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MARKET NEWS, DATA AND INSIGHT ALL DAY, EVERY DAY
ISSUE 4,795
MONDAY 27 FEBRUARY 2017
Insurers need to adopt ‘bottom up’ approach to crack the SME cyber market
p6-7 p2
p3
Focus: Marine reinsuranceThinking outside the container
European reinsurers’ appetite changes for 2017
insurance industry. Visit www.insuranceday.com/mergers-and-acquisitions
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NEWS www.insuranceday.com | Monday 27 February 20172
European reinsurers’ appetite changes for 2017Cutbacks are the order of the day, although Scor is expanding
Graham VillageGlobal markets editor
Europe’s four bellwether reinsurers have been growing their core accounts despite the progressively softening condi
tions of the past few years. But 2016 results and January 2017 updates suggest even the Europeans are hard pushed to find profitable growth.
While the Bermudian market has relied on acquisition, expansion into new lines and territories, and arrangements with thirdparty capital to maintain momentum, the leading continental reinsurers have been showing premium growth in their core traditional accounts.
They already have good diversity by line and geographically and have not needed to make acquisitions to boost revenue and profit potential.
Swiss Re expanded its gross nonlife account by 12.7% last year but with the company easing back on property and specialty lines growth was entirely due to casualty underwriting, which recorded an increase of 30.5%.
The casualty book represented just less than half of Swiss Re’s overall nonlife portfolio last year but proved less profitable than the property and specialty accounts. While those two recorded underwriting profits, the casualty account delivered a loss of $316m due to reserve strengthening for the motor and main liability portfolios.
It was all change at this year’s key January 1 renewals. Swiss Re had $10.3bn of business up for renewal but cut its account by 18% “to preserve the quality of our book”. In common with other reinsurers, Swiss Re withdrew significant capacity for Chinese proportional business.
Prices were down again but at a slower rate than the previous year, the reinsurer said, and casualty rates were more stable, suggesting the casualty book may take an even larger share of the whole this year.
Munich Re has been less expansive recently than its Swiss rival and trimmed its reinsurance account last year. At January 2017 renewals, it shed €1.3bn ($1.38bn) of business, or 14% of the total due for renewal, and added €1.1bn of new premium to give a net decline of 4.9%. Prices were down about 0.5% compared with a fall of 1% the year before.
Munich Re is not expecting conditions to change much at the April and July renewals “unless extraordinary loss events occur”.
Hannover Re and Scor appeared to take a more accommodating stance at January renewals.
Hannover Re lopped 1.4% from the size of its core traditional reinsurance book, writing €4.62bn in all. That included €679m of cancelled or modified business and €459m from new treaties. But the reinsurer clearly wrote some
large structured contracts, particularly for solvency relief, bumping up the overall book by 7%.
As a result, Hannover Re expects 2017 premiums in total will show an increase in the low singledigit percentage range.
The reinsurer booked strong growth of 6.5% in North America, particularly for loss-hit Canadian business, for credit and surety (up 7.7%) and the UK/London market (up 7.9%).
The hungriest of the continental players was Scor, booking growth of 5.4% at constant exchange rates, driven by the reinsurer’s desire to expand its position in the US market. The general treaty book was up 5.2% and the specialty account up 5.8%. Despite an average rate reduction of 0.6%, Scor expects technical profitability should be down just 0.3%.
Scor aims to develop its Lloyd’s account, through the Channel syndicate, and expand its business with managing general agents as part of its latest strategic plan, Vision in Action.
The reinsurer’s nonlife book shrank 1.5% in euro terms last year but grew 2.8% in original currencies.
