flood cover will see some risk areas facing increases.”
The spokesman also pointed out events in Australia last year resulted in $105 billion of claims – 75% of the Asia-Pacific region’s total number of claims.
Householders in flood-affected regions have been reporting 100% rises in premiums and some commercial businesses have reported rises of 1000%.
The increases have not just been limited to Queensland, with Victorian state MP Bill Sykes reporting premium increases in the Benalla area following last year’s floods.
He says his offices have received a number of complaints about premium rises, including one that reported a 500% increase for a property with a low flood risk.
Queensland-NSW floods just seasonal weather
Floods and heavy rain across Queensland and northern NSW last week will not earn the catastrophe status applied to last year’s floods.
Insurance Council of Australia spokesman Campbell Fuller says the event will not be declared a catastrophe.
Widespread flooding across Queensland in January last year resulted in 58,463 insurance claims worth $2.4 billion.
“The scale this time hasn’t been in that kind of area,” Mr Fuller told insuranceNEWS.com.au. “We are expecting several thousand claims.
“For that part of the country it’s seasonal weather and in most cases, communities are fairly well prepared.”
An NRMA Insurance spokesman says the insurer has received 700 claims so far, mostly for damage to home and contents.
Record rains lashed areas of Queensland last week and resulting flashfloods cut roads to
Mount Isa and the east-west railway line at Emerald in the central highlands, where the giant Fairbairn Dam has started to overflow.
Queensland’s State Emergency Service handled about 600 jobs over the weekend for roof damage and minor water inundation.
While clouds are expected to clear from the central Queensland coast by tomorrow, flood warnings are still in place for areas around the NSW-Queensland border and a monsoon system is forming off the coast near Cairns.
Melbourne storms cost insurers $550 million
Insurers have received claims worth more than $550 million following Melbourne’s Christmas Day hailstorms, according to the Insurance Council of Australia (ICA).
Several storm fronts, some containing large hailstones, hit the northern suburbs of Melbourne late on Christmas Day. ICA declared the storms a catastrophe on December 29.
CEO Rob Whelan says insurers have so far received 77,174 claims, with 56% related to vehicle damage and the rest involving residential and commercial property damage and business interruption.
Suncorp says its preliminary assessment is about 28,000 claims worth up to $250 million. It says its natural hazards allowance for the half-year to December could blow out to $420 million from an original estimate of about $240 million.
IAG MD Mike Wilkins says some policyholders have been slow to file claims because of the holiday period.
He says about 24,000 claims had been made on IAG companies’ policies, which will result in net claims cost of up to $200 million, pushing out its natural perils allowance to $420 million from $266 million.
Claims made through RACV Insurance, one of the biggest personal lines insurers in Victoria, are included in IAG’s figures. RACV owns 30% of the Insurance Manufacturers of Australia joint venture with IAG.
Mr Wilkins declined to provide guidance on how the storms would affect IAG’s earnings for the 2011/12 year. The group reports its half-yearly results on February 23.
Latest NZ quake claims total over $NZ1.2 million
New Zealand’s Earthquake Commission (EQC) has received claims of more than $NZ1.25 million ($970,000) from the October 9 Christchurch aftershock and $NZ586,000 ($453,000) from the December 23 quake.
It has also received nearly 300 claims from flooding at the top of the South Island last month, which caused flood damage and landslides.
The EQC has reassured Canterbury residents they have plenty of time to lodge a claim for damage resulting from the 5.8 magnitude earthquake and aftershock on December 23. It has categorised the December event as an earthquake and the October event as an aftershock.
CEO Ian Simpson says there is no need for people to rush back from holiday, as homeowners with private insurance have three months to lodge a claim with the commission.
2011 catastrophe claims blow out to $4.9 billion
Melbourne’s Christmas Day hailstorms have pushed the total estimated insurance cost of 2011’s natural catastrophes to $4.9 billion.
The figure is more than double the $2.2 payout in 2010.
Insurance Council of Australia CEO Rob Whelan says the 2011 figures are not final and will rise further as more hailstorm claims are received and assessed.
The Melbourne hailstorm was the eighth declared catastrophe for 2011, bringing the total number of claims received by Australian insurers last year to 265,000.
The total includes 58,463 claims from the Queensland floods in December 2010/January 2011 which cost insurers $2.4 billion.
Cyclone Yasi, which hit Far North Queensland in January last year, raised 72,203 claims with a total value of $1.33 billion.
In that same month, floods in Victoria triggered 7952 claims costing $122 million; and storms in February cost a further $412.3 million from 49,396 claims.
In Perth, 410 claims were made over bushfires in February costing $35 million. More bushfires in the wine-growing region in Margaret River in November resulted in 399 claims worth $52.2 million.
Reinsurers to cover 80% of NZ earthquake cost
Global reinsurers will cover around 80% of the cost of New Zealand’s February 22 earthquake, according to research by Swiss Re.
Swiss Re Senior Catastrophe Data Analyst Lucia Bevere say the country’s high take-up of earthquake cover means reinsurers will contribute significantly to the rebuilding.
Noting that insurance and other risk transfer mechanisms can greatly accelerate the recovery process, she says the insurance industry “is playing a key role in post-disaster financing of affected countries”.
But in its report, “Lessons from recent major earthquakes”, Swiss Re says New Zealand is unusual in its high penetration of earthquake cover and many quake-prone countries are underinsured.
For example, insurers contributed only 12-17% of the economic cost of the Japan earthquake.
New Zealand’s earthquake monitor GNS Science says the Canterbury earthquakes sequence is winding down, despite the magnitude 5.8-earthquake on December 23.
GNS earthquake scientist Kelvin Berryman says the tremors will start to decrease over coming months “and certainly we believe that a lot of the stress has already been released on the fault lines closer to the city”.
“We believe we are progressing into a period similar to after the February and June 2011 earthquakes. They will go on for some time but they will become undetectable over time.”
Dr Berryman says the size of ground shaking is decreasing. The December quake was only slightly above what scientists had predicted and there is low probability of a magnitude 7 event.
Earthquakes royal commission seeks extension
The royal commission formed to investigate building failure in the Christchurch earthquakes is asking the New Zealand Government for an extension past its April final report deadline.
The Canterbury Earthquakes Royal Commission is currently investigating the failure of particular buildings but will wrap up the public hearings in late March when it examines new building technologies and the training of engineers and organisation of the engineering profession.
The commission’s terms of reference require it to deliver its final report by April 11, but it has asked for an extension to allow it to complete the hearings, which have taken longer than expected, and to write the report.
The report is expected to lead to changes in building codes across New Zealand.
Christchurch rebuild on hold while aftershocks continue
Widespread reconstruction of Christchurch is “on hold” while aftershocks continue, Reserve Bank of New Zealand (RBNZ) Governor Alan Bollard says.
Dr Bollard said on Friday the availability of insurance has been an important factor in the timing of the rebuild.
“There are some unique or unusual aspects – for example CBD closure, building code changes, land remediation, damage on damage – which mean that assessing the value of claims is complex and takes time,” he said.
Dr Bollard told the Canterbury Employers’ Chamber of Commerce that recent aftershocks are likely to add to nominal insurance costs, “but the costs of the rebuilding in real terms may not be significantly affected; that is, you only rebuild a house once”.
The Earthquake Commission has categorised the December 23 event as an earthquake rather than an aftershock.
New Zealand has had more than 400 earthquakes and aftershocks measuring more than 4 on the Richter scale since the first earthquake in September 2010. More than 40 were rated greater than 5 on the scale.
