Insurance news

The Worldwide Broker Network (WBN) has announced the appointment of Benjamin Verlingue to its board of directors. Verlingue was appointed during WBN’s annual conference in San Francisco.

Verlingue holds a master’s degree in insurance and risk management from the Université de Paris-Dauphine. He began his career in consulting at Deloitte before shifting to brokerage in the United States. He is currently head of international subsidiaries at family group Verlingue and deputy CEO of sales and business development for Adelaide Group.

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“With the exception of proposal IV, which will only apply to life insurers, these proposals will apply to all insurers with a Part 4A permission to effect or carry out contracts of insurance as principal. However, the association of underwriters known as Lloyd’s of London would not be in scope. This is because separate legislation provides for the specific restructuring and winding-up procedures available to Lloyd’s of London.”

The proposals are expanding and clarifying the court’s existing power under the Financial Services and Markets Act 2000 to order a reduction of the value of an insurer’s contracts; the creation of a new position of a ‘write-down manager’; the introduction of a moratorium on certain contractual termination rights in both service contracts and financial contracts held with insurers; for life insurance policies, the introduction of a stay or suspension on policyholder surrender rights; and a change to the operation of the Financial Services Compensation Scheme (FSCS) in the event of a write-down to ensure protected policyholders are not financially worse off.

In its consultation, the government asked 24 questions. Responses were submitted by the Association of British Insurers, University of Aberdeen’s Centre for Commercial Law, City of London Law Society Insolvency Law Committee, Freshfields Bruckhaus Deringer LLP, International Underwriting Association of London, Interpath Advisory, Mazars LLP, PricewaterhouseCoopers LLP, and Teneo Restructuring.

Part of HM Treasury’s response reads: “The government agrees with respondents that the role and qualifications of a write-down manager will need to be set out in suitable detail, and anticipates that this will be set through a combination of legislation and PRA (Prudential Regulation Authority) policy.

“The government agrees with respondents that having a write-down manager in place to monitor a write-down, and provide oversight to the court, is important. As such, the government will ensure that a write-down is not able to proceed without a write-down manager in post. The government expects that the private sector will normally be able to provide a suitable write-down manager candidate without delay.”

“However,” continued HM Treasury, “to remove the risk that a lack of suitable candidates prevents the use of a write-down, the government is also proposing that the PRA be able to propose a member of its staff as a write-down manager of last resort. A PRA staff member would still need to be appointed by the court in the same way as a private sector appointee, with the same appropriateness tests applied, and the PRA’s existing statutory immunity would be extended to expressly apply to such a person.”

Meanwhile the government does not expect FSCS funding costs to increase as a result of the proposals.

“While new FSCS ‘top-up payments’ will be introduced in a write-down scenario, it is important to note that FSCS compensation would also be triggered in the event of insurer insolvency, the likely counterfactual absent a write-down,” it was highlighted in the 35-page document published on Thursday.

“The government does not expect the cost to the FSCS of providing ‘top-up payments’ to generally be higher than the cost of paying compensation in insolvency, particularly given that the FSCS will be able to make recoveries if the insurer’s financial position later recovers sufficiently to allow for a (full or partial) reversal of the write-down.”

HM Treasury added: “Moreover, by reducing value destruction and the extent of losses for policyholders, a write-down may in fact reduce the level of funds which the FSCS is required to provide. Importantly, the same individual compensation limits will apply following a write-down as would apply in insolvency, meaning that policyholders will not receive more from the FSCS than they would currently if their insurer were to fail.”

The government, which will continue to consult with the relevant bodies, intends to legislate for the proposals when Parliamentary time allows.

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Fairweather highlighted how the FCA is “rightly” looking to reduce consumer harm while setting higher standards and promoting competition, as well as – in a first for the watchdog – putting published metrics against its targets.

“We are now focussing on results rather than being driven by processes,” reads part of FCA chief executive Nikhil Rathi’s message within the strategy document. “Our strategy sets out, for the first time, the outcomes we expect all firms to deliver across our markets.

“We will also be tougher on our own performance, collectively and individually. For the first time, we are publishing measures that cover a multi-year period and against which we can be held accountable to support delivery of these outcomes.”