Table: Continental reinsurers – January 2017 renewals
Company Account due for renewal Account after renewals Change Pricing/comments
Munich Re €9bn (50% of total nonlife reinsurance book)
€8.5bn (4.9%) Down 0.5% after 1% fall a year ago
Swiss Re $10.3bn $8.5bn (17.5%) Riskadjusted 101% down from 102%
Hannover Re €4.69bn (65% of total) €4.62bn (1.4%) for traditional but up 7% after
structured business
Significant competition and no sign yet of
general stabilisation
Scor €3bn (65% of total) €3.16bn 5.4% Risk adjusted down 0.6%
5.4%Growth booked by Scor at constant exchange rates
NEWSwww.insuranceday.com | Monday 27 February 2017 3
Cyber bonds likely if insurance solutions remain insufficientRebecca Hancock
Reporter
The creation of cyber bonds, cap-tives and risk retention groups are all possibilities if insurance coverage continues to be per-ceived unfavourably by buyers, according to analysis by Deloitte, writes Scott Vincent.
The study suggested there is a perception among many buyers that cyber insurance coverage is insufficient, uncertain, overly complicated and in some cases too costly for the value offered.
Possible resulting scenarios could include the creation of cy-ber bonds to transfer exposure to investors in the capital markets, or cyber risk retention groups to cover groups of small to medium- sized companies.
The report also pointed to-wards the launch of onshore and offshore cyber captives becoming a possibility, with these captives facilitating self-insurance and of-fering buyers direct access to the reinsurance market.
The Deloitte study suggests market participants need to ex-amine whether existing resources are sufficient to assess the risk, or whether there is a need to pur-chase external data or third-party models to support underwriting and pricing systems.
The report also indicates a need for the industry to stan-dardise its policy language while still leaving room to differentiate via additional coverage and ser-vice options.
Most importantly, the Deloitte
study said insurers should learn from their own direct experi-ence in managing cyber risk and leverage that expertise to support underwriting, pricing and risk management services for clients.
A research project by Novae has suggested insurance alone is not enough to manage cyber risk, with more needing to be done to understand the risk en-vironment and halt the potential damage to organisations that this threat can inflict.
The insurer has partnered with the University of Oxford to help determine the residual risk com-panies continue to carry even af-ter investment in insurance and other risk controls.
Dan Trueman, chief innovation officer and head of cyber at No-vae, said the research would be critical if the industry is to truly understand cyber threats, and extend products beyond a data breach offering.
“While the market is growing, it still has a relatively low penetra-tion. The US still accounts for 90% of the premium the market sees,” he said.
With so much of a company’s valuation now in goodwill, rep-utation and protection of intel-lectual property, Trueman said it was important the industry devel-oped models to properly address these risks.
“We believe understanding the underlying risk is important,” Trueman said.
HSB’s Worrall: Insurers need to adopt ‘bottom up’ approach to crack SME cyber market
For insurers to tap into the underserved small and medium-sized enterprise (SME) cyber market they
must change their methodology when approaching small busi-nesses, according to HSB Engi-neering Insurance’s managing director, Steve Worrall.
Worrall said until now the ma-jority of market players have fo-cused their attention within the sphere of cyber insurance on the large-scale commercial firms. As more and more players enter this space, he said an increasing number of insurers are turning their focus to the SME arena.
Worrall said the mistake a number of market players make-when developing cyber insurance products for smaller companies is simply scaling down the cover of-fered to large corporates.
He said that this approach is unsustainable. “Top down simply doesn’t work for cyber,” Worrall said. “It’s much easier to scale up than down.”
Worrall argued while the ma-jority of insurers have been pre-occupied with creating cyber solutions for large corporations, a significant gap in cover has emerged in the SME space.
“It’s easier to find cover of £100m [$124.9m] than £100,000 and that needs to be addressed.”
He said appropriate cyber cover is just as important, if not more so, to an SME than it is to
a large company. Worrall said the effect of a data breach or cy-ber crime on a company turning over in the region of £10m could arguably be far more devastating than the same event taking place at a large corporation because of economies of scale.
Worrall said although aware-ness of the cyber threat has risen in recent years among SME com-panies, accessibility to products has been limited because of issues related to affordability.
Worrall said to improve access to cyber cover HSB has taken a two-pronged approach. Products are offered through traditional broker routes as an extension of existing cover and also on a white label basis, in which the cyber product provided by HSB is em-bedded into the client insurer’s broader engineering portfolio.
