ldoherty

Reinsurers have started incorporating cancelation provisions into their policies in response to escalating tensions in the Middle East.

The move is primarily aimed at mitigating potential risks associated with the ongoing conflict between Israel and Hamas that began in October.

These cancelation clauses, introduced during turn-of-the-year policy renegotiations, allow reinsurers to withdraw coverage in the event of a full-scale Middle East conflict. This development, confirmed by four market participants to the Financial Times, introduces a new dynamic in reinsurance contracts, as such clauses were not previously employed.

The clauses note that in the event of activation, insurers would lose reinsurance coverage for new policies or assets, such as a commercial building damaged in a conflict. This increased risk is expected to be passed on to clients, potentially resulting in higher premiums or reduced coverage options.

The global insurance sector’s exposure to Israel through political violence and terrorism policies is estimated to be around $10 billion.

Definition and implications of an “escalation”

The acceptance of these clauses by some insurers has raised concerns within the industry, particularly regarding the definition and implications of an “escalation” in the conflict. Furthermore, reinsurers have been pushing for higher prices and limitations on coverage amounts for clients in Israel and neighboring countries like Lebanon and Jordan. There have been discussions about excluding these countries from framework contracts, although these have seen limited success.

According to a report by Aon, reinsurers are seeking to increase prices and reduce coverage in Israel and the surrounding region. This has led to significantly higher costs for both international and local groups seeking to insure infrastructure and property. In some cases, businesses are opting to renew their insurance policies without coverage for assets in Israel, relying instead on state compensation funds.

The global reinsurance industry, with approximately $600 billion in capital, has been increasing prices following years of inflation, natural disasters, and the impact of Russia’s invasion of Ukraine. These factors have contributed to a general rise in business insurance costs globally.

Similar measures were taken by reinsurers in response to the war in Ukraine, including the exclusion of certain countries from contracts. The recent introduction of cancelation provisions has caused frustration among underwriters, reflecting the industry’s growing concern over geopolitical risks.

Major global reinsurers, including Munich Re, Swiss Re, and SCOR, declined to comment on the developments. However, Hannover Re issued a statement outlining its approach, which varies by insurance client and is based on specific portfolios.

The company stated that for existing business in Israel and neighboring countries, it prefers to limit accumulations rather than seeking full or partial exclusions.

What are your thoughts on this story? Please feel free to share your comments below.

The recent Houthi attacks on commercial ships in the Red Sea have caused notable disruptions in global shipping, leading to longer routes and increased costs, as reported by Allianz Trade.

The Red Sea plays a crucial role in global trade, with one-third of worldwide container traffic and 40% of Asia-Europe trade passing through this route. Moreover, 12% of the world’s seaborne oil and 8% of liquefied natural gas (LNG) traverse the Suez Canal.

In the 10 days leading up to Jan. 7, shipping volume in the Suez Canal experienced a year-on-year decline of 15%. The Bab-el-Mandeb Strait, which leads into the Red Sea, saw a more dramatic drop of 53%. The number of cargo ships and tankers passing through the Suez Canal decreased by 30% and 19%, respectively. Concurrently, shipping activity around the Cape of Good Hope nearly doubled, with a 66% increase in cargo ships and a 65% increase in tankers.

Despite the significant rise in shipping prices since November 2023, which saw a 240% increase as of early January, they remain at a quarter of the peak seen in 2021. The current demand backdrop, higher inventories in consumer goods segments, and increased capacities with new containerships suggest a lower risk of price hikes compared to 2021. However, if the crisis persists beyond the first half of the year, the impact on global supply chains could intensify.

Situation remains contained if disruptions are brief

The short-term impact of rising logistic costs on inflation, GDP, and trade is expected to remain contained if disruptions are brief. The effect of doubling shipping costs on inflation is notably higher in Europe and the US, potentially leading to a 0.7 percentage point increase, compared to 0.3 percentage points in China. For global inflation, this could mean an increase to 5.1% in 2024.