Dr Bollard says the rebuild is expected to take more than five years but building damage is only part of the story, with soil liquefaction, cliff collapses and lateral spread (where soil moves towards water sources) all presenting major technical, insurance and economic problems for the rebuild.
The RBNZ estimates the total cost of claims could be around $NZ30 billion ($23 billion), including claims-handling expenses, business interruption claims, temporary accommodation and other costs not directly related to rebuilding.
He says although some insurers have faced problems and the industry remains cautious about writing new cover, shareholders, including foreign owners, are providing new capital to insurers.
“The Reserve Bank continues to monitor the effects on balance sheets in the insurance sector. Our focus is on the soundness of the sector, and so we are particularly interested in levels of existing and future catastrophe cover.”
Dr Bollard says higher global reinsurance costs are flowing through to New Zealand customers.
Corporate
Losses continue to grow at Calliden
Calliden Group has said its unaudited loss for the 2011 calendar year will be between $11.5 and $12.5 million.
The company has not provided performance guidance for the full year, Calliden CEO Nick Kirk told insuranceNEWS.com.au.
“We didn’t have a forecast for the year, but events have forced us to revise our end of year results,” he said. “It has been one of those years.”
The Christmas Day hailstorm in Melbourne has cost Calliden $3 million net. Losses for the company during the fourth quarter were $5 million.
Claims reserves had to be increased by $2 million due to a 3.4% reduction in the discount rate applied to reserves, caused by a fall in Australian government bond yields.
The losses would have been greater had Calliden not sold its 50% share in Claims Services Australia, booking an $8.3 million profit.
Mr Kirk says the insurer is in the process of transitioning its business model to a low volatility underwriting agency structure.
More than 30% of the group’s premiums this year will be written on behalf of Munich Re-owned Great Lakes, Lloyd’s and the NSW Government’s home warranty scheme.
“In 2011 we started to transition to a less capital-intensive and less volatile business model and this result will add impetus to that process,” Mr Kirk said.
“We are looking for a return to a modest profit in 2012 but it will be a transition year for Calliden between risk-carrying and agency.
“From 2012 we aim to be producing a non-volatile profit which will enable us to make maximum use of our franking credits.”
Calliden has also increased its capital adequacy by $4.5 million to lift its capital adequacy multiple to between 1.6 and 1.65 this month.
QBE performance wobbles
Shares in QBE are wallowing in the doldrums after it warned in mid-January of a 40-50% profit and dividend cut.
The global insurer’s share value plunged more than 24% and $4 billion was wiped from its market capitalisation when group CEO Frank O’Halloran revealed it had been hit hard from the disasters that marked the second half of 2011.
Although 2011 has already gone down as a record year for natural catastrophes, analysts had forecast an average net profit rise of 11% for QBE.
Instead, the group warned that profit after tax could be half last year’s $US1.28 billion.
In August QBE forecast an insurance profit margin of between 11% and 14%, based on $US15 billion in net earned premiums, and said measures were in place to protect profits.
But continued heavy losses from catastrophes in the second half of the year and poor investment performance has slashed that figure to between 7% and 7.5% from $US15.3 billion in net earned premiums.
Unrealised losses from a substantial fall in the risk-free rates used to discount outstanding claims provisions have blown out to $US200 million and losses from the investment portfolio are around $US160 million.
QBE told the market its previous minimum estimate of an 11% insurance profit margin was based on an allowance of 13% of net earned premium for large risk and catastrophe claims, average risk-free rates of 2.6% and a gross investment yield on policyholders’ funds of 2.7%.
The significantly lower insurance profit margin prediction reflects a 15% allowance for large risks and catastrophes, and sharper yields of 2.15% and 2.1% respectively on the other factors.
Consequently QBE has slashed its dividend to 25 cents a share from 66 cents a share, which reduces total dividends for the full year to 87 cents a share from 128 cents a share.
“We thought our initial allowance at the beginning of the year for large individual risk and catastrophe claims of 9% of net earned premium was conservative given the past seven years averaged 8.1%,” Mr O’Halloran said. “However, events during 2011 have proven otherwise.”
He says he is “enthusiastic” about next year’s prospects, forecasting a 15% insurance profit margin based on a 10% allowance for large risk and catastrophe claims (compared with 15% last year) and a yield of 3% on its investment portfolio.
But analysts and investors are not convinced. Credit Suisse says in a note to investors that the figure is “overly optimistic”.
Despite the significantly lower profits, ratings agency Standard & Poor’s has maintained QBE’s A+ stable rating, although it has warned the rating “may come under pressure” if there are signs of “a structural decline in earnings or sustained underperformance against peers”.
The group has been exposed to natural catastrophes around the world, including a full suite of hurricanes, tornadoes, flood, hail and snowstorms in the US; floods and riots in Europe; and flooding in Thailand.
“Our US crop insurance business produced a below-average underwriting profit due to the severe hail and flood claims,” Mr O’Halloran said.
The total cost of reinsurance protection is expected to come under 12.5% of gross earned premium for 2012.
QBE has finalised the placement of its 2012 catastrophe and individual risk excess at an increased 5% cost, he said.
“The 2012 cost includes $US400 million of aggregate covers for a frequency of large individual risk claims and catastrophes, $US200 million of reinsurance protection for the group’s captive, reducing the group’s retention for a US windstorm by $US50 million and additional catastrophe covers for increased exposures in Australia and the US.”
Just before Christmas, Mr O’Halloran announced yet another acquisition – Optima Insurance Group, a small Puerto Rican company with $100 million in estimated gross written premiums.
Disasters bite into Wesfarmers’ insurance profit
Wesfarmers Insurance Division has warned it will suffer a 75% fall in net profit in the first half of the financial year.
The division – which includes insurers Lumley, WFI and Coles Insurance – expects to record earnings before interest, tax and amortisation of $17 million for the six months to December 2011, well short of the $70 million it posted in the same period last year.
Wesfarmers Insurance CEO Rob Scott says bushfires in WA, the Christchurch earthquakes and the Melbourne Christmas Day hailstorm have contributed to a $28 million blowout in the allowances for the six-month period.
He says the higher reinsurance costs that kicked in from July last year are affecting underwriting margins.
However, the underwriting operations in Australia and New Zealand have achieved what Mr Scott says are “solid” premium rate increases in both property and farm-related classes.
Suncorp sees big opportunities in AMP deal
Suncorp will build a new stand-alone brand and develop alternative sales channel approaches through its newly acquired AMP General Insurance Distribution (AMP GID) business.
The December acquisition has seen 700 authorised representatives (ARs) and 37 administration staff move across following finalisation of the deal on January 1.
AMP has agreed to allow Suncorp to use its name until January 1 next year, by which time a new brand will have been developed.
Former Suncorp EGM Direct Distribution Administration and Servicing Gerard McDermott has been appointed MD of the business, while former AMP General Insurance MD Brian Fulmer has been retained as an executive adviser.
Mr Fulmer will also serve on the AMP GID board, which is chaired by Suncorp Commercial Insurance CEO Anthony Day.
Mr Day says the acquisition will allow Suncorp to become “the recognised leader in the AR segment”.
It also gives Suncorp access to specialised products from companies like CGU and truck specialist NTI. GIO and other authorised insurers will continue to underwrite the business.
Mr McDermott says AMP GID will “operate at arm’s length” from the other commercial insurance operations, and will also continue accessing products that are not offered by the Suncorp Group, such as CGU and NTI.