As more insurers begin to ex-plore the SME cyber market,
Worrall said as one of the earli-er players, with an established presence in the market, HSB will be able to continue being a mar-ket leader in this space. HSB as a group has been writing data com-promise and other cyber liability covers for more than 10 years in the US.
Worrall also said the firm will not rest on its laurels, continuing to develop new cyber solutions for its clients. He said HSB is cur-rently developing a home cyber product that will be distributed through the same channels are existing policies.
The global cyber market has been growing rapidly. It was esti-mated to be worth around $2.4bn in premiums in 2014, according to industry data. Fitch believes cyber insurance premiums could increase to $20bn by 2020. At present the bulk of the business emanates from the US.
Munich Re subsidiary highlights the need for increased SME cover for cyber
‘Top down simply doesn’t work for cyber... It’s much easier to scale up than down’
Steve WorrallHSB Engineering Insurance
Cyber: bonds could transfer exposures to capital market investors
FOCUS/MARINE REINSURANCE www.insuranceday.com | Monday 27 February 20174 www.insuranceday.com | Monday 27 February 2017 5
Getting back to basics in a tough market
At the Iumi annual winter meeting the message was very much that the marine re/insurance market is facing another difficult year, with overcapacity and abundant capital leading to further reductions in rates and underwriting profitability. Here, a group of sector experts consider the issues of effective cycle management, identifying areas of opportunity, competitive differentiation and how exposed the sector is to cyber attacks
The onus for marine re/insurers, according to Iumi president, Dieter Berg, is on cycle management, but against the background of an extended run of challenging years for the marine market, what exactly does cycle management mean in this context? Resort to the same strategies as last year or do something different?
John Elliott, senior vice-president, marine and energy, Lockton Re“From a purely supply and demand perspective there are no signs of the overcapacity changing any time soon. However, following the January 1 renewal season rate reductions were not at the levels of recent years. I do not believe the cyclical nature of the business in a traditional sense exists any more. Technological developments and the speed of information sharing creates a much more dy-namic market than in the past. The strategy remains the same, with a major emphasis on maintain-ing client relationships and risk selection.”
Anthony Forsyth, divisional director, marine, Brit Insurance“Fundamentally, good cycle management involves leading and controlling more of your portfolio, partic-ularly in this new age of facilitisation, focussing on core areas in which you offer differentiation and specialty, and using this to secure pipeline opportunities with your key partners.”
Nicholas Croxford, regional managing director – Japan, Willis Re“For marine re/insurers to maintain the existing strategy will only serve to reinforce the challenging results and negative external view of the marine market. Effective cycle management will require a combination of underwriters focusing on core clients/classes, balanced with niche products that are subject to a less competitive environment. At the same time it means carefully managing net retentions through utilisation of the full suite of re insurance products, abundantly available from traditional and low-cost reinsurers swimming in capital. At January 1 we saw increases in utilising reinsurance not only as a cheaper form of capital but also a mechanism for managing earnings and volatility caused by large, rather than catastrophic losses.”
Bjornar Andresen, chief underwriting officer, Gard“There is no doubt we are operating in a ‘new normal’ – consolidation is happening, technology is changing our lives and the way we work faster than ever before and economic uncertainty remains a constant. In this environment, our business is grounded in doing the basic things well – being able to assess and price risk, doing it in a way that is fair and delivering a strong claims service, all of which are key ingredients in the mix.” n
What would ‘doing something different’ entail in this regard? What are the options for marine re/insurers in today’s very challenging environment?
John Elliott, Lockton Re“The nautical phrase ‘batten down the hatches’ springs to mind. The option is basically if underwriters have the correct support from man-agement and they want to stay in the class then it is wise to manage their expectations of both income and profitability.”
Bjornar Andresen, Gard“A strong claims ser-vice is a differentia-tor in world where it’s hard to do so on price. Our rep-utation as a qual-ity claims lead has proved to be a good way to stand out from the crowd – as is our ability to offer a combined P&I and marine claims service and a global network should the need arise. The economic value of this is proven and is an important factor in our positive insurance re-sults over the past few years.” n
More recently, the physical risk to ships from a cyber attack is being increasingly highlighted. However, there appears to be a great deal of scepticism within the marine industry a cyber attack on a ship poses the same level of risk as a cyber attack on traditional back-office functions such as accounting, payments and banking. How vulnerable is the maritime sector to cyber attacks and what are the respective roles of risk management and insurance in terms of managing that risk?
