Lloyd’s is hosting a conference on climate change in Brazil today.  We have sponsored a report:  ’Climate change and Extreme events in Brazil‘ written by leading Brazilian climate experts to consider the impacts of climate change on Extreme weather risks, Energy, Agricultural Production and Sea level rise.

The report highlights that climate change is being felt already in Brazil.  In Southeast Amazonia, river flows have slowed or even stopped altogether on some occasions impacting navigation and trade; and causing forest fires leading to airport closures.  The link between climate change and economic impacts is clear. 

Over the coming decades a variety of impacts are likely to arise; many of which we are only beginning to understand.  The Amazon may dry out under some projections; if this happened it is likely to affect the climate around the world.    Extended dry periods would reduce the efficiency of hydro power stations – the dominant source of electricity in Brazil.  Strong winds, like those produced by Hurricane Catarina the first recorded tropical cyclone in the South Atlantic, may damage electricity transmission lines.

Only yesterday, the BBC reported that a severe storm caused widespread power cuts which lasted more than five hours, and left up to a fifth of Brazilians without power.

 Agriculture is responsible for 30% of Brazil’s GDP.  The majority of crops will see a reduction in yield as their potential cultivation area is reduced when conditions become unfavourable for them, though sugar cane may see an increase in yields.  This will create a strong impetus to genetically engineer crops to become tolerant of the new conditions; this brings its own risks as discussed in our Emerging Risks report on Synthetic Biology

The city of Recife is shown to be one of the most vulnerable to sea level rise, with over 80% of its buildings within 30m of the sea.  Yet the report warns that adaptation will only come if the public become engaged with the issue and highlights a number of ways this could be achieved.

We hope this new report, and the conference will lead to further debate on climate change between academics, businesses, policymakers and the public in Brazil.  To tackle climate change we must work together; that message is as true in South America as anywhere.

It was recently announced that the London Market Group (LMG) has succeeded the Market Reform Group, is this just another renaming exercise or something more significant?

The change of name and extension of remit is truly significant; it is a reflection that the market has been reformed through the implementation of Contract Certainty, ECF, A&S and Electronic Policies and now it is about wider collaboration and continuously improving the market through modernisation.

As fundamental reform draws to a close and we move through to modernisation the LMG can address wider subjects that affect our market building the appropriate consensus around any issue that affects the competitiveness of our market. This will ensure that London remains at the forefront of the global insurance industry, enhancing the competitiveness of the London market. And maintaining London’s recently enhanced position in the global marketplace with the confidence to address future challenges as they arise.

A way to save time in keeping up to date
I’m sure you all like to keep up to date with the latest blogs and news on lloyds.com but do you find it takes a long time to find the relevant website or page, or you’ve missed something as it has moved off the front page before you got to it?  Have you thought about using an RSS feed? Once setup you will be able to have all the websites and pages you are interested in, in one place and at a click of a button.  The websites and pages are then automatically updated with the latest information without you doing a thing!  Never miss an important event again!
 
RSS stands for Really Simple Syndication and it’s really easy to setup.
 
Click the link below to find out more about what an RSS link is, how it works and how to set one up:
http://www.lloyds.com/News_Centre/RSS_feeds.htm

Tags: Market processes

The picturesque German spa town hosts the pre-renewal reinsurance congress at the end of October every year. It’s a great big talking shop, much like the Monte Carlo Rendez-vous in September – but the temperature is cooler and mood is more business like.

The usual Baden scene is of executives with collars turned up against driving rain, criss crossing between the posh hotels where they meet to earnestly discuss the cathartic effect of the latest natural or financial disaster.

But this year it is different in lots of ways. The sun is shining for a start. Also, while the financial crisis hasn’t actually gone away, the markets are more settled than this time last year. Just as important, it has been a benign year so far in terms of catastrophe losses.

It is Autumn and there is still plenty of time for a windstorm in Europe – but for a lot of the reinsurers here it feels a little like Spring.

There are a number of reasons for that. One is that, having come out of the credit crunch relatively unscathed reinsurers have proved the resilience of their product to their clients, according to underwriter Sharon Gallagher of Kiln Reinsurance 510. “Reinsurance capacity is stable and that’s valued by clients. It is incredible in the circumstances just how stable reinsurance pricing is,” she said. 

Richard Chattock, active underwriter with Montpelier Syndicate 5151 agrees that there is increasing recognition of the value of secure reinsurance. “Everyone is aware that the capital markets could go bad again,” he said. 

Reinsurers are even optimistic about the possible effects on their business of Solvency II, the regulatory regime that will take effect in 2012. In his traditional breakfast press call in Baden-Baden, Munich Re director Ludger Arnoldussen said that Solvency II would lead to a renaissance for reinsurers.

Under the new Solvency II rules, recognition of reinsurance and its capital relief effect is no longer limited to 50% (as under Solvency 1) with unlimited cessions possible. “The value proposition of reinsurance companies is greatly improved as a result,” Arnoldussen said.