IAG secures additional reinsurance
IAG has increased its catastrophe reinsurance by $600 million to $4.7 billion for this year.
The total cost of reinsurance for the financial year ending June 30 is expected to be between $700 million and $720 million. Last year IAG paid $620 million for its reinsurance.
“While the overall cost of the program has risen, the outcome is consistent with the assumptions contained in the insurance margin guidance of 10-12% provided by the group at the outset of the financial year,” Mr Wilkins said.
The 2012 reinsurance program includes cover for flood, which will be offered by CGU and Australia Direct nationally.
The reinsurance provides for main catastrophe cover for losses up to $4.2 billion with the group paying the first $250 million of each loss.
IAG has also secured earthquake cover for Australia and New Zealand for three years.
IAG moves to buy NZ and Malaysia businesses
IAG has followed up its proposal to pay $380 million to buy New Zealand insurer AMI’s non-earthquake affected business with an acquisition in Malaysia.
As part of its plan to dominate the Malaysian motor insurance market, IAG’s 49%-owned Malaysian associate AmG Insurance Berhad has proposed buying the general insurance business of Kurnia Asia Berhard.
IAG said the deal to buy Kurnia Insurans (Malaysia) Berhard, if approved by local regulators, would give it a leading position in the Malaysian motor market.
An IAG spokesman declined to provide further information about the purchase price or the increased market share that would result from a successful transaction.
The group is planning to fund its share of the purchase price from internal resources.
Shortly before Christmas, IAG also proposed paying $380 million for beleaguered New Zealand mutual AMI, which has been gutted by a large exposure to the Canterbury earthquakes.
The takeover plan involves transferring AMI’s non-earthquake related business into a company called AMI Newco.
But the NZ Commerce Commission must approve the deal, which would give IAG a dominant 40% share of the New Zealand market.
The commission last week released an issues paper on the takeover deal and extended the date for its decision until February 29. It has called for submissions on the issue before February 7.
Chartis centralises prestige house and contents group
Chartis Insurance has centralised the underwriting operations of its Private Client Group to its head office in Sydney.
The Private Client Group provides home and contents insurance for properties worth more than $1 million and contents valued at more than $200,000.
A Chartis spokesman says the decision to centralise operations in Sydney means brokers will have “easier access to key decision-makers”.
Axis Capital appoints ex-Zurich chief
Former Zurich Australia CEO David Smith has begun work as CEO and Country Manager of Australia Operations for Axis Capital Holdings.
Axis Insurance CEO International Mark Gregory says Mr Smith “is well positioned to lead our continued expansion in the Australian marketplace”.
The Bermuda-based company has been active in the Australian market since 2005, and was licensed as an insurer in 2008 shortly before buying professional risks underwriting agency Dexta.
Mr Smith left Zurich Australia in March last year after five years when the company was split into two separate divisions. Prior to that he set up and then managed IAG’s operations in New Zealand.
Axis says he will work closely with Axis Specialty Australia COO Tony Wheatley.
Meanwhile, Axis Capital Holdings CEO and President John Charman has announced he will step down in May after 10 years in the role to become chairman of the board. He will be succeeded by CFO Albert Benchimol.
Mr Charman says he has “always held the view that it is critical to the ongoing wellbeing of a company that a CEO – much like a houseguest – should not outstay his or her welcome”.
Westcourt offers premium funding
Perth-based Westcourt General Insurance Brokers has moved to provide premium funding to its network of authorised representatives.
Westcourt MD Jeff Hollands says the move “allows our network to focus on their core business of providing general insurance”.
The product provides Westcourt representatives with competitive rates, streamlined processes and other benefits including equity in Westcourt Premium Funding.
Macquarie Premium Funding CEO Gary Seymour says his company “worked closely with Jeff Hollands when he first started planning this exciting new initiative”.
“We’re delighted that Macquarie Premium Funding has been selected as the preferred provider of the Westcourt premium funding product.”
Allianz appoints new regional chief
Former HSBC Insurance chief David Fried has left the London-based banking giant after 20 years to become Regional CEO of Allianz Asia Pacific, based in Singapore.
Mr Fried was formerly Group GM and Group Head of Insurance at HSBC Holdings, and was responsible for insurance operations in 54 countries.
He replaces Kamesh Goyal, who has been appointed to a new role at Allianz headquarters in Munich.
The Asia-Pacific region is one of Allianz’s three major growth regions, and Mr Fried will report to Manfred Bauer, the Allianz board member responsible for insurance growth markets.
Hutcheon appointed to Vic state insurer
Former CGU executive Warren Hutcheon is the new CEO of the Victorian Managed Insurance Authority (VMIA).
The former Director of Strategic Initiatives at CGU will start at the state insurer this week.
VMIA has been rocked by claims of a bullying culture in the past few years. Chairman Robert Ray quit in May and former VMIA CEO Steve Marshall resigned in July.
A statement on the VMIA website says the agency “is committed to undertaking a significant change management program focusing on improved workplace behaviour and creating a values-based culture”.
Mr Hutcheon has been “involved in several mergers involving quite different business cultures, giving him a strong insight into culture and change,” the statement said.
VMIA provides insurance for a wide range of Victorian government departments, agencies and statutory bodies, as well as the building industry and medical facilities.
Its portfolio covers $120 billion in state assets and records annual net premium revenue of $181 million. It has $1.8 billion in investments but posted a $ 41.51 million deficit for the 2010/11 financial year.
Regulatory & Government
Government proposes director liability changes
The Federal Government plans to repeal the section of the Insurance Contracts Act that applies liability to directors, employees or agents if they authorise a breach of the regulations.
“This section arguably imposes personal liability in circumstances where the person has not intentionally been involved in the offence,” the explanatory notes to the proposed Personal Liability for Corporate Fault Reform Bill.
“Consequently, this section will be repealed and a new section will be inserted which will impose criminal liability on a person where they are a director, employee or agent of an insurer that permits or authorises a relevant offence against the (Insurance Contracts) Act.”
Parliamentary Secretary to the Treasurer David Bradbury says the proposed amendments to directors’ liability laws will form the first part of the Government’s implementation of the Council of Australian Governments' (COAG) directors’ liability reform project.
“Directors’ liability is one of the 27 regulatory reforms under COAG’s National Partnership Agreement to Deliver a Seamless National Economy,” he said.
“The reform aims to harmonise the approach to imposing personal criminal liability for corporate fault by requiring jurisdictions to audit their laws against COAG-agreed principles.”
The new bill proposes to make a corporation liable for breaches in the first instance. It says directors should not be liable for corporate fault and a “designated officer” approach to liability is not suitable for general application.
Personal criminal liability imposed on a director for the misconduct of a corporation should be confined to where there are compelling public policy reasons and the company is not sufficiently promoting compliance.
Directors will be liable for breaches if their obligations are clear and they had the capacity to influence the conduct of the corporation.
Submissions to the draft bill must be made to Treasury by March 30.
Dam revelations extend inquiry
Further hearings of the Queensland Floods Commission of Inquiry have been scheduled for this week and next week after revelations the Wivenhoe Dam’s operators were too slow in releasing water last January.
The hearing has been reconvened after it was revealed the dam operator, Seqwater, was using a “low release” strategy aimed at preventing rural bridges being flooded.
It is now argued more water should have been released earlier to avoid the devastating floods that hit Brisbane.
Queensland Premier Anna Bligh said in Cairns last week that reopening the inquiry is necessary to ensure any final conclusions are “thoroughly examined and tested”.
