Once again the Lloyd’s insurance market is behind a world first. Or in this case, an out of this world first. The world’s biggest commercial telecommunications satellite, TerreStar-1 (Arianespace.com), which is insured by a number of Lloyd’s insurers, was heaved into orbit by an Ariane 5 rocket on July 1.

TerreStar-1, which weighed in at almost seven tonnes at launch, was built for TerreStar Networks and will provide voice, messaging and data connections to the North American market.

Lloyd’s and some non Lloyd’s companies insured the launch, as well as the satellite’s first year in orbit.

Ariane 5 ECA mission with TerreStar-1, (1 July 2009), image courtesy of www.arianespace.com

The satellite was so hefty it was the only passenger on Ariane which usually carries double payloads from the Kourou spaceport in French Guiana.

Built by Space Systems/Loral, TerreStar-1 has a huge deployable reflector antenna, measuring 18m across. Furled like an umbrella for launch, it will be deployed in the next couple of weeks in a procedure that should take about four hours.

TerreStar-1 is the business end of an integrated space and terrestrial service for which customers will use a so-called sat phone. Unlike the bulky kit normally associated with sat phones, TerreStar’s handset will be about the size of a Blackberry Curve.

“It will work on a terrestrial network as a normal cell phone would, and when you’re out of range or the network’s down for whatever reason, it will go to the satellite,” TerreStar president Jeff Epstein told BBC News.

Early adopters are expected to be government, emergency services, rural communities and commercial users.
Wednesday’s launch was the third of the year for Ariane. Four more Ariane flights are planned this year.

Tags: Satellite

Midway through the year and the reinsurance business appears to be running smoothly, according to broker reports. Willis Re says that there was sufficient capacity in virtually all areas and a ‘reasonably orderly’ rating environment at the July 1 reinsurance renewals.

Greater stability in the reinsurance market produced by signs of recovery in the financial markets, coupled with a lack of big underwriting losses in the first two quarters of 2009, compensated for reinsurers’ losses over the preceding 12 months.

In the property-intensive mid-year renewals, rate increases were moderate reflecting a lack of meaningful rate hardening in the primary market, Willis Re said. It pointed out that many primary insurers continue to face soft pricing, weaker demand and reduced investment yields while their prior-year reserve releases have largely run out.

Aon Benfield describes reinsurance markets as ‘firm but functional’. The broker’s renewal report stated that while the US reinsurance market for hurricane exposed programmes continued to harden, renewals of catastrophe exposed programmes outside of the US remained firm and were influenced by regional loss experience and reinsurer competition to participate in regional programmes.

Bryon Ehrhart, CEO of Aon Benfield Analytics, gave reinsurers a slap on the back: “Reinsurers have generally done a superior job of managing capital through these turbulent times and have continued to renew the core capacity required by our clients,” he said.

Peter Hearn, CEO of Willis Re said that the reinsurance industry is providing sufficient capacity at acceptable prices to its client base this year. “Nine months ago, this outcome was very much in doubt,” he said. “Now, this relative stability will largely hinge on whether positive pricing trends emerge in the primary insurance markets and the level of major catastrophe and financial loss activity.”

Guy Carpenter, the reinsurance broking unit of Marsh concurred, saying that stabilisation in the global financial markets has contributed to the steadying of reinsurance rates, ‘with capital deterioration slowing markedly from the rapid pace witnessed in 2008’. As a result, reinsurance supply remains generally adequate to meet demand.

The key findings of the Willis report (pdf) are:

• Rate increases in the region of 10 to 15% were achieved in capital-intensive classes such as peak zone US catastrophe.
• Merger and acquisition activity has started to pick up, as those with stronger balance sheets seek to adjust their portfolio mix and/or acquire platforms in markets previously difficult to access.
• There is a continuing disconnect between buyers and sellers in the marine sector over the pricing of Gulf of Mexico energy-exposed business, with buyers looking to co-insurance and/or higher retentions in response to high relative prices.
• Rates outside US peak catastrophe zones have struggled to show much real increase as diversification of exposure remains a pricing driver.

The key findings of the Aon Benfield report (pdf) are:

• In the US, predicted hardening caused many programmes to be marketed and placed prior to July 1. Pricing changed at a level consistent with 1 June renewals—increasing 10 to 15%.
• In the Asian market, excluding China and Japan, there were no major changes in coverage, exclusions and conditions in property catastrophe lines. 
• In the UK, rate increases of up to five % were recorded in property catastrophe lines.
• In Latin America, property excess of loss prices rose by up to 5%, with broadly stable terms and conditions and higher levels of retention in certain programmes.
• In Australia, property catastrophe pricing increased by 10 to 15 % overall, and by 5 to 10% on loss-free layers, as a result of large losses arising from the Queensland storms in 2008 and the Victoria bushfires earlier this year.

