CATEX Reports
Issue 17 October 2012
In This Issue
EIOPA warns on Solvency II
Bolt and Hamblin featured at CATEX Reception
MGA Boom Times
Marine Savlors may get help
Roger Crombie discovers EIOPA
Mahindra goes "micro"




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Dear Colleague,

I am pleased to send you the October, 2012 edition of CATEX Reports and want to draw your attention to a London event CATEX is hosting on Tuesday, November 13th at 5:30 pm at 10 Fenchurch Avenue across from Lloyd's.

Tom Bolt, Director, Performance Management at Lloyd's and John Hamblin, Active Underwriter for Cathedral Syndicate 2010, will both say a few words and the rest of the event will be decidely relaxed. We look forward to seeing you there.

Thank you for your comments about Roger Crombie's new column. After his introduction last month you will note that this month he has moved back squarely into his old arena as a keen oberver of the risk industry.

We hope you enjoy the October newsletter and, as always, if you have any questions about CATEX products please contact us.


Stephanie A. Fucetola

Vice President/CATEX



Solvency II: The Saga continues...

EIOPA logo  


We've been writing about the proposed new European regulatory framework Solvency II for the past 17 editions of this newsletter.  Imagine how the regulators and senior management of European insurers must feel!  Talk about uncertainty.


We began to hear about S2 and reinsurance several years back when people like Stefan Lippe, then the CEO of Swiss Re, and Nikolaus von Bomhard the CEO of Munich Re were willing to publicly express their concerns that insurers weren't being fairly treated under S2 which was, after all, initially aimed at European banking institutions. Insurance and reinsurance were different than banking.


But the people who run insurance companies are first and foremost practical people. One supposes that the trait comes from a professional lifetime of evaluating the chances of an event ocurring and setting a premium price based on your calculation.  Tweaks and changes were made to S2 and the insurance industry began to prepare for its implementation.   


Preparation was no easy task though. S2 would switch insurer reserving practices from internally determined dollar percentage reserves to reserving based on the level and amount of capital that was actually at risk. The new standard was "risk based capital" and every strand of an insurer's balance sheet that was predicated on premium revenue, which meant capital actually at risk, needed to be broken out and transparent to regulators.


At first S2 was to become partially effective in 2012. Then it was pushed back to 2013. It's now been officially pushed back to 2014. Meanwhile insurers have spent millions readying new systems to meet the new regulatory standard which haven't come yet.


Last week the EU's powerful insurance watchdog EIOPA blasted "stagnant political talks" in Brussels that are attempting to finalize S2. Gabriel Bernardino, the EIOPA chairman, said in a letter to the EU that national insurance regulators had "major worries" that there was still no clear and credible timetable for when the new rules would be implemented.


Bernardino warned that in the absence of S2 individual countries would be forced to come up with their own procedures for monitoring insurers and conflicting national solutions would emerge.


That last concern strikes right at the heart of the EU, the European Commission, the EMU, the Common Market, etc. (Jean Monnet would be rolling in his grave!) Bernardino couldn't have issued a starker warning to Brussels. The specter of 21 different sets of insurance regulation, after all the time and money spent on S2, is a nightmare.


So much for the regulators themelves. But what about the companies that are being regulated? If the regulators are confused and frustrated what about the insurers?


 Kessler                              Masojada

Kessler                                                                     Masojada   


Most insurers have said that they will adhere to whatever the EU comes up with including a delay again.  In fact Bronek Masojada, the CEO of Hiscox said "I'd rather it be delayed and made better than have it rammed through and have to be changed later". 



Hiscox is one of the big players which has prepared for S2 so Masojada's comment, while faintly praising S2, underscores the craving for regulatory certainty that the entire industry has. 


Now add comments from Denis Kessler of SCOR who said, in an interview to be featured in Intelligent Insurer, that despite any imperfections S2 had to go ahead. Kessler said SCOR has invested heavily in building internal models that will comply with it and that he would feel very uncomfortable telling his shareholders that the money had been spent for no reason.


Interesting. Kessler is about as plugged in as one can be. Is there a real risk that S2 will not be implemented at some point? 


A recent study from Ernst & Young states that 34% of German, 17% of Italian and 13% of Spanish insurers expect they would only be ready to fulfill Solvency II requirements from 2015.