In terms of GDP growth, Europe could see a reduction of 0.9 percentage points, and the US a decrease of 0.6 percentage points. This could lead to a global GDP growth reduction to 2%. However, longer-term disruptions could reduce global trade growth in volume by 1.1 percentage points to 1.9%, raising the risk of a delayed rebound from the 2023 recession.

European energy prices remain highly volatile in light of the crisis. Following the Houthi rebels’ initial attacks, the Brent oil price, a European benchmark, increased by nearly 2%, while the US WTI price stayed relatively stable. In the same period, natural gas prices in Europe rose by 3.6%.

Despite these fluctuations and continued attacks, oil prices have been declining due to factors such as higher-than-expected supply, global demand concerns, and the continued passage of tankers through the Red Sea. For European natural gas prices, short-term supply tensions are not expected to majorly impact prices, given the high reserves and the nearing end of the heating season, despite a recent cold snap.

What are your thoughts on this story? Please feel free to share your comments below.

Moody’s RMS has estimated that the total insured losses from the Mw7.5 earthquake on the Noto Peninsula, Japan, which occurred on January 1, are likely to be between JPY435 billion and JPY870 billion (US$3 billion to US$6 billion).

This loss estimate by Moody’s RMS is derived from an analysis using its Japan Earthquake and Tsunami high-definition (HD) Model. The estimate accounts for property damage, contents, and business interruption across residential, commercial, and industrial lines. It includes coverage from both private and mutual (Kyosai) insurance markets.

Included in the estimate are losses due to various impacts such as strong ground shaking, earthquake-induced fires, tsunami inundation, land sliding, and liquefaction-induced ground deformation. The calculation also factors in post-event loss amplification (PLA) and inflationary trends. However, it does not encompass losses related to non-modeled exposures like transport and utility infrastructure, government, or automobile lines.

The earthquake, with a moment magnitude of Mw7.5, struck near Anamizu, a town in Ishikawa Prefecture, at a depth of 10 kilometers, as reported by the United States Geological Survey (USGS). The Japan Meteorological Agency (JMA), which categorizes local ground shaking intensity on a scale of zero to seven, reported a moment magnitude of Mw7.6 and a maximum seismic intensity of seven in the Shika Town Municipality of Ishikawa Prefecture.

The USGS attributes the earthquake to shallow reverse faulting on Japan’s west coast, a region where crustal deformation is accommodated in shallow crustal faults. The earthquake’s focal mechanism solutions suggest faulting occurred on a moderately dipping reverse fault extending from southwest to northeast.

“This event highlights the importance of evaluating shallow crustal earthquakes within a comprehensive view of seismic risk – in Japan and around the world. While the seismic risk in Japan is driven by subduction zone events, there have been several damaging shallow crustal events in recent decades including the 1995 Great Hanshin Earthquake, the 2016 Kumamoto Earthquakes, and now the 2024 Noto Peninsula Earthquake,” Moody’s RMs senior director Chesley Williams said.

What are your thoughts on this story? Please feel free to share your comments below.

Reinsurance tech firm Supercede has unveiled data highlighting trends in the reinsurance industry, particularly regarding the adoption of digital solutions, all of which are particularly relevant during the January 2024 reinsurance renewal period, a crucial time for the industry.

The pace of digital transformation within the reinsurance industry has been steady, albeit slower than the ambitious digital strategies many insurance companies have outlined. According to the latest data, the transition to digital platforms is underway but progressing at a moderate pace.

From October 2023 to January 1, 2024, Supercede processed $60.935 billion in underlying premium, marking a 154% increase from the $24.016 billion processed in the same period in 2022-2023. This volume represents approximately 1% of the global reinsurance market, indicating an increasing acceptance of digital platforms.

The total number of users on Supercede’s platform has seen 43% growth, and the number of distinct reinsurance markets on the platform has risen from 145 last year to 194 this year. There was a notable 214% increase in the use of Supercede’s digital submission packs compared to the previous year.

The data underscores a growing recognition in the reinsurance industry of the benefits of digital platform for enhanced efficiency, improved data accuracy, and better collaboration among stakeholders.