“The [inquiry] commissioner [Justice Catherine Holmes] has advised me that these extra hearings, and any evidence gained in them, will take some time to finalise,” Ms Bligh said.
“For that reason the commission will require an extension of time until March 16 to complete their work.
“The commission and the commissioner have my full support in their decision to hold extra hearings and they have my full support for an extension of time.”
The extended reporting time for the inquiry has also resulted in the state election being scheduled for March 24 instead of March 3.
Unfair terms laws may include in insurance contracts
The Federal Government is considering extending the unfair contract terms law to include insurance policies.
It has released a draft regulation impact statement detailing the options for extending the laws to include insurance, and seeking an industry response to the proposals.
Parliamentary Secretary to the Treasurer David Bradbury says the Queensland floods last year raised the issue that some insurance contracts were unfair.
“Following on from these concerns, I convened a roundtable of insurance industry and consumer stakeholders… to find a way forward on this issue,” he said.
“In its final report, the Natural Disaster Insurance Review also recommended that the unfair contract terms laws be extended to cover insurance contracts.”
There are five options being proposed, including leaving insurance contracts out of the unfair contract terms legislation.
According to the Government, this option will not result in premiums going up.
Other options include enhancing the existing Insurance Contracts Act remedies by modifying any disadvantages in section 14 and extending the duty of good faith to third parties.
The Australian Securities and Investments Commission could also bring a public interest action for any breaches of the section, and there could also be changes to insurers’ onus of proof to demonstrate that refusing a claim is not in breach of its duty of utmost good faith.
Another option proposes encouraging the insurance industry to self-regulate, leading to the use of unfair terms by insurers being eliminated.
The Government’s analysis sees benefits in improved drafting and administration of contract terms, but this may not offer the same level of protection as where the unfair condition terms apply to other industries.
Mr Bradbury accepts insurance is a complex area and says any changes to regulations need to be carefully considered.
“Consumers also deserve certainty in the protections they have when entering into contracts, and in this respect insurance should not be treated differently from any other financial service that consumers use,” he said.
Submissions on the draft paper must be received by February 17.
Motor theft body welcomes property register
The National Motor Vehicle Theft Reduction Council (NMVTRC) has welcomed the inauguration of the Federal Government’s new Personal Property Securities Register.
The register will confirm a motor vehicle description, if a third party has a financial interest, and if it is stolen or has been declared a total loss by an insurer.
NMVTRC Chairman David Morgan says it is the first time consumers and motor traders will have easy, low-cost access to a one-stop-shop to check the history of any used vehicle they may be considering buying.
“The register also completes a vital element of the NMVTRC’s strategy to combat the activities of car criminals and fraudsters who try to misrepresent the vehicle’s true identity,” he said.
“While some vehicle status information has been available from encumbrance registers and registration agencies, they have generally been limited to state-based checks rather than a single national ‘source of the truth’.
“As a consequence, they have been generally greatly under-utilised by consumers.”
Mr Morgan says the written-off status of vehicles being sold is a vital piece of information.
The NMVTRC estimates that there are more than 1.4 million private vehicle sales every year, but only a third of buyers have checked the vehicle’s history because it has been just too hard.
“No one would buy a house without making the available provenance checks,” he said. “The register will now offer used car buyers peace of mind before they hand over their hard-earned cash.”
Extension for group purchasing class order
The Australian Securities and Investments Commission (ASIC) has extended the deadline for group purchasing bodies to meet with breach reporting conditions.
The new deadline is June 30 instead of December 31 last year.
ASIC says the extension will allow the Federal Government to examine issues that have been raised with group purchasing bodies which might be better dealt with by amendments to the Corporations Act.
Currently certain group bodies have an exemption from the financial services licensing regime and Chapter 5c of the Corporations Act if they hold insurance for the benefit of third parties on a non-commercial basis.
APRA still interested in mutual fund returns
The Australian Prudential Regulation Authority (APRA) wants discretionary mutual funds to continue submitting financial data, including insurance costs, for the 2011 financial year.
The Federal Government is still deciding whether to collect data from these bodies, and no final decision is expected to be made before the second half of this year.
APRA has collected data on these funds from 2008 to 2010 and figures for the last financial year have to be submitted by April 30.
To ensure there are no gaps in data before the Government’s decision on collections, funds will be required to submit returns for the 2012 financial year as well.
APRA revamps GI reporting bulletins
The Australian Prudential Regulation Authority (APRA) is scrapping its half-year report on the general insurance industry.
The statistics in the half-yearly bulletin will now be published quarterly, together with a yearly review.
APRA says the move will mean statistics on the industry will be available three months earlier and promote better understanding of how general insurance works.
The first quarterly bulletin is expected to cover the period from January to March this year – providing there are no objections to dropping the half-year figures.
Financial Services
Opt-in plan has serious flaws for consumers: say critics
The Federal Government’s opt-in proposals could have serious implications for clients with life insurance policies, the Association of Financial Advisers (AFA) has warned.
Speaking to the Parliamentary Joint Committee on Corporations and Financial Services public hearing on the Future of Financial Advice (FOFA) bills, AFA CEO Richard Klipin said the proposals are against the interests of the consumer.
“Except for those [consumers] who actually respond and get their opt-in notice back, the rest have effectively opted out,” he told the committee.
“If somebody opts out, then they are effectively outside the advice relationship, especially when you have an insurance contract and something medical is changed.”
Mr Klipin says if the client is outside the advice relationship when something happens, the legal ramifications will result in the matter ending up in court.
“When we talk about the vague and opaque nature [of the FOFA legislation] and you play that circumstance out, it is not in the consumer’s interest and certainly ties up advice practices in cost and time,” he said.
The hearings also heard why commissions should be retained for some life insurance products that are sold within superannuation.
Financial Services Council (FSC) CEO John Brogden told the hearing that directly advised life insurance within superannuation is the real issue that has to be dealt with before FOFA becomes law.
The FSC supports the ban on commissions in a default superannuation fund, as the member has not make any choices about the services they use.
“We are referring to the people covered presently in the default arrangement but who believe the level of life cover is inadequate,” he told the hearing.
“They want to top up their cover, and for those individuals that move into directly personally advised relationships… there should be the ability for them to have their advisers remunerated via commission.”
Corporate Super Specialist Alliance President Doug Latto told the hearing the proposed ban on commissions in group insurance would stop advisers charging a fee for their service.
“It will mean we will be forced to withdraw our services,” he said. “This will not benefit anybody and would not lead to a reduction in costs.”
Mr Latto says the insurance companies will not step in if this happens. With the underinsurance problem in Australia, matters can only become worse.
“An unlevel playing field could also see people being advised to hold insurance in retail policies that allow a commission payment,” he said.
“Retail insurance is often very much more expensive than group insurance and is possibly therefore not as beneficial for the client.”
Mr Latto wants commissions to be retained or alternatively advisers to be able to charge an “explicit and transparent” fee for the service provided to super funds.
Association of Superannuation Funds of Australia CEO Pauline Vamos told the hearing commissions on life insurance should be banned.
When asked if she meant a complete ban, Ms Vamos replied: “Flat out, even when there is advice involved.”
Life insurers increase assets
Australian life insurers have lifted their total assets during the 12 months ending June 30 2011 to $235 billion, compared to $234 billion in the 12 months ending December 2010.
In the latest Australian Prudential Regulation Authority figures, the regulator found insurers held $210 million in investments, $17.5 million in cash and $7.4 billion in other assets during the 12 months.