The key findings of the Guy Carpenter report (pdf) are:

• In the US firm order terms (FOTs) for higher layers grew between 11 % and 14 % relative to 1 July 2008 FOTs, while slightly larger increases—14 to 16%—were realised at lower layers.
• In Latin America preliminary data varied by country, but upward pressure on pricing was offset by supply and local market competition, which keep reinsurance rate increases contained.
• The 1 July 2009 marine reinsurance renewal remained consistent with the 1 January 2009 renewal, with rates increasing by 5 to 10% for XOL programs, based on loss history and catastrophe exposure.
• Capacity was limited for offshore energy programmes, for Gulf of Mexico windstorm in particular. As pricing and attachment levels increased, terms and conditions also tightened. A number of insureds chose to self-insure Gulf of Mexico assets, leading to a dramatic drop in aggregate risk limits.

Links

• Aon Benfield
• Guy Carpenter
• Willis

Tags: Reinsurance, Renewals

A new report from Swiss Re, ‘The Globalisation of Collective Redress: Consequences for the Insurance Industry’, warns of the global spread of collective or class actions, pointing up the risks and the opportunities that exist for insurers.

Research published recently by Lloyd’s and the RAND Institute for Civil Justice Europe (Litigation and business: transatlantic trends, pdf 1.6mb, November 2008) has already raised the prospect that class actions are on their way to Europe from the United States, increasing anxieties of a further litigation boom. Europe is seeing a rise in consumer and investor activism, and a growing willingness by legislators to allow people to pursue mass grievances through the courts.

Swiss Re points out in its new report that the European Union is interested in using collective redress both to enable compensation for infringement of competition rules and to improve consumer rights within and across member states. About half of EU member states have already introduced instruments for collective redress and the European Commission is moving towards the introduction of collective redress mechanisms right across the 27 member states.

Swiss Re says insurers need to get involved: “We are convinced that the insurance industry has an interest in actively participating in the ongoing legislative dialogue in order to explain the potentially adverse consequences of unbalanced collective redress systems.”

Swiss Re suggests lawmakers should bear in mind the unintended consequences of the US class action system, which has contributed to a massive increase in the cost of the US tort system to $250 billion annually.

On the other hand, as Swiss Re points out, the broad trend towards the spread of collective action also presents some business opportunities for insurers, such as an increased demand for different liability coverages, including product liability and Directors & Officers.

But whatever systems are adopted in Europe and elsewhere, the imperative must be to look at what is wrong with the US system, where costs are out of control and claims too often made without merit, and prevent it happening here.

As Swiss Re says, “Access for all should make litigation more efficient, not more expensive—for either plaintiff or defendant.”

>Read lloyds.com article: Are class actions coming to Europe, 18 February 2009

Tags: Litigation, Report

Islamist terrorist activity is shifting from the Middle East to South Asia, according to security experts.

The Aon 2009 Terrorism Threat Map from Aon Crisis Management (2 June) shows a trend towards fewer terrorist attacks in the Middle East but increased activity in Pakistan, India and Afghanistan, with Thailand and Nepal also showing more incidents.

Produced in coordination with security consultancy firm Janusian, the map represents a snapshot of terrorist groups’ intent and capability and provides a graded indication of the current threat of attack in each country.

Terrorist groups with more traditional ideological leanings seem to be experiencing a resurgence, said Craig Preston, executive director at Aon, citing the communist Shining Path movement in Peru and a revolutionary anarchist movement in Greece as examples.

The global recession could produce a new generation of terrorists from disaffected communities and usher the return of class-based politics, he said: “This raises the prospect of new terrorist groups forming in the developed world on the far right and far left of the ideological spectrum.”

Although another major terrorist attack in a Western country by Islamists is possible, and there are signs of more sophisticated plots, the threat has subsided, Aon believes, as a result of improved intelligence and security.

“In general, operating conditions for terrorists have become more difficult in Western countries as well as in some Middle Eastern countries, such as Saudi Arabia,” Preston said. “Also there’s a shift of focus among terrorist groups towards establishing new fronts in places like Pakistan and Somalia.”

>Download the map (pdf) from the Aon website or ask for a copy of the 2009 Terrorism Threat Map from Aon

Tags: Emerging risks, Risk management

Insurance executives around the world expect to see growth over the next 12 months, according to a survey just released by KPMG International and the Economist Intelligence Unit.