Dan Trueman, chief innovation officer and head of cyber, Novae Group“Cyber attacks are not restricted to a country, industry or a particular type of business;
no business is immune to the cyber threat and the marine sector is as vulnerable as any other industry. Today’s on-board operational technology (OT) and information tech-nology (IT) systems are becoming connected like never before and this hyper-connec-tivity increases the risk of critical systems, such as safety, propulsion or navigation, being exposed to cyber threats.
“Building a strong cyber security awareness culture should be top of the marine sec-tor’s agenda. Organisations need to start undertaking measures to mitigate the cyber
threat. Education is key as developing awareness of the risks will improve the company’s ability to manage the risks. Crew should be trained to be the human firewall, enabling them to identify common online threats such as phishing and email scams. Restricting access to these systems is import-ant and one of the measures organisations should be implementing to reduce the exposure.
“Cyber insurance is also a key part in managing the risk. It can provide necessary peace of mind to shipping companies as cyber insurers can collate expertise across a wide number of risks. Cyber insur-ance can cover broad first and third party coverage arising from a computer attack, operational error or accidental damage including: cyber extortion and ransomware, customer attrition and transactional e-theft. A cyber policy offers much wider coverage than traditional P&I policies and is broader than that of just malware and intentional breaches.”
Gerry Northwood OBE, chief operating officer, MAST“Cyber attacks within the maritime industry pose a huge threat to companies and their
crews. From navigational interference, hold and cargo data theft to confidential data being stolen about crew and suppliers, the damaging effects of this type of crime will not only impact operating profits but could also result in potentially life-threatening situations for crew members.
“As onboard technology continues to develop and become connected to ports, ships and online data, it is vital that thorough risk management and personal training
is in place to mitigate any risks. Ships already juggle complex operations and unsafe shipping routes, so exposing themselves to cyber attacks could make ships all the more
vulnerable to danger.“Insurers had to react to the peak of Somali piracy attacks in 2008, which had a real impact on com-
mercial shipping in the Indian Ocean. Although the situation was suppressed through the successful implementation of radical security measures, the Best Management Practice High Risk Area (HRA) and the Joint War Committee at Lloyd’s increasing the area of the corresponding insurance HRA, piracy has since become more sophisticated and we can expect criminal cyber activity and piracy to increase.
“Recent attacks from unmanned, remote-controlled craft filled with explosives in the Red Sea on United Emirates ships are only the beginning of a new trend in how piracy and maritime dangers will look if not properly dealt with and scepticism in this area will ultimately be putting lives at risk.”
Mike Roderick, marine insurance partner, Clyde & Co“There is significant material in the public domain about cyber risks to ships at sea. Far less has been written about on land storage and supply chain risks to cargo, which extend beyond the obvious theft risk to cargoes in port warehouses and container terminals. A cyber attack on a power grid could, for example, create significant accu-mulation risk to temperature controlled cargoes such as pharmaceuticals but there is little empirical data available to assist in the quantification and management of this risk. An unanswered question is the extent to which this is existing exposure just with
a different trigger. “Cargo policies are written on an all-risks basis and so there is inherent exposure to
this potential cyber risk in the absence of an express cyber exclusion. The marine market has the CL 380 cyber attack exclusion but it is not universally accepted by insureds nor necessarily required by reinsurers. Prudent management of cyber risk is in the spotlight given the Prudential Regulation Authority’s focus on the issue and the development of a clear and proportionate strategy to under-
stand and deal with both transit and on land storage risks is high on the cargo market’s agenda.”