During that period net premiums were down from $39.5 billion in 2010 to $38.4 billion in this latest reporting period.
Net policy payments also fell from $37.4 billion in the December 2010 period to $34.7 billion during the 12 months ending September 2011.
Commissions for the September 2011 period were $1.2 billion for new business and $1.7 billion for ongoing policies.
This resulted in the total life industry making a $2.6 billion profit for the 2011 September year and a net return on assets of 15.1%.
All life insurers in Australia made a profit during the September 2011 reporting period, with AMP recording the largest return of $593 million.
Challenger was second with a net profit of $360 million, and CommInsure earned $295 million.
Life insurance sales continue to grow
Life insurance sales have continued to grow, with both inforce annual premiums and new business recording strong results for the 12 months ending September.
According to research house Dexx&r, inforce annual premiums were up 10.92% to $9.6 billion while new premiums grew by 11.05% to $2.2 billion for the year.
Group life insurance premiums were the strong performer during the 12 months with the inforce sector up 13% and new business up 14.99%.
AIA Australia continues to be the market leader in the group life insurance market with a 25% market share of inforce premiums and 31.3% share of new business premiums.
The big winner for group new business sales was Metlife, up 566% during the 12 months ending September. It had new annual premiums of $151 million, lifting its market share from 3.38% in September 2010 to 19.58% a year later.
Metlife’s gain has been at the expense of TAL, CommInsure and OnePath, which all recorded falls in new business premiums, down 52.25%, 1% and 8% respectively.
The combined businesses of AMP and Axa have given it overall market dominance in both annual inforce and new business premiums.
The combined business now holds a 16.52% market share of inforce annual premiums, compared to its nearest rival MLC with 15.18%.
AMP and Axa now hold a 14.28% market share in new annual premiums, with TAL following with a 13.85% share.
Suncorp merges life insurance back office with super
Suncorp Life has merged the back-office life insurance operation with its superannuation and investment businesses.
The new Product and Service business unit will handle all the back-office functions of life insurance and superannuation that is sold through both advisers and direct.
This will includes pricing, claims, underwriting, administration, call centre and reinsurance functions.
Suncorp Life CEO Geoff Summerhayes says the new sales channels will be called Adviser Distribution and Direct Customer.
Adviser Distribution will be run by Jordan Hawke, who will continue to be responsible for Asteron Life, Guardian Advice, Standard Pacific and dealer support services.
The direct business will be run by former EGM Super and Investments Vicki Doyle. She will now also take responsibility for life insurance sold direct.
Former Suncorp Life New Zealand EGM Sean Carroll will take charge of the Product and Service unit.
Mr Summerhayes says the direct business plans to increase life insurance and superannuation sales by leveraging off its general insurance business.
“Being part of the Suncorp group allows us to leverage household brands like GIO, AAMI, and Apia, so we are committed to maximising that opportunity through direct sales,” he said.
“The independent financial adviser market remains critical to Suncorp Life’s business as we continue to build and sustain relationships through our Asteron Life brand.”
At this stage the company remains tight-lipped about any job losses from merging the two back offices.
A Suncorp spokesman told insuranceNEWS.com.au the company is “finalising the functional roles” in the new division.
“This is the business model that will underpin the structure of the combined businesses,” he said.
“The structure will be complete by the end of February.”
Young Australians ignoring life insurance
Young Australians have the lowest levels of life insurance, with just 36% holding some form of cover.
The CommInsure Life Insurance Survey finds those Australians aged between 25-49 are better protected, with 63% holding some cover.
As expected the level of cover drops with those aged between 50 and 64. A total of 53% hold some cover in this age group.
CommInsure GM Retail Advice Tim Browne says more than 50% of Australian families would be forced to rely on government support if a family member were to die or develop a terminal illness.
“These findings show Australia is facing a significant underinsurance crisis, with only half the population currently insured,” he said.
“Statistics reveal life underinsurance costs the Government $140 million annually.”
Mr Browne says Australians are underinsured by $3.1 trillion. This is resulting in average payouts of less than $350 a week for claims compared to the average weekly income of $1322.
“Our research also demonstrates certain demographics are more at risk of financial hardship because of their lack of insurance,” he said.
“Many Australians believe they won’t be affected by serious illness or injury, yet in reality a male aged 30 to 64 has a one-in-three chance of suffering a major medical illness like cancer, heart disease or stroke.”
The survey found many Australians have life insurance through their superannuation funds, but the amount covered is low.
Younger Australians (71%) are more likely to opt for default cover, a significantly higher proportion than 63% for the 35-49 age group and 60% for the 50-64 group.
Mr Browne says this may be due to a lack of awareness of the potential cover provided through a super fund.
The survey found 58% of Australians with a super fund are not aware they might have some life insurance.
“The underinsurance problem in part stems from a lack of education about the importance of having insurance in place and of understanding appropriate levels of cover,” he said.
“Further compounding the problem, many Australians aren’t aware they may already have some cover through their super fund, while others often incorrectly assume their super provides appropriate levels.”
Mr Browne says while cover through super funds is good, in most cases it will not provide enough financial protection against risks.
Good growth for income protection
Income protection premium inflows were up 11.4% during the 12 months ending September 2011, according to research house Plan for Life.
Total inflows were $1.8 billion for the September 2011 year compared to $1.6 billion in the corresponding 2010 period.
The inflows segment is evenly split between MLC and AMP with the former having a market share of 20.6% and the latter 19.9%.
But MLC annual inflows growth was just 2.8%, while AMP achieved 7.3%.
Westpac achieved the biggest growth in income protection inflows with 24% growth, followed by AIA with 17.5%.
Income protection new sales grew by 19.5% during the 12 months ending September 2011 to $449 billion compared to $376 billion in September 2010.
TAL led new income protection sales with annual growth of 46% followed by OnePath with 34%.
The income sales segment is again controlled by AMP and MLC with 16.8% and 15.2% market share respectively.
AMP reported sales of 14% during the 12 months ending September 2011 while MLC recorded a 19.8% decline.
More TPD cover for Qantas members
MLC has sealed a deal to provide additional voluntary levels of total and permanent disability (TPD) cover for Qantas Super members.
Under the new deal, members can apply online with no medical questions for up to $750,000 of death and TPD cover.
They can also apply for up to $50,000 of additional death and TPD cover when their situation changes due to life events such as marrying or having a baby.
For members seeking medically underwritten cover, they can now obtain up to $10 million of death and $3 million of TPD.
Meanwhile, MLC has reduced the number of pages in its product disclosure statements for the Masterkey products to eight ahead of the Federal Government’s June deadline.
Life insurance included in super review
The suitability and cost of life insurance provided in default superannuation funds is to be reviewed by the Productivity Commission.
The overall review will look at how default funds are selected as part of modern awards and the ongoing assessment of the fund’s performance.
The Federal Government has appointed the former Chairman of the Stronger Super Peak Consultative Group, Paul Costello, as a part-time associate commissioner to help the inquiry.
Assistant Treasurer Mark Arbib says the Government believes default funds should continue to be included in modern awards, but there should also be a transparent set of criteria to assess funds.
“This inquiry seeks to develop transparent and objective criteria against which funds wishing to be eligible for default fund status in modern awards can be assessed,” he said.
The move has been welcomed by the financial services industry, which has been calling for more scrutiny on how default funds operate.
Federal Opposition financial services spokesman Mathias Cormann says the Coalition welcomes the move to design a more open, transparent and competitive process for selecting default funds.
“The current process is not transparent, not competitive and inappropriately favours union dominated industry super funds,” he said.