Reinsurance brokers in Baden-Baden have an extra spring in their step too. They point to a growing trend for cedants to spread their reinsurance shares a little more widely in order to reduce counterparty credit risk. Nick Frankland, chief executive for Guy Carpenter Europe said it makes sense for insurers to achieve a spread of reinsurance within a band of acceptable security: “It is better than having a concentration in that same band,” he said.

Lloyd’s franchise performance director Rolf Tolle, holding court from a comfy chair in the Brenners hotel, said he discerns a willingness among cedants to diversify their reinsurance panels. He believes that Lloyd’s will be a beneficiary of the trend: “We see the amount of business being offered to Lloyd’s is increasing,” he said. “We’re in a good position in terms of being able to offer syndication with good security.”

Of course, Baden-Baden is not completely changed in character and arguments about the necessary direction of the market still fill the air. Mr Tolle, who has been attending the meeting since the late Seventies, has witnessed the market’s ups and downs over the years.

This year is his last as a representative of Lloyd’s because he steps down at the end of the year, handing over to a new director of underwriting, Tom Bolt. “It is clear that an improvement in pricing, terms and conditions is needed in both the reinsurance and underlying insurance business. But I suspect the market will stay flat,” he predicts. “In a sense the market is a victim of its own success because capital has not been destroyed – it has been replenished.”

Tags: Baden-Baden, Renewals

Insurers are still renewing North American commercial property and casualty insurance programs at deeply depressed rates, according to a new Benchmark Survey from RIMS, the risk manager’s association.

The survey, which tracks changes in insurance policy renewal prices as reported by North American corporate risk managers, finds that commercial insurance buyers are getting good deals because the global economic recession has suppressed demand for insurance capacity, making underwriters fight for diminishing premium dollars.

The survey cites average general liability premiums, which fell 3.7 percent, and average workers’ compensation premium, which was down 4.5 percent as evidence. Declining sales and payrolls, which are used to calculate premiums, were behind the falls, it explains.

Advisen’s Dave Bradford, editor-in-chief of the survey, said carriers are posting underwriting losses, “but in this recession, they have found it nearly impossible to push through rate increases except in a few especially distressed areas.”

Property insurance policies renewed in the third quarter with essentially no change in average premium. Directors and officers liability (D&O) policies also renewed with no change in average premium.

RIMS spokesman Daniel H. Kugler, a risk manager at tool maker Snap-on, Inc. commented that many companies are buying less insurance, and underwriters feel pressured to keep prices low to hold on to the remaining premium dollars. “It’s still a buyer’s market, and it looks as if it may stay that way for a while,” he said.

Another new report, this time from broker Willis, echoes RIMS findings, saying that “marketplace forces that have led to sometimes frenzied competition among insurers may remain in place into 2010”. The detailed report goes on to explain exactly how benign weather and different marketforces have combined to keep prices down, right across the P&C board.

But Willis’s chairman Joe Plumeri says in his intro to the study that buyers should curb their enthusiasm: “While undoubtedly appreciating the windfall of softening rates, risk managers must also consider the issues of market security and counterparty risk as never before.”

Sage advice: chasing reductions is fine but quality cover does come at a price – and this is the worst possible time to find that your insurer isn’t there when you most need him.

ACORD standards develop over time by taking account of members’ feedback, based on their experience of implementing the standard’s specifications.
ACORD may publish up to two new releases of their existing standards a year, depending on members’ demand.
However, there has been latency—especially by early adopters—in moving on to a newer version of the standard. Up to this point, most are operating on hybrids of an ACORD Placing standard published in 2005. The market’s inherent multi-trading relationships mean that updating an existing implementation without a coordinated approach can be a resource intensive activity, with little perceived benefits for individuals.
Market participants have put in a huge effort working with ACORD in specifying the 2009.1 version of the Placing standard, especially in aligning London market specialities with international practices.  The decision to standardise on this version signifies:

• The market’s recognition of synergy—in order to reap the maximum benefits, we must work together and move in sync
• The market’s commitment in taking full advantage of the standard’s evolution through physical implementation, not stopping short at agreeing the specifications on paper only

This latest 2009 version of the standard focuses on complex business scenarios including:

• Multi section risks
• Declarations
• Subjectivities
• Management of endorsements
• Capturing a richer set of structured information

The market has agreed to implement the ACORD 2009.1 structure for Placing on   19 February 2010 and to incorporate incrementally the above business capabilities throughout 2010.
Along with this decision, the market would deter operations on any other versions of the Placing standard.  This means current implementers would need to complete their own preparations for upgrade by the market agreed deadlines, or risk missing out on their business.
The Lloyd’s Exchange will have the 2009.1 structure in place by Q4 2009.  This means current and future participants on the Exchange can have a head start on the upgrade to the 2009.1 standard should they choose to.

A way to save time in keeping up to date

I’m sure you all like to keep up to date with the latest blogs and news on lloyds.com but do you find it takes a long time to find the relevant website or page, or you’ve missed something as it has moved off the front page before you got to it?  Have you thought about using an RSS feed? Once setup you will be able to have all the websites and pages you are interested in, in one place and at a click of a button.  The websites and pages are then automatically updated with the latest information without you doing a thing!  Never miss an important event again!
 