Anthony Forsyth, Brit Insurance“It is true that, the maritime sector will become more vulnerable as the sophistication of ship and ship-ping technology accelerates. The marine market needs to develop new products to meet 21st century demands, this is certainly front of mind for us at Brit, with product development an ongoing focus as the demands and risks we see continue to evolve.” n
Despite plummeting rates and a lack of confidence surrounding the marine market, new players continue to enter the sector while existing players continue to strengthen their positions. But where exactly are the areas of opportunity for both existing players and new entrants in a marketplace which is by all accounts very challenging?
John Elliott, Lockton Re“One area of opportunity arises as a result of the merger and acquisition activity of late. This is having a big impact on the market place. When product lines overlap the combined entities are tasked with trying to maintain market share.
“Often the client is concerned with having too much reinsurance placed with too few carriers hence this creates opportunities for com-peting underwriters. Another knock-on effect is the loss of key staff to other syndicates or companies that decide to enter marine as a new class or to further develop their existing book.”
Nicholas Croxford, Willis Re“Increased focus on specialist or niche products offers the best oppor-tunity for profit. However, critical mass is not always easy to achieve and expenses can weigh heavily on underwriting profit. The MGA model is adept at accessing specialist underwriting relatively cheap-
ly; as more underwriters seek to balance core classes. We see this as a major area of expansion.”
Bjornar Andresen, Gard“We are a long-term business and we take a long-term view on how we do business. Our strategy of focusing on three key activities; maintain-ing our financial strength, developing our market position and building an efficient global organisation. All of these are fundamental to deliver-ing the stability and consistency that protects the assets, incomes, and reputations of our clients.” n
The 2015 Tianjin explosion highlighted just how little idea cargo underwriters had of where and at what rate their risk exposures were accumulating. Indeed, RMS predicted the problem of accumulation of risk for cargo insurers is not going to go away any time, indeed it is projected to worsen as the volume of cargo, and its value, continue to grow. How much of an issue is accumulation of risk for cargo insurers currently and nearly two years since Tianjin, what has been done, at both an industry and an individual company level, to address the problem?
John Elliott, Lockton Re“Accumulation of risk is notoriously difficult to measure in the cargo market for obvious reasons compared to the modelling expertise used in other classes. As far as I’m aware nothing has changed since the Tianjin loss to alleviate the problem. There are of course limits on the original policies that reinsurers can take into account and underwriters may apply a PML if required when assessing the risk.”
Anthony Forsyth, Brit Insurance“Static known exposures are well understood, modelled and aggregated, within underwriting appetite. It is the unknown ‘ordi-nary course of transit exposures’ which can cause concern. However, it is rare any one insurer will be exposed to a dispropor-tionate share of a Tianjin-type scenario. Looking forward, technology will enable underwriters to track vehicles, containers and commodities and give real-time live updates.”
Nicholas Croxford, Willis Re“Unknown cargo accumulation is not a new phenomenon – it is nevertheless a known unknown and has traditional-ly been mitigated via reinsurance. (Tianjin is a good example of the pitfalls of increasing net retention on the back of a strong balance sheet but sacrificing volatility.) This has been backed up by some unsophisticated market share-based equa-tions or attempts to use customs data, which can only capture a small proportion of the picture. RMS has recently produced a cargo mod-el, of which we welcome the increased use of science. However, a model will only be as effective as the primary data captured. Modelling of accumulation is always challenged by limited recording at points of entry. While some companies suggest they are becoming more rig-orous, until the market standard improves, any modelling exercise will be at best a guestimate. Willis Re has recognised this data deficit/ potential for model miss and is actively investigating the opportunities for big data and artificial intelligence to provide a leap forward in the management of cargo accumulation.” n
Marine reinsurance roundtable continued on pp6-7 >>
FOCUS/
The global cargo market and the threats it faces are chang-ing and what has become increasingly clear in recent
months is the rising pressure to deliv-er new solutions to meet the needs of high-risk cargo covers.
The days when underwriters and brokers could seek to meet the needs of non-standard cargo risks without taking a more bespoke approach are in the past.
Indeed, with the complexity of the supply chain and the need to be ever more “just in
time” when it comes to stock ordering, there is a growing demand for “out of the box” solutions.