“Bill Shorten (Minister for Superannuation) did his best to protect the best interests of his friends in the union movement for as long as possible.”
Financial Services Council CEO John Brogden says the current process for selecting default funds is a closed shop, anti-competitive and has failed to protect consumers.
“Currently, the only way default funds can be added to an award is through the recommendation and agreement of employer groups and unions – an inadequate process that is riddled with conflicts of interest.”
Mr Brogden says many union and employer group representatives who decide which funds will be listed in awards are themselves trustees of the superannuation funds they recommend.
The Professional
Suncorp sends more jobs offshore
Suncorp Group is planning to send 71 back-office jobs offshore to India as part of a cost-cutting drive that could result in more job losses.
Indian company World Network Services will provide the services that were previously carried out in Australia.
A Suncorp spokesman told insuranceNEWS.com.au the group is “continuing to review a number of areas of the business. We’ve got a program called ‘Simplification’ that is about simplifying how we do business.”
He says the lost back-office jobs are spread throughout the business and it’s hoped new jobs can be found for displaced employees.
The move follows 50 layoffs by Suncorp last November and a number of new year job cut announcements in the financial services sector, including by ANZ and Westpac.
QBE has indicated it will be making changes in its claims area, but the jobs are expected to be shifted to the eastern states rather than go overseas.
“Following a challenging year, as with all insurers, we have made a number of changes to our operations,” the company said in a statement. “This continuous process will see some changes to our claims function. However, local claims representation will still be maintained in offices where it is currently delivered.”
Finance Sector Union national secretary Leon Carter says it’s “a complete and utter disgrace” that successful companies respond to tough times by sacking their workers.
“They have to repay the loyalty that staff have shown, or the Federal Government should step in to make successful companies invest in and protect Australian jobs,” he said.
“This is just the tip of the iceberg.”
Brokers agree to joint venture with ANZIIF
The Insurance Brokers Association of New Zealand (IBANZ) has agreed to jointly host its annual industry awards night with the Australian and New Zealand Institute of Insurance and Finance (ANZIIF).
An ANZIIF statement says the two organisations are “delighted” to form a partnership to present the New Zealand Insurance Industry Awards this year.
IBANZ CEO Gary Young says the two organisations have agreed to a 50/50 joint venture. “We are in discussions as to the best way to do it,” he said.
ANZIIF announced in April that it would run a separate awards event in New Zealand, despite IBANZ running a successful and identical event since 2007.
It’s understood the decision was not discussed with IBANZ before the announcement or for several months after. Written questions on the issue submitted to ANZIIF by insuranceNEWS.com.au in November remain unanswered.
Mr Young says holding two awards events “would have been disastrous for both of them”.
“Some understandings on judging criteria and the methods of judging, in particular, still need to be established,” he said. “We haven’t reached a final conclusion yet.”
“We [IBANZ] want to be sure we will still have a valuable and uniquely New Zealand awards event.”
Club Marine CEO injured in road crash
Club Marine CEO Greg Fisher is recovering in a Melbourne hospital following a serious cycling accident in December.
It’s understood Mr Fisher was riding on a road near his holiday home on the Mornington Peninsula when his cycle and a car collided. He suffered extensive injuries.
Terry Towell, MD of Club Marine parent company Allianz Australia, told insuranceNEWS.com.au that Mr Fisher’s colleagues in the two companies “are in shock over Greg’s accident, and our thoughts are with him and his family at this time”.
“While Greg’s recovery will take time, we are hopeful that he will eventually return to full health.”
Mr Towell says Club Marine is operating as normal and “drawing on the extensive management resources within Club Marine, supported by the broader Allianz Australia Group”.
Lumley appoints new distribution head
Lumley Insurance has looked inside its own ranks for a new Head of Distribution, appointing National Account Manager Anthony Cooper to the role.
Mr Cooper replaces Andy Doran, who has moved across to become Head of Portfolio Management.
Mr Cooper started at Lumley in 2010 as National Account Manager for the Steadfast Group. He has 24 years’ insurance experience, including stints at IAG and Suncorp.
QBE loses ebusiness chief to Austbrokers
Austbrokers has hired Theo Stevens as Chief Information Officer to drive the listed broker’s technology and ecommerce program.
Mr Stevens was Head of eBusiness Development at QBE, where he had worked for 10 years. In September he was put in charge of developing ecommerce solutions for the group’s global distribution division, reporting to QBE’s New York-based US President Intermediary Distribution, Mike Scala.
Mr Stevens starts at Austbrokers this week.
ICA starts new year with website revamp
The Insurance Council of Australia (ICA) has started the new year and its communications overhaul with the quiet relaunch of its website.
New GM Communications and Media Relations Campbell Fuller says the website was “soft-launched” last week but will continue to be reviewed and modified in the next few weeks.
It’s part of a revamp of ICA’s communications strategy, which has been criticised in the past as slow, opaque and ineffective.
Mr Fuller told insuranceNEWS.com.au the website is “often the first port of call” in a disaster for insurance professionals, media, consumers, consumer advocates and government.
He says the new site will contain more information, including advice on how to make claims and the ICA’s policy positions on various issues.
“We are moving to greater transparency for all stakeholders, and there will be more material available on the website.”
Aon makes new Asia Pacific appointments
Former Aon Benfield CEO Australia and New Zealand Stephen Warwick has been appointed CEO of the group’s Greater China division.
He will relocate to Hong Kong and report to Aon Benfield Asia Pacific division CEO Malcolm Steingold.
Long-serving Aon manager Henry To will become non-executive chairman of Greater China. The company says it plans to make Mr Warwick executive chairman after it finds a new leader for the division in China.
Candy Wong will stay in her job as MD of Greater China, reporting to Mr Warwick.
Insight aims to ‘break boundaries’
Cluster group Insight Insurance Brokers Association has unveiled its program for its May conference in SA.
Working with the theme “Breaking Boundaries”, the conference will be held from May 17-20 in the Adelaide seaside suburb of Glenelg.
Insight Executive Officer Bill Friend says keynote speaker Sam Kekovich will set the scene by “roasting” brokers and “inspiring them to change their own and others’ perceptions” of intermediaries.
Industry speakers will include QBE GM Australian Intermediaries Shaun Standfield, CGU Chief Commercial Officer and GM Retail Mark Searles, Vero EGM Intermediated Distribution Andrew Mair, LMI Group MD Allan Manning. Australasian Institute of Chartered Loss Adjusters President Ian Lavin, Financial Ombudsman Service Dispute Resolution Manager Graham Warner, and Insurance Premium Financiers Australia Chairman Bob Dodd.
International
2011 nat cats set new record, say reinsurers
Economic losses from natural catastrophes in 2011 were the highest on record, according to global reinsurers.
A greater spread of geophysical events and a rise in the number of catastrophes in Asia pushed global economic losses to $US350-435 billion ($329-$409 billion), about two thirds higher than the previous record set in 2005.
Only low insurance penetration for earthquakes in Japan kept insured losses below 2005 levels at between $US105 billion ($98 billion) and $US108 billion ($101 billion).
While last year’s catalogue of 820 events was not unusual in number – it was in line with the 10-year average – location and cost set 2011 apart from previous years.
Aon Benfield says insured losses were 280% higher than in 2010, which in turn were double those recorded in 2009.
Earthquakes caused the most devastation, a change from previous years where weather-related catastrophes such as floods generated the greatest losses.
