Author Archive for Tim Evershed

28
Jul
11

Results and repetition

By Tim Evershed Leave a Comment
Categories: Insurance & Reinsurance
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The first half financial reporting season is upon us and as always it will be a challenge for reporters to make the story behind each firm’s numbers sound different.

This is because as certain major themes make an impact across the board the results of one company can appear almost interchangeable with other similar underwriters and sometimes it appears that only the names and exact figures differ.

This reporting season the key phrases to watch out for will be ‘major claims’, ‘first half catastrophes’, ‘soft market conditions’ and ‘North Atlantic hurricane season’.

For those with a firm eye on the bottom line the key expression will likely be either ‘fell to a loss’ or ‘profits down’.

Amongst the early reporters in the London Market were Brit Insurance and The Insurance Insider noted that the company “reported a first-half net profit of £6.8mn, down from £77.5mn in H1 2010, in the firm’s first results posted under new private equity owners Apollo and CVC”.

Things were worse over at Beazley, its $24.2mn half-year loss getting “a mixed reception from analysts… as the company reported a 108 percent combined ratio on major disaster losses of $183mn”, according to The Insurance Insider.

The publication also reported that Hardy – which has yet to post its results – had “increased its loss estimates for the Q1 natural catastrophes after receiving new information from ceding companies”.

And had “bought more reinsurance in preparation for the North Atlantic hurricane season”.

On the bright side for (re)insurers the company also reported that it had achieved rate rises of 4.1% across its portfolio during the renewals that have taken place in 2011, so it looks as if the market cycle may be beginning to turn.

Things in Europe and Bermuda took a similar turn as Business Insurance reported that “ACE Ltd. and RenaissanceRe Holdings Ltd. had weaker earnings between January and June, and PartnerRe Ltd. announced its losses related to recent events”.

ACE’s earnings may have been more than respectable at $866mn in the first half of the year, but that’s down from $1.43 billion during the same period in 2010.

In fact BI was being kind to RenRe, which had made a Q2 profit of $24.8mn, compared with a profit of $210.2mn last year, but this was overshadowed by a loss of $223.3mn during the first half of this year.

BI reported: “Tornadoes in the U.S. caused RenRe $70.8mn of losses in the second quarter. The company estimated in April that it also lost $328.6mn from the March 11 earthquake and tsunami in Japan, $197.1mn from the New Zealand earthquake, and $39.6mn from Australian floods.”

PartnerRe’s loss from US tornadoes in April and May are estimated at $89mn in losses while it also increased its previous loss estimate for the New Zealand earthquake to $59mn.

Elsewhere, Arch Capital reported a first-half profit of $111.2mn, down 75.2% from $447.5mn for the first half of 2010.

It will be interesting to see how many more companies follow these patterns and which terms the press use to describe the results as they come in. I may even make myself a bingo card with some of the favourites and play as I read.

28
Apr
11

Happy 30th Birthday to Reactions

By Tim Evershed Leave a Comment
Categories: Insurance & Reinsurance
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Congratulations to Reactions which this month is celebrating its 30th birthday.

The staff of the magazine have produced a special anniversary issue and have gone to town on lists that cover the good, bad and the ugly of the (re)insurance industry between 1981 and 2011.

Needless to say the insurance industry and world in which it operated in were very, very different in 1981 to today.

‘The Biggest Events’, ‘The Most Influential People’ and the magazine’s ’30 Best Covers’ it must be a journalistic trait because I love lists like these (a bit like one of Nick Hornby’s geekier characters). They are good fun to compile and read, but also prompt some healthy debate and retrospection on the events that have shaped the world and the people at the heart of them.

There are the thoughts of industry big hitters such as Hank Greenberg, Bill Berkley, Brian Duperreault and Grahame Chilton on subjects including the lessons of the last 30 years and the rise of the big three brokers.

Meanwhile Garry Booth’s reflections on almost 30 years of reporting on the (re)insurance industry serve to remind us that the media has also changed out of all recognition since 1981. I mean, what’s a typewriter?

So, once again congratulations to Reactions on reaching the big 3-0 and congratulations to the staff there for such an entertaining and interesting issue to mark it with.

23
Mar
11

How we reported on Japan

By Tim Evershed 1 Comment
Categories: Insurance & Reinsurance
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The Japanese earthquake and tsunami have of course dominated the (re)insurance pages for the last 10 days or so. I have mentioned before on these pages the slightly odd nature of being a business journalist at a time like this and having to focus on the financial consequences of what is essentially a human tragedy.

So how did the (re)insurance press cover this extraordinary catastrophe?