RSS stands for Really Simple Syndication and it’s really easy to setup.
 
Click the link below to find out more about what an RSS link is, how it works and how to set one up:

http://www.lloyds.com/News_Centre/RSS_feeds.htm

Tags: ACORD, Lloyd's Exchange

Looking back, this time last year the catastrophe bond market was noticeable only for the tumbleweed – it was deathly quiet. This year the level of activity has picked up. Guy Carpenter has released their Q3 update, which provides a really useful summary of recent activity. Over the last quarter there were two new issuances, resulting in $412m of new capital in the market. Despite this relative calm – the issuance was up by a third when compared to the same quarter last year. This takes the total so far this year to 11 (with MultiCat Mexico 2009 coming soon), that makes $1.79bn in risk capital.

However, the fourth quarter is upon us and broader market conditions appear to be more conducive for more activity. The pipeline looks healthy right now, and historically, Guy Carpenter say the fourth quarter is the second most active of the year. GC’s consensus estimate for the year remains $3bn to $4bn, implying a strong fourth quarter for primary issuance.
One of the other features of this sector, as it begins to mature, is that there is a slug of outstanding risk capital that has matured. In the third quarter of 2009, $300m in catastrophe bond risk capital matured, bringing the year-to-date total to $2.5bn. Another $660m is scheduled to mature in the fourth quarter of this year.

Tags: catastrophe bonds

Insurance rates for Directors’ and Officers’ coverage tell you a lot about what’s happening in different sectors of the economy. In its recent quarterly market overview for US business, Aon found that D&O rates for financial institutions are increasing significantly: capacity is shrinking and coverage terms are tightening.

On the other hand, the market for all other sectors continued to be extremely competitive with rates trending down, ample capacity and the broadest terms and conditions seen in years, Aon says.

Most insureds should expect to see stable rates in the short term, brokers agree, while rates for financial institutions are expected to continue to increase.

Willis in London also says that the commercial sector continues to resist the sharp rate increases for D&O insurance seen in the financial institutions sector, with the average premium for commercial business falling 5% in the second quarter. In contrast, some financial institutions have seen “double digit” premium increases, in percentage terms.

Willis stresses that the 5% reduction is for commercial clients with strong risk profiles.

But even these buyers could soon be seeing prices trend up, both brokers warn. “The delicate balance between the forces holding D&O prices down and the need for rate increases could soon shift in the favour of underwriters,” said Michael D. Rice, national practice leader of Aon’s financial services group.

Commenting on the findings of the Willis survey, Julian Martin, executive director of Willis FINEX Global, warned, “Owing to the economic downturn, we are experiencing an increased level of scrutiny and underwriting analysis, meaning that is essential for renewal negotiations to begin early in order to deliver timely renewals.”

You have been warned.

Tags: Renewals

In a release timed to coincide with the Ferma conference taking place in Prague this week, Lloyd’s broker Aon outlines a utopian vision of risk management in the future.

Aon predicts that corporate CFOs will have more say in structuring risk transfer solutions and at the same time, more [non-financial] companies will appoint chief risk officers to complement their risk managers.

Aon also envisages greater use of technology to accurately capture business risk information in order to satisfy the growing demands of insurers fed up with spreadsheets. Better still, the systems will utilize risk data standards so everyone talks the same risk language.

That in turn will lead to greater risk differentiation and clients not being tarred with the same brush by insurer.

Growth in enterprise risk management will be accompanied by insurers innovating around new risk transfer products that hedge commodities prices, for example, and weather related risks. Very big industrial companies will tap the capital markets for facultative capacity.

Compelling as it is, something is missing from this picture and that’s the new risks that are lurking over the horizon and will challenge risk managers and their insurers in the future.

Effective risk management with a systematic approach to structures and risk transfer is to be welcomed. But knowing about the potential risks around the corner so that systems can be adapted to the real world is crucial as well.

That’s why forward looking projects like Lloyd’s 360 Risk Insight and the Lighthill Risk Network are so important.

Tags: 360, Lighthill Risk Network, Risk management

Monday morning, Tropical Storm Grace appeared as a surprising addition to this year’s named storms. Grace formed at 41.2degN near the Azores Islands. According to some reports this is notable in that Grace could well be the farthest northeast that a tropical storm has formed since the inception of satellite monitoring in the 1960s.

(Tropical Storm Alberto in 1988 formed slightly further north at 41.5degN). Grace is also unusual in that the storm formed over sea surface temperatures of only c23degC. Normally, tropical storms require temperatures in the region of 26-27degC to form and be self sustaining.

Grace looks as though she will bow out today, and transition into an extra tropical storm.

Tags: Atlantic, Grace, Tropical Storm

A new report on digital risks has been published by the Lloyd’s Emerging Risks Team.  The report was made available in the event packs distributed at the recent joint event between Lloyd’s 360 Insight and NATO on three important risks facing society, namely climate change, digital security and piracy.

Read the rest of this entry »

Tags: Digital risks, digital risks report, Emerging risks