As such, today’s market requires experienced underwriters to redefine covers to meet the needs of owners that are transporting high-value, high-risk goods.
At Fiducia we have seen first hand risks that are deemed to have addition-al risk attached, such as tobacco and alcohol cargos, that have been strug-gling to find cover. What is required is the ability to think outside the box and bring together policies and capacity in new and different ways to meet the client’s needs.
Marine cargo has traditionally been very structured in terms of the work-
ings and scope of cover and it has been a reluctance to deviate from what has traditionally been offered that has created the present demand for a new form of cover for emerging and non-standard risks.
A clear example of that is the rise in deception thefts and the need for the industry to address the issue. The big issue for some in terms of deception/identity theft is its definition. For the majority of insurers identity theft is defined as the act of stealing another person’s identity, typically followed by identity fraud. The theft is usually undertaken remotely and is deemed a cyber crime (for example, phishing emails or database hacking), but it
can also be a more traditional method like checking a bin’s contents, laptop/ mobile theft or social engineering.
While typically it is personal identi-ty, it is increasingly lucrative for fraud-sters to steal a company’s identity.Businesses are fulfilling and shipping apparently genuine orders that arrive safely at the intended destination; however, the invoice remains unpaid. Typically, subsequent investigations find a fraudster made the order while impersonating the genuine customer and arranged to intercept the goods or have them shipped to a temporary location. This has created a grey area in terms of the cargo market, with the question as to whether this constitutes
a cargo claim?
Deception crime claimsCargo insurers are receiving claims for deception crimes but the question is will they be paid? The traditional in-stitute clauses have a duration clause and typically the crime is seen to have been undertaken either before goods are shipped or after goods arrived and the duration clause has terminated.
Sadly, for some companies, their cargo policy may not respond to this type of deception crime because the goods were not damaged in stock or transit.The goods were not damaged at all; the crime is failure to pay an invoice. Therefore, both cargo owners and their underwriters have to look at how they can meet the demands to cover such crimes.
We have been able to work with the capacity providers to incorporate
some limited cover in our policy to ensure our cargo cover
would respond
to the circumstances outlined above. However, firms need to play their part and take on board the advice on how they can manage the risk and avoid falling victim to such scams.
There is a huge amount of advice available and while the insurers will respond to the demand it will be a partnership approach in terms of cli-ents willing and able to provide evi-dence they have checks and balances in place to counter the threat.
Across the piece with the changing nature of risks and the demands for cover, it has been a case of looking at other areas of the insurance industry to bring together areas of coverage that will create a new type of cover to ensure that the cargo is fully in-sured. It really is a case of thinking outside of the box.
The solutions are there if you can move away from the standard ap-proach but to do so you need a level of expertise and experience and this only further highlights the need for marine insurers to retain older and more experienced staff while at the same time encouraging the devel-opment of the next generation of ma-rine underwriters.
Risks are changing, as are the de-mands of the clients, and there is lit-tle doubt in my mind the solutions of the future will be far more agile than those we have provided in the past. n
Gerry Sheehy is chief executive of Fiducia
MARINE REINSURANCE www.insuranceday.com | Monday 27 February 20176 www.insuranceday.com | Monday 27 February 2017 7
Thinking outside the containerThe marine insurance industry needs to develop new and bespoke forms of cover to address the exposures represented by emerging and non-standard cargo risks
Gerry SheehyFiducia
Riding out the stormThe marine market is challenging, but there are areas of opportunity to enable experienced marine underwriters with strong market relationships to prosper
Simon SchnorrStarStone
A heavy macroeconomic fog blanketed much of the traditional global marine market in 2016.
Low international oil and com-modity prices had a major impact. Slowing economic growth, espe-cially in China, muted internation-al demand. Freight rates strained the economics of the shipping in-dustry, as continued changes in the internal dynamics of insurance markets offered an ongoing chal-lenge to profitable trading. The fog does not look set to lift in 2017.