Reinsurance Magazine was on the cusp of going to press when the quake struck. It still managed to get a striking image of a boat trapped in a whirlpool onto the cover and include some thoughts that this may be the event that finally turns the soft market on the inside.

Others with more time at their disposal have managed to analyse some of the myriad aspects of this disaster.

Business Insurance has been looking at the estimates for the total economic losses caused by the catastrophe, with the help of the cat modelling firms.

BI reports that at present RMS are still hedging their bets and have a spread of $200bn-$300bn on the economic loss while rivals AIR and EQECAT estimate that insured losses are $15-$35bn and $12-$25bn respectively.

This “guessing game” over the exact nature and totality of the losses is discussed in Michael Loney’s comment piece in Reactions.

The article goes on to highlight the uncertainty now afflicting investors, which (re)insurers will take a hit and why it is unlikely that this loss, even taken in conjunction with events in Australasia, will harden global (re)insurance rates.

One reinsurer that definitely will take a hit is Munich Re, as Post reported, the German giant has revealed it expects losses of EUR1.5bn and that means it won’t hit its profit target of EUR2.4bn for 2011.

One area that stands out for its lack of coverage in contrast to that of the mainstream news is the ongoing travails of the Fukushima Dai-ichi nuclear reactors.

This is because the vast majority of the loss will be retained by the Japanese government, although Post reports that nuclear rates may increase regardless.

Meanwhile The Review highlights the possible impact on ratings and the moderate affect on the Life market.

And The Insurance Insider reveals that Lloyd’s has assigned the event its own loss code, the code 11D, helping the Franchise Board keep track of the size and volume of claims.

The Insider also discusses the knock-on affect the disaster may have on aspects as diverse as the personal accident market, Industry Loss Warranties and catastrophe bonds.

23
Feb
11

It depends on how you look at these things…2010 results

By Tim Evershed Leave a Comment
Categories: Insurance & Reinsurance
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Here we go again, it’s that time of year when companies release their full-year results and once more it’s a mixed bag from the (re)insurance firmament.
You might be forgiven that 2010 had not been kind to carriers, what with all those natural disasters such as earthquakes in Chile and New Zealand, freezing winters in Europe and the US and floods seemingly everywhere.
Not to mention a prolonged soft market in most classes of business.
But, there was plenty of good news, although that can depend on how you look at these things.
Swiss Re for instance, prompted some almost contradictory headlines after it revealed its results. ‘Swiss Re Makes Loss After Loan Repayment’ was the headline in the Wall Street Journal.
And the company did make a loss in the final quarter of the year after repaying of a costly loan from Warren Buffett-owned rival Berkshire Hathaway. However as Reactions headline pointed out ‘Swiss Re posts $863mn profit for 2010’, which hinted at a slightly rosier outlook.
Meanwhile, The Insurance Insider covered all bases with its ‘Swiss Re profits up 74% despite Berkshire repayment drain’ headline.
Other reinsurers that enjoyed a good year included XL Group, as Business Insurance reported its net income for 2010 was up to $585.4mn from $206.6mn in 2009, a 183% increase.
Other reinsurers did not fare so well as the same publication reported that Arch Capital Group’s full-year net income had slipped to $816.7 million, compared with $851.1 million in 2009, as profits for the fourth quarter took a hit from Australian flood losses.
And things were worse at fellow Bermudian, PartnerRe, which reported $852.6mn in net income, a 44.5% decrease from 2009. The company blamed catastrophe losses, large loss events and lower reinvestment rates.

Bermuda-based Lloyd’s insurer Catlin Group’s pretax profits fell 33% to $406 million in 2010, as it suffered from a year of heavy catastrophe losses.

However, another foreign-domiciled Lloyd’s carrier, Beazley, reported pre-tax profits of $250.8mn up from $158.1mn in 2009.

Beazley said the increase was caused, in part, by a one-off foreign exchange gain after the insurer and reinsurer changed its reporting currency to US dollars from pounds sterling, and by releases of prior-year reserves.
And in the US casualty specialist WR Berkley’s full-year net income rose by 45 percent to reach $449mn as the firm bounced back from heavy investment losses in 2009 while HCC “crept down by just 2.5 percent to $345mn in 2010, as the company largely withstood the combined challenges of high industry cat losses, torpid investment returns and falling rates” according to The Insurance Insider.

22
Oct
10

Open season on Lloyd’s for private equity

By Tim Evershed Leave a Comment
Categories: Insurance & Reinsurance
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It appears to be open season for mergers and acquisitions in London as the prevailing soft market sends valuations low enough to alert the bargain hunters, but it looks as if the Lloyd’s (re)insurers are attracting a certain type of investor.