Rathi also said: “Prioritisation is inevitable, not least due to our broad and growing remit, but our decisions will be data-based. And an outcomes-based approach guards against inconsistent regulation.”

To help realise its strategy, the regulator is recruiting 80 people.

Commenting, Fairweather stated: “We welcome the fact that the FCA sees informed and empowered consumers as an important defence against bad conduct. Over time, consideration needs to be given as to how this aim is measured. Data from firms, collated under the consumer duty, could really drive this ambition.

“We would also want to see a wider ambition that consumers improve their financial resilience.  Preventing harm, such as from investment in inappropriate high-risk products, is the first step here.”

“But over the coming three years,” she added, “using the consumer duty as a driver, we believe that firms can and should do more to improve the outcomes for consumers, ensuring that they are building their resilience over time.”

According to Rathi, the new strategy will provide a foundation for the FCA to continuously improve while enabling itself to respond swiftly not only to changes in the financial services sector but also to economic and geopolitical developments.

Offering his take on the matter, Sicsic Advisory managing director Michael Sicsic asserted: “Nikhil Rathi was brought in to fix the performance of the FCA. The strategy, business plan, and outcome metrics published [on April 07] support the drive towards the performance culture he wants to build and a way of measuring its success.”

Indeed, the new FCA strategy builds on activities that were introduced in July 2021 when the CEO committed the watchdog to become more innovative, assertive, and adaptive.

Sicsic, who runs a specialist financial services risk and regulation consultancy, went on to note: “There are a number of key headlines for all financial services firms. Firstly, the FCA will raise the bar for authorisation of new firms and individuals. It is ultimately easier to thoroughly check for bad apples before they enter the cart than to sift through thousands. It will also move faster to remove authorisation from any bad actors it identifies.

“For established and reputable firms, the new consumer duty principle is confirmed as its flagship policy. This raises the standards it expects firms to adhere to above ‘treating customers fairly’ and with a rigorous amount of reporting and internal measurement to support its implementation. Third, the use of data runs deep.”

Sicsic stressed that organisations will have to build up their capabilities to measure consumer outcomes and adequately deal with complaints before they reach the regulator.

Meanwhile he commented further: “The business plan and strategy are also noteworthy for what they don’t say. There is scant mention of ‘supervision’ for example, with language shifting towards detecting harm and fixing it. This could trail the disbandment of its dedicated supervision team in its yet to be published new target operating model.”

Rathi did say that the FCA is changing its operating model to focus more on “the problem in front of us” instead of simply addressing types of firms or sectors.

“This is an exciting time for the FCA,” declared the chief executive, who took the helm in 2020. “Two hundred (200) new colleagues have joined us since the start of the year, with dozens more joining every month, as we change the way we operate, on behalf of the consumers we serve. We are committed to holding ourselves to the highest standards in doing so.”

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Among the key concerns voiced by industry witnesses are:

• That the regulator takes a “one-size-fits-all” approach to commercial insurance and reinsurance, requiring London Market firms with “sophisticated clients” to comply with unnecessary consumer protection requirements.
   
• That there is a lack of proportionality which can hinder the development of new forms of insurance in the UK.
   
• That there is a “very demanding regulatory regime” that involves a significant body of requirements and large numbers of information requests and meetings with the regulator.
   
• That the regulators “take a risk-averse approach and operate very bureaucratic systems, contrasting this with other jurisdictions that manage to operate high regulatory standards in a more pragmatic, business-friendly way”.

The inquiry saw industry members highlight the different approaches taken by regulators in other jurisdictions, notably Singapore and Bermuda, which seek to support new businesses through collaborative, open dialogue.

“This was contrasted with the approach of the UK regulators,” the letter stated, “who were said to be more likely simply to point new businesses to a website and ask them to make their own judgement on the requirements.”

This difference in approach was also highlighted in relation to stakeholder and practitioner panels that the regulators operate, with witnesses suggesting that these panels – particularly in the case of the FCA – are selected by the regulators and meet in relative secrecy, with meetings often consisting of the regulator outlining its approach rather than taking on feedback from stakeholders.