KPMG’s survey (‘A Glimmer of Hope: Growth prospects in the global insurance industry and the escalation of risk and capital management’) of 315 industry executives from 49 countries in March and April 2009 shows that more than half the respondents expect an improvement in organic growth (55%) and expect an improvement in growth by acquisition or take-over (53%) during the next 12 months.

Respondents are also positive about their business prospects as they relate to premium volume (53%), expense ratio (53%) and capital reserves (47%). They are least positive about their share price, with only 40% of respondents expecting to see an improvement in this area.

Concern over the impact of the weakened economy, and particularly the capital markets, has increased insurance companies’ focus on risk management, the survey found.

Both regulators and government showed double-digit growth in terms of influence on company risk management policy and execution; ratings agencies decreased the most, with their influence falling by half to 14%.

Tags: Report

Big insurers are no longer assumed to be the safest or the best, according to a recent “op-ed” in The Economist magazine (Eggs and baskets, May 28th 2009). The article says that uncertainty around many of the world’s biggest financial institutions means that commercial insurance buyers are no longer prepared to put all their eggs in one basket.

One beneficiary of this trend, the Economist notes, is the subscription market model and specifically Lloyd’s. At Lloyd’s the insurance buyer enlists a broker to place the risk among multiple underwriting syndicates (many of which are owned by outside insurance firms). By doing so, the client gets a single contract but, importantly, potential losses are spread between carriers.

And not only is the buyer’s risk diversified but Lloyd’s unique model means that because the market is partly mutually owned its customers have the security of both syndicate members’ capital and, as a last resort, a shared cash pool funded by all members. The article goes on to point out that even by the relatively hygienic standards of most insurers, the asset side of Lloyd’s’ balance-sheet is “squeaky clean”.

The Economist also lauds Lloyd’s for improved risk management that prevents individual Lloyd’s insurers from losing their pricing discipline.

Commenting on the piece Lloyd’s CEO Richard Ward agrees that better risk management has strengthened the appeal of the subscription model at a time of uncertainty in the insurance business. “People recognize that there is safety in numbers so it’s not surprising that more are considering sharing their risk among insurers at Lloyd’s,” he said.

Tags: Lloyd's, Risk management, subscription market

North American risk managers who met in Orlando, Florida for their annual Risk and Insurance Management Society convention were told that the rate of decline of insurance prices is slowing and that the latest renewals were mostly flat or only modestly down.

RIMS’ first quarter Benchmark Survey shows that insurance premium rates are firming across property-casualty lines, with financial institutions facing the biggest increases.

The RIMS survey collects and analyses data supplied by commercial insurance buyers so that RIMS members can benchmark their own experience against that of their peers.

In the first quarter of 2009, general liability premiums fell by 3.8%, compared to a 5.9% decline for policies renewing in the fourth quarter of 2008. Workers comp premiums slipped by 2.5% continuing their earlier trend.

The average property insurance renewal was flat for the first quarter of 2009 as compared to a decline of 3.8% in the previous quarter. Individual property risks experienced a wide range of premium rate changes at the most recent renewals, however, from a decrease of 11% to an increase of 14%.

The trend in the directors and officers liability insurance market is split between financial institutions risks, where premiums have risen sharply as a result of the subprime crisis, and all other commercial risks.

Overall, the average D&O premium increased by 3% compared to an overall decrease of 1.2% in the last quarter of 2008.

Risk managers, many of whom are under pressure to reduce their total cost of risk, are relieved that prices are not rebounding too sharply.

Speaking from RIMS annual conference Daniel H. Kugler, member of RIMS board of directors and assistant treasurer, risk management at Snap-on, Inc., commented: “The insurance market is still very competitive and, while some insurers are predicting an imminent hard market, there are few signs that rates will rise sharply anytime in the near future.”

The results of the RIMS Benchmark Survey(tm) are available online or in an annually-published book.

Tags: RIMS

In these credit crunched times, with the global economy in a slump and the world’s financial markets in the doldrums, it is difficult to find a sector that is upbeat.

In fact, you have to look out into space for growth. Delegates returning from the 15th International Space Insurance Conference in Venice report that everything in the commercial satellite industry is rosy.

While the newspapers have been running stories about space junk, satellites colliding or being shot down, the industry itself is doing fine. Natural replacement, as satellites approach the end of their working life, plus an increased appetite for satellite based broadband, radio and TV worldwide is driving up services and equipment revenues.