As this piece in The Insurance Insider says: “But if 2001 and before was for venture capitalists and 2006 and 2007 belonged to the hedge funds, then today it is the turn of the private equity (PE) investor.”

Yesterday saw the announcement that ICAT Holdings had been bought out by its management team, who are backed by PE cash.

The new entity is called Paraline Group and is backed by Wand Partners and Elliot Management Corporation. Its chairman and CEO Jack Graham has admitted that it maybe counterintuitive to launch a business during a soft market.

But Graham added that it is crucial to be present in the market to be able to “turn on the jets and take market share” when the timing is right.

This followed news that Hardy Underwriting had knocked back Beazley’s speculative offer for the company as it “substantially undervalues the company”. Admittedly, Beazley is a rival Lloyd’s insurer rather than a PE fund, but it is familiar territory as far as the haggling over valuation is concerned.

And all this is going on while private equity duo of Apollo and CVC are putting the finishing touches to an expected formal offer to Brit Insurance.

The PE consortium’s initial bid for Brit was 100p per share, valuing the firm at less than £800mn, but after two rejections it finally appears to be closing the deal with an offer a full £1 per share higher – boosting the value to over £870mn.

Finally, it would seem that Israeli investment house Clal is in advanced talks to acquire Jubilee Group.

But, who will catch the private equity eye next?

07
Sep
10

Remembering Robert Clements

By Tim Evershed Leave a Comment
Categories: Insurance & Reinsurance
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The sad news that Robert Clements passed away over the weekend hit the reinsurance journals on Monday and it seemed appropriate to have a quick look through the tributes paid to “Bob”.

In my humble opinion, the word legend is over-used, but if you’re looking for a true legend of the reinsurance world you need look no further than Bob Clements. Clements is often credited with being one of the founding fathers of the Bermudian industry, altering the way capital flowed into the sector and he also played a key role in Marsh’s expansion into a truly global broker.

Advisen was first to mark Clements passing with some fulsome praise and acknowledgement of Bob’s small but significant role in the company’s development of its own news service. It also carried a full list of his reinsurance achievements and awards.

Next up was The Insurance Insider, which drew parallels with Sir George Somers the first settler in Bermuda in assessing Clements’ importance to the island. The Insider described his “extraordinary legacy” and drew on its 2005 Scriven profile to find some glowing tributes.

Finally, Reinsurance magazine talked of a “leading light” and led with the tributes of Kevin Kelley, CEO of one of Bob’s latest creations Ironshore.

On a personal note I’d like to say that I only met Clements once, in 2006 when he was in London with Integro. I was amazed by the energy and drive he displayed, for a man in his seventies who had already achieved so much during his long career it was remarkable.

07
Jun
10

When the wind blows

By Tim Evershed Leave a Comment
Categories: Insurance & Reinsurance
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Well, we’re a week into this year’s North Atlantic hurricane season and Central America has taken the first landfall of 2010 from Tropical Storm Agatha.

According to this report in Reinsurance magazine, the modelling company Risk Management Solutions (RMS) said Agatha was associated with torrential rainfall, which triggered flash flooding and landslides across Guatemala, El Salvador, Honduras and southern Mexico as it tracked inland. A State of Emergency was declared in parts of all four countries as initial reports of the death toll vary from 80 to 125.

Tragic though this is for those who have lost their lives of those left behind trying to rebuild theirs it is not the main focus of the reinsurance press and so gets only limited coverage.

Instead the focus will be on what might happen along the East Coast of the US and in the Gulf of Mexico and as The Insurance Insider reports all of the major weather forecasters were united in predicting a higher than average chance of storms making landfall.

National Oceanic and Atmospheric Administration (NOAA) expects an “active to extremely active” while Colorado State University says activity this year was likely to be 195 percent of the long-term average and Tropical Storm Risk adds that there is a “high (85-90%) likelihood that activity will be in the top one-third of years historically”.

As The Insurance Insider points out (re)insurers have already suffered this year with $16bn-plus industry losses in the first quarter and the ongoing oil disaster in the Gulf of Mexico, that could have caused losses of up to $3.5bn already and could become a lot worse both environmentally and financially if the win blows in that direction.

The ability of (re)insurers to withstand further losses was the focus of Reactions article on how the wind season may impact on ratings. It would appear that Moody’s foresees downgrades if capital levels were eroded.

Last year’s predictions made equally depressing reading for (re)insurers, however El Nino ensured that those fears weren’t realised. It would surely be only the most optimistic, or naïve, that relied on the Pacific weather systems repeating the trick this year.