The Tohoku earthquake off the east coast of Japan and subsequent tsunami was the costliest single 2011 event at $US35 billion ($32 billion) in insured losses, followed by earthquakes in Christchurch at about $US12 billion ($11.3 billion).
Munich Re board member Torsten Jeworrek says many of last year’s events have been calculated at a frequency of once every 1000 years.
“Thankfully, a sequence of severe natural catastrophes like last year’s is a very rare occurrence,” Mr Jeworrek said.
Swiss Re Chief Economist Kurt Karl says earthquake insurance coverage is still low, including in industrialised countries with high seismic risk.
All but two of the 10 most costly events struck in the first half of 2011.
Flooding in Thailand, which began in July and is ongoing, and Hurricane Irene in the US caused a combined $US17 billion ($15.9 billion) in insured losses in the second half, or about 16% of total losses.
Reinsurance rate rises ‘fragmented’
Reinsurance rates have not risen uniformly despite a year of severe natural catastrophe losses, according to the latest renewals data.
During the January 1 renewals period, Willis Re said reinsurance pricing had been driven more by individual loss history and risk exposure than “blanket increases”.
Capital levels in the reinsurance industry remain robust, meaning a sustained hardening of rates is far from certain, especially if underwriting results return to profitability this year.
Willis Re found that during January – the first of the major contract renewal periods before April and July – catastrophe reinsurance pricing rose 80% in New Zealand rose and 40% in Australia.
While renewals in the US were moving up following small gains in mid-2011, they were far from uniform.
“With the exception of a few problem long-tail classes, reinsurers have concentrated on increasing prices for natural catastrophe-exposed areas, which is leading to wide pricing differences by class,” Willis Re Chairman of International Business James Vickers said.
Bermuda-based XL Group found Japan, Thailand and New Zealand had been the most affected by reinsurance rate hikes, while cat policies in Europe rose below the rate of inflation.
XL Europe CEO David Watson says the renewals season has been “disappointing”, with “really no significant upward movement in trading conditions”.
Aon Benfield says insurers did not seek higher reinsurance limits during the January renewals period, but the larger loss-affected reinsurance programs are not up for review until later in the year.
US property reinsurance rates are “firming”, according to actuaries Towers Watson, but while reinsurers want to institute double-digit hikes, many companies have baulked at taking out additional cover.
Ratings agency AM Best says the Bermuda reinsurance market has exhibited signs of hardening in a “difficult yet promising renewal season”.
Both Standard & Poor’s and AM Best have confirmed a stable ratings outlook for the global reinsurance industry.
Aon moves to London
Major broker Aon has decided to move its global headquarters from Chicago to London.
It says the move will “provide greater access to emerging markets” and allow the company to take “better advantage of the strategic proximity to Lloyd’s and the London market”.
Despite shifting its headquarters across the Atlantic, Aon says it has no plans to significantly increase its UK employee count of about 6000 and will retain its listing on the New York Stock Exchange.
The group will be based in a new 47-storey tower in the centre of London.
CEO Greg Case says the decision to move to London “will help drive our global strategy and strengthen our growth opportunities in the years to come”.
“The continued investment in our international operations and emerging markets is important to the growth of our firm.”
Meanwhile, Aon has settled with US authorities for $US16.3 million ($15.3 million) over claims it bribed government officials with paid vacations and holiday expenses over a 25-year period.
Aon said in a statement it had secured a non-prosecution agreement with the US Department of Justice and the Securities and Exchange Commission (SEC) over charges it paid $US3.6 million ($3.38 million) in bribes between 1983 and 2007.
Aon was accused of obtaining or retaining business in several countries, including Costa Rica, Egypt, Vietnam, Indonesia, United Arab Emirates, Myanmar and Bangladesh by offering training, travel and entertainment to employees of foreign government-owned clients and third parties.
Aon allegedly netted $US11.4 million ($10.7 million) in profits from these “improper payments,” according to a SEC release.
Aon must pay $US14.5 million ($13.65 million) to the SEC, including $US11.4 million ($10.7 million) it pocketed from the payments and $US3.1 million ($2.9 million) in interest, and a further $US1.76 million ($1.65 million) in criminal fines to the Department of Justice.
Business has ‘head in the sand’ over risk, says Ward
Risk is poorly understood and must be a priority for business leaders after the most devastating economic losses on record, Lloyd’s CEO Richard Ward has warned.
In his 2011 review, he says industry must “get to grips” with risk management despite a recent Lloyd’s survey suggesting business leaders feel they are “over-prepared” for natural catastrophes.
Only a quarter of economic losses from hurricanes in the US, floods in Australia and Thailand, and earthquakes in Japan and New Zealand were recovered through insurance.
“There still appears to be a head in the sand approach to natural catastrophes,” Mr Ward said. “Business leaders’ surprisingly sanguine attitude towards these risks could cost their business dear.
“Businesses need to wake up to the fact that what happens in Japan doesn’t stay in Japan. Virtually every business larger than a corner shop relies on global supply chains.”
Despite lodging a £697 million ($860 million) pre-tax loss in the first half of last year – a £1.325 billion ($1.63 billion) turnaround from the previous year – Mr Ward says market losses were “small” considering 2011 was the second-highest claims year in history.
Premium capacity is also expected to rise by around £400 million ($590.7 million) this year.
Lloyd’s Chairman John Nelson says economic conditions will remain “difficult” this year, meaning the insurance cycle will take longer to turn.
“Underwriting discipline remains a central challenge for 2012,” he said.
He says pushing into the fast-growing economies of Singapore, China and Brazil will drive future growth, but the relationship with emerging economies must be reciprocal.
“I believe that pulling business in from these countries is as important as pushing Lloyd’s out to them,” he said.
Larger losses loom from Thai floods
Insurance losses from flooding in Thailand could reach $US20 billion ($18.8 billion), although a final figure won’t be known until all business interruption policies are processed.
Swiss Re has placed insured losses at between $US8 billion ($7.5 billion) and $US11 billion ($10.3 billion), while reinsurance broker Aon Benfield has predicted $US10 billion ($9.4 billion) in insurance claims.
Some industry figures are even predicting economic losses from the Thailand floods could exceed the Tohoku Earthquake in March.
Flooding destroyed and damaged homes and industry across 64 of Thailand’s 77 provinces, including 10% of the country’s rice farms, according to Aon Benfield.
Thailand is also a production base for the world’s largest electronics and automotive groups including Sony, NEC, Toshiba, Nissan and Toyota. Hundreds of industrial parks have been inundated by floodwaters. Many plants remain closed, while companies such as Nikon have considered moving production to Vietnam.
The floods have reportedly impacted supply of up to 25% of the world’s computer hard drive components.
Reinsurance brokers Guy Carpenter say about $US3.3 billion ($3.1 billion) in insurance claims have been lodged so far, although the impact of contingent business interruption losses is still being assessed.
Willis Re says cargo losses are potentially large, but still uncertain.
Munich Re has estimated €500 million ($620 million) in claims, while Zurich will pay around $US250 million ($234 million) and Everest Re $US145 million ($136 million) in losses attributed to the floods.
The Thai Finance Ministry says local economic losses could exceed $US6 billion ($5.6 billion).
Marsh said insurers and reinsurers operating in the region have reacted by raising property rates by up to 30%.
Swiss Re gets a new CEO
Swiss Re has appointed current Global Partnerships Chairman Michel Liès as the successor to outgoing CEO Stefan Lippe.
Mr Liès will take over on Wednesday after 30 years with the reinsurer across various life and non-life management roles.