Hull and machinery business has been weighed down by the egregious state of the shipping market. Shipowners are enduring one of the freight market’s longest downturns in a generation, which shows no sign of an early recov-ery in 2017. The perceived slow-down of the Chinese economy is one cause of waning shipping de-mand; the fall in global commodi-ty prices is another. Neither looks set to rebound in 2017 with the bulk sector hit particularly hard.
Price of oilUntil recently, the price of oil has been below $50 a barrel since July 2015. A significant number of off-shore support vessels have gone into lay-up, as producers and contractors scale back explora-tion and production activities. To-gether, these factors have pushed down demand for vessels (new and used), leaving the market nevertheless still oversupplied. Both insured values and trad-ing activity continued to reduce throughout 2016, which have also had an impact on StarStone’s hull and war portfolio, as well as the wider market too. This combina-tion of factors does not look likely to reverse swiftly in 2017.
Sectors of the marine cargo mar-ket have similarly suffered from the downturn in global oil and commodity prices. Insured values and volumes for these raw materi-
als have fallen within certain seg-ments of StarStone’s portfolio as a result. These metrics have fared better for general manufacturing and consumer goods.
Hesitant, cautious consum-er confidence remains in North America and, to a lesser extent, in Europe. It has allowed insured values and trading volumes to hold up well. Only a very brave man would forecast, for all to read, the direction of consumer confidence in Europe and the US over 2017, but it is unlikely we will begin the year with any ma-jor rebound in the oil and com-modities cargo market, despite the stabilisation of the former and a slight uptick of the latter.
Surprisingly, perhaps, the woe-ful oil price did have an element of positive impact in one area of the shipping market over a limit-ed period in 2016: tankers. Both the low level and the volatility of the oil price appear to stim-ulate an element of speculative oil trading activity. That in turn provided a modest stimulus to the tanker market, by driving a rise in chartering activity. Crude was more actively traded, which increased demand for tankers both for transportation and for short-term on-vessel storage. The latter seems to be the result of oil traders holding out for margin-al upward movements in the oil price. Tanker demand increased towards the end of 2015, driving up charter rates and raising ves-sels’ overall asset and insured values by around 50% over the course of the year.
As a result of the aforemen-tioned, during 2016 an element of upwards movement in the in-sured values for certain tanker fleets was experienced in the hull market as well as some positive uplift in trading activity of certain clients in the cargo market.
Despite a backdrop of ongoing overcapacity, the marine liabili-ty insurance market has at least been bolstered by continued ex-pansion of statutory liability re-quirements across the globe, both in jurisdictions with established legal regimes, emerging markets
and economies, as well as under international conventions. While removal of wreck has attracted considerable attention, liabilities ranging from pollution to crew provisions have further support-ed the demand and need for ma-rine liability insurance around the world and a direction that is unlikely to change in the year ahead and beyond.
Energy liabilityThe energy liability market is an-other story, again driven by the oil price. The considerable decline in activity and revenues for many clients in this sector has resulted in a meaningful contraction in premium spend during 2016, as underlying exposures and reve-nues have continued to reduce. This will change when the oil price rises substantially, which will happen eventually, but per-haps not before the end of 2017 in the view of many experts.
The combination of all of these macroeconomic factors frame a challenging trading environ-ment for all marine lines. The market itself has compounded the challenges, with overcapacity impacting prices negatively and increasing pressure to broaden policy terms and conditions fur-ther. For certain marine lines we have recently observed price decreases have slowed (if not halted). Along the way, the trend of facilitisation and commodi-tisation of specialty insurance business has continued, fuelled by excess capacity.
The perceived value of specialty underwriting expertise is at risk of being eroded by these trends, at a time when it is most needed and continued upward pressure on acquisition costs also remains a worrying market phenomenon. These developments are unlikely to recede suddenly in 2017. The picture is not entirely rosy, but marine underwriters with con-siderable experience and strong market relationships will be able to prosper. n
Simon Schnorr is global head of marine at StarStone
Marine reinsurance roundtable continued from pp4-5 The underwriting profitability of the marine re/insurance market, particularly in the Lloyd’s market, has relied heavily on favourable reserve development to strengthen results as rates continue to fall. What is the situation regarding the issue of reserves in the sector currently and how is any potential diminishing of reserve strength like to shape marine re/insurers’ strategies for the future?