The Satellite Industry Association said in its 2008 State of the Satellite Industry Report, that worldwide revenues in 2007 were $123 billion, representing an average annual growth of 11.5% for the period from 2002-2007. That trend continued in 2008 and, looking at the busy launch schedule for 2009, the industry will continue to outperform most earthly sectors.

There are over 40 navigation and commercial satellite launches planned over the coming 12 months.

The commercial satellite industry has proved profitable for insurers too, according to Tim Wakeman, executive vice president of International Space Brokers, part of Aon. “It has been a profitable sector for insurers for the past seven to eight years,” he says. “It isn’t correlated with other lines and that makes it attractive. As a result, more capacity is coming in. But that means premium rates are declining.”

So market conditions were a hot topic in Venice. “There was a feeling among insurers that premium rates may be approaching burning point,” Wakeman told me. “And the [underwriting] cycle can be turned quickly by a major loss event.”

Wakeman reckons that the space insurance industry is currently worth around $1 billion per year in premiums. But in a worst case scenario the loss of just two satellites on one launch rocket could add up to a total $700 million loss, he says.

The message for satellite owners is clear: if you have ordered a satellite for delivery in the next two years, put your insurance deal in place now—while conditions are good.

Tags: Space

Some of the world’s top hurricane scientists met with insurers and delegates at Princeton University recently to talk about the advances being made in modelling a category three hurricane blasting through the New York metropolitan area.

The gathering, organized by the Willis Research Network (WRN), heard how a perfect storm and its accompanying storm surge could wreak residential losses of between $36 billion and $140 billion.

The wide range of loss estimates reflects 89 track variations and the sensitivity of using differing assumptions in calculating damages. Some disaster scenarios envisaged storm surges, coinciding with a high tide 10ft higher than Manhattan’s sea walls.

Rowan Douglas, chairman of WRN, acknowledges that the wide range of possible loss outcomes demonstrates how much variance still exists in models—but he says that model technology is improving all the time.

“The insurance industry has always used historical data to form the basis of the event sets that drive insurance industry loss models,” he told lloyds.com. “But today’s climate is more dynamic than previously and it means that we are now at the limits of the value we can extract from historical data alone.”

But, as the Princeton conference delegates heard, climate scientists are developing physically based models of the planet that simulate the world’s oceans and atmosphere. They’re called General Circulation Models or, sometimes, Global Climate Models.

“We’re entering a new era whereby we can begin to assess the regional impacts of a changing climate,” he says. “At the Princeton seminar we discussed how this emerging science will inform future cat models the insurance industry uses in its catastrophe risk management.”

Representatives from the leading model shops AIR, Eqecat and RMS explained to the conference how they were actively incorporating the latest scientific thinking into their products.

“We’re often asked by clients what is the best model to use,” Rowan Douglas says. “But there is no single ‘best’ model. Our philosophy is to take an ensemble approach by obtaining more than one modelled output.”

Tags: cat models, Hurricanes, Natural catastrophes

The Catlin Arctic Survey ice team has started its gruelling trek to the North Pole to discover how quickly the Arctic sea-ice is melting.

Renowned explorer Pen Hadow, along with Ann Daniels and Martin Hartley, were dropped onto the ice by plane 800km (500 miles) off the northern coast of Canada.

During their 1,000km journey they will measure the thickness of the ice, transmitting readings from a mobile radar unit by satellite back to London.

Lloyd’s insurer Catlin is sponsoring the expedition because it believes the implications of global warming for the insurance industry and insureds are stark. However, there are gaps in scientific knowledge and the rate of global warming is not yet proven.

Climate change converts and skeptics alike should welcome the survey’s contribution to providing hard facts: insurers and insureds need to know how they will be affected by global warming.

Clearly, insurers will be hit directly by more frequent, more severe nat cat losses. But the industry is good at risk management and getting better. Its expertise in risk identification and modeling can be shared for the benefit of its customers.

In fact, global warming and climate change even represents a serendipitous opportunity for the industry. If we know the risks, the industry can develop new products to help make businesses and households more resilient.

The Catlin Arctic Survey’s findings will also help inform negotiations over emission levels at the post-Kyoto meeting in Copenhagen in December this year.

After that, insurers will probably be involved in a market-based certification and trading scheme that aims to reduce global emissions of greenhouse gases.

Risk identification, risk analysis, risk transfer: the insurance industry has a lot to contribute to the vexed questions surrounding global warming.

Related links

• Intergovernmental panel on climate change
• United Nations environment programme

Tags: Arctic