Mr Lippe retires three years after the $US8 billion ($7.52 billion) securities trading losses scandal that prompted the departure of former CEO Jacques Aigrain.
Since early 2009, Mr Lippe has regained Swiss Re’s AA credit rating with Standard & Poor’s, repaid the convertible capital instrument to Berkshire Hathaway and reported third-quarter net income more than doubled to $US1.35 billion ($1.27 billion).
Mr Liès has previously served as Head Client Markets, Head of Europe Division and Head of the Latin America Division.
Swiss Re also announced former Chubb Asia Pacific head Moses Ojeisekhoba will join Swiss Re as CEO Reinsurance Asia and Regional President Asia in March.
Martyn Parker, who has been CEO Reinsurance Asia since June 2006, will return to Europe.
Insurers mop up after Costa Concordia grounding
Liability claims from the grounding of the Italian cruise ship Costa Concordia could be the single largest insurance loss in maritime history.
Damage to the ship’s hull and claims arising from personal injury, liability and environmental damage could tip losses over $US1 billion ($940 million), according to Moody’s Investment Service. This would make it the biggest maritime event since the 1989 Exxon Valdez disaster in Alaska.
The ship is insured for $US513 million ($483 million) by a host of insurers and reinsurers including Bermuda-based XL Group and Lancashire Holdings, UK company RSA, Italian insurer Generali, Munich Re and Hannover Re. Moody’s says reinsurers will cover the bulk of insurance claims.
The cost of liability claims hinges on the integrity of the ship’s hull, where any breach would trigger millions of dollars in pollution-related liability claims.
Norwegian marine specialist Gard is understood to have one of the largest exposures at $US60.8 million ($57.2 million).
Munich Re says its claims burden from the Coast Concordia disaster will be in the mid double-digit million euro range, while fellow reinsurer Hannover Re is expecting around €30 million ($37 million) in related claims.
Lancashire Holdings estimates between $US20 million ($18.8 million) and $US30 million ($28.2 million) in claims, while RSA has placed a figure of €10 million ($12.32 million).
The Costa Concordia was carrying 4200 passengers and crew when it hit rocks off Italy’s Giglio Island on January 13. Seventeen people are confirmed dead and another 16 are still missing.
Bermuda market ‘will retain its position’
Bermuda will retain its leading position among global insurance markets despite regulatory pushes from Europe, rising catastrophe losses and a soft underwriting cycle, according to AM Best.
The ratings agency reports that the Bermuda insurance market remains well-capitalised despite a horrific 2011, and could even record a small bottom-line profit for the full year.
Bermudian companies hold roughly a third of the world’s total insurance and reinsurance capital, or some $US90 billion ($84.8 billion) in shareholder equity, thanks to its low-touch regulations and tax-free status.
AM Best says while Bermudian insurers and reinsurers are affected by the new European Solvency II capital requirements, they are in the same boat as other global insurers.
“Solvency II is big,” its report said. “It’s very important. Bermuda regulators are aware of this. They are actively working toward gaining equivalency.”
Bermudian companies are well prepared for future natural disasters, AM Best said, with most players “well in excess” of stress test requirements.
AM Best also found that while catastrophe pricing for Bermudian companies improved in some loss-hit regions, some insurers have simply left higher-risk markets rather than push for greater market share.
Buffett’s son to succeed – sort of
Warren Buffett has named his preferred successor at the helm of US investment and (re)insurance giant Berkshire Hathaway, but the man tapped to inherit the billionaire’s vast empire will not serve as its next chief executive.
Mr Buffett’s eldest son Howard, a farmer, conservationist and author, has been announced as Mr Buffet’s successor at Berkshire Hathaway, but he won’t inherit his father’s title. Instead, he will serve as a “guardian” of the company’s values, Mr Buffett Snr told US news network ABC.
Mr Buffett Snr says that after he dies Howard will be appointed as non-executive chairman. He will have no say on strategy and will continue to run his corn and soybean farm.
Mr Buffett Jnr is already a director of Berkshire Hathaway, President of Buffett Farms and has been a director of The Coca-Cola Company since December 2010.
“You worry that somebody will be in charge of Berkshire that uses it as their own sandbox in some way,” Mr Buffett said.
“That changes the way that decisions are made in reference to the shareholders. The odds of that happening are very, very, very low, but having Howie there adds just one extra layer of protection.”
Analysis
GI insurers in good shape after disasters
Most Australian general insurers are making a profit despite a string of natural disasters, but some clocked up spectacular losses during the 2011 financial year.
The most profitable insurer during 2011 was Vero, which reported a $613 million net profit.
The figure is revealed in the latest Australian Prudential Regulation Authority’s General Insurance Company Level Statistics.
The next most profitable insurer after Vero was IAG, with $427 million, followed by Suncorp Metway Insurance with $345.1 million.
Vero achieved its strong return on net premiums of $1 billion and net claims of $700 million.
The insurer is also in a very healthy position of having total assets of $6.3 billion and total liabilities of $3.6 billion. It operates a capital surplus of $1.1 billion, giving it solvency coverage of 2.41.
While Australian-owned insurers have performed well – QBE reported a $95.3 million profit for its local operations – some of the overseas-owned insurers have also been recording strong returns on their Australian operations.
Allianz Australia reported a net profit of $301.6 million for the 2011 financial year based on net premiums of $2.3 billion and net claims of $1.6 billion.
Its total assets were $8.4 billion at June 30 last year with total liabilities of $6.6 billion. Allianz’s capital surplus was $319 million giving it solvency coverage of 1.35.
Other overseas-owned insurers also performed well, with Zurich recording a net profit of $37 million, WR Berkley $846 million, Chubb $54.9 million and Hollard $7.4 million.
The local arms of the reinsurance companies performed well despite a horrendous start to 2011.
Munich Re led the three major reinsurers with a net profit of $207 million while Swiss Re reported a $147 million net profit and Hannover Re $9.2 million.
Munich Re’s net earned premiums for the 12 months were $802.8 million and its net incurred claims were $483 million.
Swiss Re earned net premiums of $351 million and claims of $141 million. Hannover Re’s net premiums were $131 million and net claims topped $141 million.
One area of general insurance that seems to be very profitable is lenders mortgage cover.
QBE Lenders’ Mortgage Insurance recorded a net profit of $253 million while the other major player, Genworth, recorded a net profit of $191 million.
New premiums earned by QBE LMI were $338 million, while net claims were only $9.9 million. It was a similar story at Genworth, with net premiums of $358 million and net claims of $155 million.
While many insurers managed to make profits in millions of dollars during the year, some reported their results in thousands.
The smallest profit for the year was by UK-owned niche player Domestic and General Insurance, with a result of $4000 on gross premiums of $799,000.
But not all general insurers made a profit during the 2011 financial year, with the biggest loss achieved by Youi, with a $30 million shortfall. The South African insurer had net premium revenue of $61.4 million and net claims of $42.1 million.
Its total assets at June 30 stood at $160 million with total liabilities of $80.5 million. Youi’s capital surplus was $61 million giving it solvency coverage of 4.4.
Other insurers clocking up significant losses were New India with $19.9 million followed by Wesfarmers General Insurance with a net loss of $16.7 million.
The smallest loss for the year was by the local arm of global trade credit insurer Coface with an $89,000 loss on gross premiums of $21 million.
In comparison, APRA’s figures on the Australian life insurance industry show every company delivered a profit.
The largest net profit was by AMP with $593 million followed by Challenger with $360 million for the 12 months ending June 2011.
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