Anthony Forsyth, Brit Insurancew“Established entities have robust and long- standing reserving practices. However, at this point in the cycle reserves are probably less robust than they were five years ago. If any-thing, this highlights the importance of disci-plined underwriting, something that is central to our approach at Brit. Newer entrants into the market could potentially be much more vulnerable to a sustained soft market, espe-cially if they need to chase growth.” n
How much of this expansion activity are firms moving to set themselves apart from the competition with an increasingly varied product offering rather than moving into individual areas that are profitable per se?
Anthony Forsyth, Brit Insurance“Size matters – in order to succeed you need to be strategically significant. In a crowded market gen-uine innovation is key and product development essential – ultimately it is about showing you under-stand the clients’ perspective and responding to this accordingly with your offering.”
John Elliott, Lockton Re“There is a noticeable change with underwriters that were previously writing a standalone marine re-insurance account now moving towards developing a specialty book of business that includes marine. It is also becoming more prevalent that a composite type of product is being offered to clients rather than specific classes.”
Bjornar Andresen, Gard“A deep expertise in the maritime markets is critical to set yourself apart from the competition. The environment in which we are operating is increasingly complex; the shipping industry is more special-ised, technological development is influencing our future markets and new financial and ownership structures are influencing insurance needs. You need a track record and established partnerships in this market. The development of an adaptable and responsive global organisation is an important stra-tegic focus for us – especially given the changing nature of the marine industries we serve.” n
Lloyd’s: the marine re/insurance market, in Lloyd’s in particular, has relied on reserve releases to remain in underwriting profit
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LLI Insurance 260x170.indd 1 01/09/2016 11:12
Qatar Re cuts back marine and energy participation at January renewals
Scott VincentEditor, news services
Qatar Re said it reduced its participation in several lines of treaty business at the January renewals amid chal-
lenging market conditions.The Bermuda-based reinsurer
said these included lines such as marine and energy, non-US prop-erty catastrophe and Middle East property and casualty.
The reinsurer said it did man-age to find some more attractive-ly priced business and increased its participation in UK motor structured deals, internation-al property facultative, and US property per risk. Qatar Re said those lines of business continue
to demonstrate attractive returns.Qatar Re said certain new spe-
cialist lines of business, such as residual value insurance and US casualty, are also expected to con-tribute to the company’s future growth, albeit at modest levels.
The reinsurer reported net earned premiums of $351m for 2016, an increase of 43% on the $245m earned in 2015.
Net income grew 52% to $38m, with improved investment in-come offsetting a reduction in under writing profit.
Gross written premiums grew more than 8% to $1.25bn.
Third Point Re names Bredahl chief executiveThird Point Re has named incum-bent president and chief operat-ing officer, Robert Bredahl, as the successor to chief executive, John Berger, when he vacates the post on March 1.
Berger will remain with the company as chairman of the board and chairman of the under-writing committee.
“While I am stepping down as chief executive, I look forward to maintaining a very active role in the company as well as sup-porting Rob in his new position,” Berger said.
“Rob and I have worked close-ly together over the past five years forming and developing Third Point Re and I see much opportunity ahead to further grow our business.”
The announcement came as
the Bermudian hedge fund re-insurer Third Point Re reported a fourth-quarter net loss of $46.7m.This was down from a year-earlier net income of $42.2m, and resulted from a swing to a $35.8m invest-ment loss from income of $61.6m.
The group’s combined ratio im-proved by 1.9 points to 105.0%, while its underwriting loss wid-ened to $9.5m from $9.2m.
For the full year, Third Point Re swung to net income of $27.6m from a loss of $87.4m, reflecting a swing to $98.8m in investment income from a loss of $28.1m.
The underwriting loss grew 77% to $50.1m as the combined ratio added 3.8 points to 108.5%.
Earned premiums for the year decreased 2.1% to $590.2m, while incurred losses dropped 4.6% to $395.9m.
$351mQatar Re’s net earned premiums for 2016, up 43% from 2015