The UK industry would likely benefit if UK regulators would adopt a similar and more collaborative approach, the letter stated. However, despite these concerns, the committee recognised it is important to distinguish between dissatisfaction with the outcome and dissatisfaction with the process. In those cases in which the industry did not secure its preferred outcome, it said, this is not always necessarily a sign that the process was poorly run.

“The PRA and FCA stated that they aim to act in a proportionate manner and take into account their impact on the industry,” the letter stated. “However, it is understandable that they focus on their current statutory objectives, which prioritise safety and soundness and make no reference to competitiveness.”

Proposed solution

The industry’s proposed solution to the above issues is a “competitiveness objective” for the regulators that encourages them to be less cautious and to give thought to their impact on the industry. However, many contributors said the proposal of a “secondary competitiveness objective” may be insufficient and argued it may need to be a primary objective instead.

The PRA and FCA argued in favour of a secondary objective, the committee stated, and witnesses from the regulators suggested that they would try to take competitiveness into account when assessing the impact of new rules.

Many witnesses called for clear metrics to be established around this objective, as well as some form of annual reporting to drive cultural change within the regulators and to allow others to hold them to account.

“We heard suggestions that this could include comparing numbers of new applicants, entrants, flows of capital and services to the UK market with other regulated territories each year, reviewing UK regulators’ performance relative to other major regulators,” the committee said, “and monitoring the UK’s performance against international metrics.

“We share the PRA and FCA’s view that the primary objective should continue to be the safety and soundness of firms. Indeed, we agree with those who emphasised that a robust and rigorous regulatory framework contributes to both the competitiveness and the reputation of the London Market and would be concerned at any initiative which could unintentionally dilute this.”

Committee recommendations

The committee agreed that there were strong arguments in favour of adopting a secondary competitiveness objective but noted that this alone may be insufficient. Concerns around the inflexible and sometimes unnecessarily complex processes identified by witnesses require a broader reassessment of regulatory culture, it said, and there is a need for current rules to be applied more proportionately and effectively.

“The FCA and PRA should regularly review their rulebooks to ensure that they are maintaining high standards in the most efficient way possible to enable the competitiveness of the UK financial industry; such reviews should focus on the scope for more efficient and proportionate as well as less cumbersome and mechanistic engagement between regulators and industry,” it stated. “The PRA and FCA should consider formalising such reviews on a regular basis.”

The letter also advised the following:

• The importance of open and transparent communication with industry.
   
• The need for regulatory stakeholder panels to offer two-way dialogue.
   
• Discussions in stakeholder panels to be more transparent and public.
   
• The need for the PRA and FCA to regularly look at other successful financial centres to develop and sustain best practice.
   
• That, alongside, introducing a competitiveness objective for the PRA and FCA, it will be essential to establish clear criteria and appropriate performance measures.

Regarding the last point, the committee stated: “The evidence we heard suggested that industry practitioners have some ideas for what such measures might be and would be a useful source. Publicly disclosed performance criteria would provide an opportunity for both the Government and Parliament, through this committee and others, to monitor performance and hold the regulators to account.”

The committee welcomed Glen’s agreement on the importance of strengthening the role of parliamentary committees in holding regulators to account as they are granted greater rule-making powers. It added it will consider issues of remits, responsibilities, performance measurement and accountability more generally in forthcoming inquiries and looks forward to Glen’s response to outline the Government’s thinking in this area.

Industry reaction

Responding to the recommendations, the London Market Group (LMG) welcomed the letter and noted that, having listened to market leaders and stakeholders – including those from the LMG – the Committee agrees that it is possible to have a properly functioning competitiveness duty without compromising safety and soundness.

LMG highlighted the letter’s call for a more proportionate and efficient implementation of the current rules and the acknowledgement of industry concerns around the ‘one-size-fits-all’ approach by regulators, and the need for more openness and transparency, so that they are open to constructive challenge.

Caroline Wagstaff, CEO of the London Market Group, commented on the letter and said: “This inquiry was an opportunity for the industry to show Parliament its value to the UK economy, but also the challenges it faces. We are delighted that the committee agrees with us on the impacts that regulation can and does have on the future success of the market.”

She highlighted LMG’s five-point plan to identify the regulatory and legislative changes it believes are necessary to enhance the market’s competitive position and that the recommendations of the committee align with many of the key points this plan raised.