22
Apr
10

Goldman remains one step ahead of AIG

By Tim Evershed Leave a Comment
Categories: Insurance & Reinsurance
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Goldman Sachs has again been all over the news this week from the business pages to the front pages.

There is no shortage of opinions on the Securities and Exchange Commission’s (SEC) charges of fraud against the investment bank. The details are out there so I won’t spend too long rehashing them.

The SEC says that Goldman marketed a collateralised debt obligation (CDO) to investors with one hand while enabling the hedge fund Paulson & Co to bet on its failure. The investors lost around $1bn while coincidentally Paulson made around the same amount.

Although it was not a direct investor in this particular CDO it again looks like American International Group will suffer financial losses as Goldman were in the process of ‘doing God’s work”.

According to this article in Business Insurance, AIG leads the directors’ and officers’ liability coverage for Goldman Sachs Group.

In short AIG will end up covering Goldman’s legal costs as the bank defends itself against charges that it favoured some clients over others.

Meanwhile, AIG is said to be looking at recovering losses of around $2bn related to guarantees on Goldman’s CDOs suggesting that it was not amongst those favoured clients itself.

Whichever way the insurance giant turns it appears Goldman remains one step ahead of it.

22
Mar
10

Ticking all the boxes

By Tim Evershed Leave a Comment
Categories: Insurance & Reinsurance
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It is drummed into journalists to avoid using clichés wherever possible but sometimes it is unavoidable and it can even be desirable.

A story in the trade press that stood out for me this week because it certainly, to use a cliché, ‘ticked all the boxes’, and the reason it stood out was precisely because it held the UK regulator to account and helped to ensure that it does more than simply ‘tick the boxes’.

The Insurance Insider’s article headlined ‘FSA issues ‘warning notice’ on Chaucer stake building’ caught my eye for several reasons.

Firstly, it made good use of the Freedom of Information (FOI) legislation to force the Financial Services Authority (FSA) to disclose that it has issued a ‘warning notice’ that has stalled Pamplona Capital’s plans to build a significant stake in Lloyd’s insurer Chaucer.

The FSA had previously refused to confirm how its processes work as it regulates investors to building stakes or take over UK financial services companies.

Secondly, as a financial journalist it was good to see a story that held not only the regulator to public account but reminded a private equity firm that elements of the press are scrutinising city deals.

Finally, kudos to The Insurance Insider, I’ve always understood it is well connected but getting the UK Liberal Democrats deputy leader Vince Cable MP to go into bat for them as they sought answers from the FSA really was quite a coup.

08
Mar
10

What to do with all that cash?

By Tim Evershed Leave a Comment
Categories: Insurance & Reinsurance
Tags: , , , , , ,

The annual reporting season is now in full swing and more than one firm has already posted record profits for 2009 on the back of excellent underwriting results and the global recovery in financial assets.

Property/catastrophe (re)insurers based in both London and Bermuda have benefitted from the gentle hurricane season and the big question now is how best to deploy that excess capital?

Some may choose to return funds to their investors as Reactions reported Hiscox had done with the announcement of an increased dividend and a declaration that it was ready to buy back shares if the price fell to an “unrealistic level”.

And Bermudian reinsurer Montpelier Re was even more pro-active in this regard, according to BestWire, as it bought the 6.9 million shares previously owned by billionaire investor Wilbur Ross Jr.

Another option is to write more premiums and according to a report by Dow Jones News Service this is exactly what Novae Group is intending to do, despite a modest profit of only £4.2mn last year.

The company’s CEO Matthew Fosh says he expects gross written premiums to almost double to £590mn this year.

 

Of course what really gets investors and journalists alike excited is the though that companies awash with cash will use it to fund mergers and acquisitions.

Lloyd’s insurer Amlin’s CEO Charles Philipps was quoted in M&A Navigator as saying he would like to use the firm’s bumper profits to follow up last year’s acquisition of Dutch Fortis Corporate Insurance

“By the time we get to the half year, we’ll be more open to larger acquisitions, if we find the right thing,” Philipps said.

Back in Bermuda Max Capital and Harbor Point have agreed to merge in a pact that will rebrand their combined operations as Alterra Capital Holdings Ltd.

This follows last year’s acquisition of IPCRe by Validus and bodes for some interesting times ahead, according to Business Insurance although The Insurance Insider’s excellent commentary on the subject points out that the M&A waters are somewhat muddied by proposed US legislation.

But, it also indulges in some crystal-ball gazing on who might move for who if the landscape were to change favourably and hints that we may see increased action later this year.

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