Despite the insurance sector’s reliance on traditional methods, there is recognition of the necessity for innovation to remain competitive. Supercede’s statistics demonstrate that traditional players in the industry are increasingly integrating technology into their operations.

“The insurance industry, especially in the reinsurance segment, is traditionally cautious in adopting new technologies. However, our latest figures suggest a gradual but definite shift towards digital solutions, albeit at a pace that reflects the industry’s need for reliability and trust in new systems,” Supercede CEO and co-founder Jerad Leigh said.

What are your thoughts on this story? Please feel free to share your comments below.

The prolonged downturn in China’s real estate market since February 2022 has sparked concerns about a potential financial crisis with global repercussions. However, as the industry enters the new year, Swiss Re forecasts that such a crisis appears unlikely.

Analysts point to several factors mitigating the risk, including peaking real estate debt levels, government policies to deleverage, and fiscal spending on key projects. These measures are expected to stabilize the property market and, in turn, bolster consumer and investor confidence, leading to economic growth at a new, albeit lower, norm. This stability could also positively impact China’s property and casualty (P&C) insurance sector.

The property market’s decline has been attributed to a combination of cyclical factors like slowed income growth during the pandemic and structural issues such as the shrinking working-age population and diminishing returns on investments. This slump has dented household and business confidence, curbing domestic growth and raising the risk of a liquidity trap.

The real estate sector’s troubles have since rippled through the economy, impacting investment and consumption and affecting approximately 24% of real estate-related value chains that contribute to GDP.

China’s GDP forecasts

The forecast for China’s GDP growth in 2024 is 4.5%, with reduced real estate investment expected to shave off 0.5-0.7 percentage points. The global interest rate hikes in 2022-23 led to defaults in China, especially on USD-denominated debt. However, the risk of systemic default is considered limited due to the nature of the property sector’s debt and government efforts to manage deleveraging.

The outstanding debt in the sector is estimated at CNY60 trillion, or nearly 50% of 2022 GDP, with home mortgage loans and corporate debt constituting significant portions. The relatively high down payments required for mortgages and most of the corporate debt being in the form of bank loans suggest a containment of large-scale defaults.

The government’s policies to stabilize the property market, including ensuring completion of pre-sold residential properties, lowering mortgage rates and down-payment ratios, and extending corporate loan repayment terms, have been instrumental. The government’s priority on economic growth for 2024 indicates more fiscal spending, alongside monetary policy easing. Plans include significant investment in affordable housing, urban village renovation, and emergency public facilities, aimed at supporting lower-income households and easing pressure on the commercial market.

This fiscal spending and policy support are expected to restore confidence in the market and underpin economic growth. In the insurance industry, these developments present new premium opportunities, particularly in engineering, commercial property, and liability business, within the P&C sector.

What are your thoughts on this story? Please feel free to share your comments below.

Everest Reinsurance has announced the formation of a new global specialties business unit, an initiative which consolidates the company’s expertise in diverse areas such as aviation, marine, cyber, engineering, and parametric solutions.

Leading this new division is Phil Taylor (pictured above), appointed as head of global specialties, reporting directly to Jill Beggs, head of North America and global specialty reinsurance.

Taylor brings over 25 years of experience in the specialty insurance sector. Before his current role, he served as global head of aerospace for Everest Reinsurance.

According to LinkedIn, his prior experience also includes managing substantial aviation portfolios, notably at Liberty Specialty Markets. Taylor also held various positions at AXIS Re, including deputy unit head, and spent over a decade at Aon, most recently as a specialty lines broker.

“Since joining Everest, Phil has transformed our aviation portfolio into the market-leading practice it is today. I’m confident his strong leadership skills and global specialty expertise will elevate our position across all specialty lines,” said Beggs. “Phil is the definition of a high performing leader and I look forward to working with him and the team as we continue evolving our business to align with clients’ and brokers’ needs and deliver the exceptional service and value they deserve.”

What are your thoughts on this story? Please feel free to share your comments below.