“Growing global competition means that the London Market’s place as a jewel in the UK financial services sector is under threat, and it is vital to take action by producing a regulatory framework that makes us fit for the future,” Wagstaff added. “These recommendations are a step towards a regulatory system which boosts our competitiveness, brings in new investment and allows our market to fully contribute to the UK’s recovery and future prosperity.”

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In the report, WTW saw that the scales were finely balanced in all markets, with most portfolios returning to profitability. However, it found that the absence of any fresh underwriting leadership and a reluctance of insurers to “break ranks” are preventing brokers from forcing through any fundamental changes in market dynamics.

Graham Knight, head of global natural resources at WTW, advised the energy sector to come to terms with the consequences of the energy transition that may be accelerated by the recent events in eastern Europe.

“Now, we have a new factor to add to the mix – a significant future loss of energy market premium income from Russian business. It really is too early at this stage to predict with any accuracy what effect this withdrawal of premium income will have on market conditions,” Knight said. “On the one hand, insurers may use this factor to insist on recouping lost premium by re-imposing stiff rating increases; on the other, they may be inclined to compete more aggressively for the remainder of the premium income pool.”

WTW’s report expects a short-term fossil fuel “binge” due to the crisis in eastern Europe that will alter the balance of the broader energy trilemma of affordability, availability, and reliability.

“It is probable that some assets may need to ramp up production, and/or other mothballed assets may be brought back online. The big question, of course, is whether maintenance and capital expenditure have been maintained for these facilities; if not, perhaps we can expect a future escalation of the current loss levels affecting the energy insurance markets, which may fuel a return to hard market conditions,” Knight said.

“How the markets react to premium income depletion as a result of sanctions and a short-term increase in fossil fuel activity remains to be seen. In the meantime, the energy transition will wait for no one; every risk manager involved in the industry will need to address the uncertainties arising out of both the new geopolitical landscape and the mounting momentum towards achieving net-zero emissions targets.”

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And so it is perhaps unsurprising that the insurance profession has so keenly embraced the aims and ambitions of the Insurance United Against Dementia (IUAD) campaign. In a recent interview, the fundraising and awareness-raising initiative’s new chair, Aon’s global head of climate strategy Richard Dudley (pictured), noted that since the campaign launched in 2017 it has gone from strength to strength.

Since its launch, IUAD has raised around £7 million and has set its sights on the £10 million mark, but Dudley believes it will likely stretch its ambitions beyond even this reputable goal. Most of the progress that has been made in the five years has been primarily driven by relationships, firms and individuals who are either in or related to the London and international insurance market. This has largely been a result of the makeup of the board, he said, and the people who have driven the campaign’s corporate or individual fundraising.

“A lot of those networks have been in this part of the business effectively, it’s where Chris and I are based, our home offices are both in the City of London,” he said. “So I think for the next stage of the campaign, what we’re really keen to do is to expand on the good work we’ve already done in the commercial lines market more broadly in the UK… and we’d like to do more in the personal lines space, the protection and health space – which is something we haven’t really touched at all.”

IUAD is delighted to welcome two new board members from that side of the business – Rose St Louis from Lloyds Banking Group and Peter Hamilton from Zurich. Both are passionate about the topic, he said, and are keen to get stuck in and help expand the initiative across different parts of the industry. Tapping into the reinsurance market is another part of Dudley’s strategy as chair, with Ian Branagan of RenaissanceRe Holdings also joining the board.

Read more: How can insurers support those impacted by dementia?                                           

“We know that having those three people on the board is going to help us to extend our reach,” he said. “But also I think there are a few things we haven’t done as consistently as we could have. One of those is to have a more regular and proactive approach to making people aware of the campaign because we’ve traditionally tended to do it in bursts.

“We have events, we have the Insurance Day of Giving, but we need to [raise awareness] consistently across the year as well. It’s almost like filling a bath. We tend to fill the bath then pull the plug out for a bit and then refill the bath again. What I’d like to see is the water level of awareness rise on a more consistent basis.”