Global reinsurer PartnerRe Ltd (PartnerRe) has confirmed that CEO Jacques Bonneau is set to retire from the company, effective April 1, 2024, with Philippe Meyenhofer taking the reins as CEO and joining the board of directors.

To ensure a smooth transition, Jon Colello – currently serving as CEO of P&C Americas – will additionally assume the role of PartnerRe president, overseeing all non-life underwriting and reporting directly to Meyenhofer. In the interim, Bonneau will delegate the majority of his duties to Meyenhofer and Colello.

New CEO

Meyenhofer, who has been with PartnerRe since 2010, has ascended through the ranks over the years. His journey has included appointments as head of specialty casualty PartnerRe global in 2013, head of Europe P&C in 2016, and deputy CEO P&C in 2018. In 2020, Meyenhofer assumed the role of CEO of PartnerRe’s specialty lines.

In his new role, Meyenhofer will continue to be based in the company’s Zurich office.

New president

Colello, a member of PartnerRe’s executive leadership team, has been responsible for leading the property & casualty business in the US, Canada, and Latin America, along with overseeing the company’s health business in the US since joining in 2019.

In his new role, Colello will continue to be based in Stamford.

Other appointments

With immediate effect, Christian Mitterer assumed executive responsibility for specialty lines as specialty lines CEO, while Ingrid Gjonaj joined the executive leadership team as P&C EMEA CEO.

Mitterer, a member of the executive leadership team since 2012, previously served as CEO P&C EMEA.

Gjonaj, who has been with PartnerRe since 2006, has held senior positions in legal and underwriting and currently serves as head of region for Western and Southern Europe.

Board welcomes leadership team overhaul

Commenting on the appointments, PartnerRe chairman Thierry Derez emphasised the organisation’s internal talent pool.

“The fact that we are in the position to appoint PartnerRe’s next CEO and president from within the company speaks to the strength and depth of talent in the organisation. Together, Philippe and Jon bring a wealth of industry experience, proven business and leadership skills, and strong track record in underwriting combined with a deep knowledge of PartnerRe’s clients, brokers, and employees,” he said.

Derez expressed gratitude to Bonneau for his leadership over the past three and a half years, emphasising the strengthening of the company’s business, strategic positioning, financial results, and operational excellence under his stewardship.

“Jacques also led the successful transition to Covéa ownership. Jacques has been a very dedicated and strong leader and we wish him all the best in his retirement,” he said.

Bonneau said: “I am proud of what we have achieved and the progress we’ve made in our various business and support units and operations with the improvement in our executional performance and delivery for our numerous stakeholders.

“I am confident PartnerRe is well positioned for future success and Philippe, Jon, and the executive leadership team provide continuity with their in-depth knowledge and insight of PartnerRe’s people and business.”

The global reinsurance industry witnessed a substantial recovery from previous capital losses in 2023, as reported in a new commentary by AM Best. This recovery was attributed to strong technical results, unrealized capital gains, and increased reinvestment rates.

Investment losses which were experienced in 2022 saw a partial reversal in 2023, complemented by higher fixed-income reinvestment rates, leading to robust overall investment income for the industry. Despite these gains, the recovery was somewhat offset by capital distributions by market participants.

Last year, AM Best forecasted a 12.2% year-over-year increase in traditional reinsurance capital, amounting to US$461 billion. However, following the conclusion of the North American hurricane season, reinsurers were on track to nearly double that increase. The balance between available and deployed capital continues to be a significant factor.

Some reinsurers are also still determining their capital strategies, while others, like Berkshire Hathaway’s National Indemnity, opted for substantial special dividends, notably a US$83 billion payout in the third quarter of 2023.

Dan Hofmeister, associate director at AM Best, noted that reinsurers, with improved operating results and high discount rates, face decisions on capital release or investment in the hard market.

“Regardless, our original projected increase of 12.2% in traditional reinsurance capital still appears adequate, albeit with some potential variation if reinsurers avoid deploying the new capital generated in 2023,” Hofmeister said.