In addition to this, a core focus for IUAD going forward will be driven by the former chair, QBE’s Chris Wallace, who will be taking on a new role in order to focus on the legacy aspects of the campaign. That’s how the industry thinks about, engages and looks after those who are impacted by dementia, he said, and that’s the people who suffer from it themselves and those who care for them. That has always been an element of the campaign – but going forward this will be further elevated.

Looking to the future of the campaign, Wallace said he can see there is a wonderful opportunity for the insurance sector ahead as IUAD enters its next phase. The progress made by the initiative has been fantastic to date, he said, but there is always more to do. The opportunity presented now is to promote greater connectivity and greater awareness of the work that is being done and the impact it is having.

“And we’ve been looking to push into the non-commercial sectors of the industry for a little while,” Wallace added. “I think the work that Richard has done in a very short period of time gives us a nice platform to extend the reach, the awareness and the connectivity of [IUAD].

“If you join those different pillars across the industry together, the power of the industry in driving awareness of dementia, of the services available, and of how to treat employees, families and customers in that predicament is really something. It’s also just a wonderful opportunity for the insurance industry to prove, yet again, that it cares and it can make a difference.”

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SCOR Syndicate has appointed Marie Biggas as active underwriter and chief underwriting officer of SCOR UK.

Biggas will report to both SCOR P&C EMEA and SCOR Syndicate CEO Stuart McMurdo, as well as SCOR global CUO single risks Olivier Perraut.

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Based on its analysis, S&P reported a negative outlook on the global reinsurance sector, reflecting its credit trend expectations over the next 12 months, including the current distribution of rating outlooks, existing sector-wide risks, and emerging risks.

As of March 31, 2022, 29% of S&P’s ratings on the top 21 global reinsurers had negative outlooks, 57% were stable, and 14% were positive or on CreditWatch with positive implications.

The rating agency predicts the top 21 global reinsurers to assume around half of the potential losses in the insurance sector on aggregate, varying by lines of business because certain lines are more reinsured than others. It also expects the Russia-Ukraine conflict losses to be an earnings event for most reinsurers. However, the losses could turn into a capital event for a few outliers, given the significant natural catastrophe losses already accumulating during the first quarter of 2022, even before the Atlantic and Pacific hurricane seasons arrive.

Over the past five years, elevated natural catastrophes and pandemic losses, adverse trends in certain US casualty lines (general liability, professional lines, and auto liability), and a competitive environment have driven weak underwriting results in the sector. As a result, reinsurance pricing has hardened over the past years through to the January 2022 renewals, according to S&P.

However, the rating agency explained that the extent of the price increases has varied by lines of business, loss experience, and regions. And, because of these price rises, the accident year combined ratio, excluding natural catastrophe losses and reserve developments, of the top 21 global reinsurers has improved by around 4 percentage points since 2017.

For the rest of 2022, S&P expects the positive momentum in reinsurance pricing to continue, with tightening terms and conditions further influenced by the magnitude of the Russia-Ukraine conflict losses.

“We could revise our sector outlook to stable from negative if we believed reinsurers could sustainably earn their COC. This will depend significantly on reinsurance pricing improvement through 2022 and the sector’s discipline and preparedness in managing volatility from natural catastrophes and man-made losses, including the Russia-Ukraine related claims,” S&P said.

Aside from specialty lines, cyber insurance is another type of insurance product most likely to take a hit from the Russia-Ukraine conflict.

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Allianz Global Corporate & Specialty SE (AGCS), the corporate insurance carrier of Allianz Group, has announced the appointment of Vanessa Maxwell as global head of financial lines. Maxwell (pictured above) succeeds Shanil Williams, who was promoted in January to join the AGCS board of management as chief underwriting officer, corporate. In her new role, Maxwell will report to Williams.

Williams served as global head of financial lines for AGCS from 2019 to the end of 2021, and will continue to oversee this line of business on an interim basis until Maxwell joins AGCS. Maxwell will take up her new role in June at the latest, the company said. Both Williams and Maxwell will be based in AGCS’s London office.

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Company veteran Fintan Mullarkey is taking the helm at AXIS Specialty Europe SE (ASE).

Subject to regulatory approval, Mullarkey has been appointed as ASE chief executive after serving as finance head for a decade. The promoted leader was head of finance not only of ASE, but also of AXIS Re SE.

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