Third-party reinsurance capital is also expected to see a moderate 4% increase for 2023, supported by record issuances of catastrophe bonds. The total reinsurance capital for 2023 is anticipated to reach US$561 billion, just under 2% shy of the 2021 high of US$570 billion. The January 2024 renewals are expected to be more orderly, but no indications suggest a softening of market conditions.

Carlos Wong-Fupuy, senior director at AM Best, commented on the potential impact of new reinsurers entering the market, noting that despite several high-profile management teams announcing plans to launch new reinsurers, no substantial business plans have been funded to date.

“Even if funding is ultimately achieved, it would dwarf the retained earnings growth among established players in 2023 and would thus be unlikely to soften the market,” Wong-Fupuy said.

What are your thoughts on this story? Please feel free to share your comments below.

Merck has struck up a settlement with insurers over its $1.4 billion NotPetya cyberattack claim, according to reports.

The US pharmaceutical giant made an eleventh-hour confidential agreement with insurers on Wednesday, putting a stop to a case that could have set a national cyber insurance precedent, Bloomberg Law first reported.

Twenty-six policies were originally at issue in the case, but by last May, when the appellate court delivered its ruling in Merck’s favor, just eight insurers accounting for around $700 million (or 40%) of coverage had yet to settle.

However, the appellate court found in May that the “exclusion of damages caused by hostile or warlike action by a government or sovereign power in times of war or peace requires the involvement of military action.”

“The exclusion does not state the policy precluded coverage for damages arising out of a government action motivated by ill will,” it found.

The court’s stance has proved somewhat controversial among the insurance and legal communities.

The original decision, on which the appellate court ruled last May, had been criticized by Kennedys partners Joshua Mooney and Julia Selby as looking “backward to a century past”.

Insurance companies have tightened wordings to plug cyber systemic risk gaps

Haunted by the specter of systemic risk, insurers have moved to tighten policy wordings around cyber-attacks.

In 2020, Lloyd’s clamped down on silent cyber in all-risks policies.

NotPetya – the Merck and international impact

The White House blamed a Russian action against Ukraine after the NotPetya malware made its way into systems worldwide in 2017, causing billions of dollars’ worth of damage.

Merck was just one victim, with businesses having been affected by the 2017 cyber incident across 65 countries.

Merck’s case, it took just 90 seconds for 10,000 of its machines across its global network to be infected. This doubled to 20,000 within five minutes, and overall more than 40,000 machines were bought down, according to court documents.

What’s your view on the Merck NotPetya cyber insurance case and how insurers are navigating cyber exposures? Leave a comment below.

In a new commentary, AM Best anticipates that the financial impact of the January 1, 2024 earthquake in Japan on major domestic non-life insurers will be manageable in relation to the sector’s net profit.

This perspective was detailed in the commentary titled, “AM Best Expects Insured Losses from Japan’s January 2024 Earthquake to have Limited Credit Ratings Impact.” The report notes that a significant portion of residential earthquake risks in Japan are supported by a state-backed reinsurance scheme. Consequently, most losses incurred by domestic non-life insurers are likely to arise from commercial and industrial risks.

The firm added that Japanese insurers typically employ conservative reinsurance strategies. This approach, along with the relatively low earthquake reinsurance attachment point in comparison to their capital positions, has effectively transferred a substantial portion of earthquake risks to the international reinsurance market.

“While the earthquake losses would drag the proportional treaties results, if losses were to hit individual companies’ earthquake reinsurance excess-of-loss layers, it might fuel rate increases in the upcoming April 1 reinsurance renewal,” AM Best director of analytics Chanyoung Lee said.

The non-life insurance sector in Japan faced substantial catastrophe losses from Typhoons Nanmadol and Talas in 2022. However, the year 2023 was comparatively benign in terms of natural catastrophes for the industry.

AM Best expects that the adverse impact on profitability within the fire insurance segment, which is anticipated to bear the brunt of the earthquake losses, will likely be mitigated by profits from other lines of business. The report also highlights that most non-life insurance lines have seen growth in premium income over the past 12 months, buoyed by primary rate increases.

What are your thoughts on this story? Please feel free to share your comments below.