Does the E&Y study mean that 66% of German and 83% of Italian and 87% of Spanish insurers would not be ready for S2 in 2015?  That may be exactly what it means if you look at what Kessler said next. He said that he's happy to allow insurers which are not prepared to have more time but believes that companies that have invested in preparations should gain credit from the regulator rather than being penalized with further delays.


The implications for a coming "bright line" divide between those who do have internal risk based capital models and those who don't could have effects in agency ratings and client buying requirements.




November 13, CATEX Reception   


                                   Hamblin                             Bolt

                  Hamblin                                             Bolt


On Tuesday, November 13 from 5:30 pm to 7:30 pm CATEX will host a reception on the first floor of 10 Fenchurch Avenue across from Lloyd's. Wine, canapes and other surprise goodies will be plentiful.


Two interesting speakers have agreed to say a few words of greeting. Tom Bolt, Director, Performance Management of Lloyd's will talk a bit about the overall state of the reinsurance market from his vantage point. He may also touch on one of his favorite themes, education, which if you haven't heard him talk about, we are sure will start you thinking about our future.


John Hamblin, Active Underwriter at  Cathedral Capital Syndicate 2010, wears more than a few hats himself and on the 13th you'll get to hear him talk briefly about one of his great passions, namely The Great War and the stories of selected British servicemen who made the ultimate sacrifice. Remembrance Day, marking the end of World War I, will be observed in the UK the previous Sunday, November 11.


Space is limited so if you plan on attending please email us:

MGA Update


McGavick   PatRyan 

 McGavick                                Ryan



Sometimes you can hear the whistle of an oncoming train from a long way off. Consider these two sets of remarks from two of the most respected people in the insurance industry.


Mike McGavick, chief executive of XL Capital, was recently quoted in the Insurance Journal saying "insurance and reinsurance are declining in relevance to the society as a whole in the property/casualty space". McGavick thinks the industry should meet the challenge head on by addressing emerging risks, creating new products and provide insurance buyers with the coverage they want and need.


Next, in a recent interview, Pat Ryan, chief executive of Ryan Specialty Group, said excess capital in the reinsurance market is seeking opportunities to back managing general underwriters (MGUs) in the surplus lines market. He said reinsurers' support for MGUs will help fuel innovation and enable specialty underwriting facilities to build larger blocks of capacity to write more challenging risks.


Underscoring the comments from Ryan and McGavick is the fact the dollar volume of reinsurer capitalisation is at an all-time high (to be fair, some observers do point out capital levels are modest compared to the total possible exposure that could be underwritten).


Let us add this up. There is a large amount of capital looking to be put to work. McGavick observes the industry had better start creating specific products that are needed by buyers. Ryan suggests reinsurer excess capital is starting to fuel the growth of MGUs, which will contribute innovation and enable underwriting facilities to build larger blocks of capacity.


We think we have been listening to the train whistles for too long - this train is already in the station. Every day there are stories about new managing agencies. The twin forces of reinsurers looking to put their surplus to work and the growth of more niche underwriting specialties are combining to cause a boom in the growth of managing general agents (MGAs).


Starting and running an MGA is a challenge. You need to walk a high wire between attracting quality underwriting teams and securing capacity commitments from quality markets. Often it is a little like which will come first: the chicken or the egg? The underwriters will want to see the capacity provider before they come over and the capacity will want to see the underwriters before they commit.


Paramount among the concerns of any market backing an MGA is a determination to ensure the infrastructure promised by the MGA actually exists. The reinsurer needs to know the MGA can provide ready data if and when under­writing numbers begin to deteriorate. Regulatory oversight has been increased on the markets and capacity providers are demanding better systems and processes that can maintain a complete operational link back to the carrier.


No longer will just those MGAs whose results warrant a closer review be the only ones selected for closer attention by markets and regulators. All MGAs need to be prepared for this level of scrutiny.


The CATEX Pivot Point Insurance and Reinsurance Transaction System is one of the latest generation of completely web-based transaction systems for the risk industry. It is one of the few that combines the accounting and back-office processes with the entire front-end contract creation, policy and placement functions. And it is the only system that can be implemented by re­insurance and insurance MGAs, brokers and reinsurers alike.


Pivot Point can also provide specific and granular reporting information down to the individual risk level. What this means is the system can take in a wide variety of different spreadsheets or files and automatically load all the risk characteristics into its database. That data then becomes permanently accessible to the MGA, changing itself from a near-useless spreadsheet attachment that can be inadvertently deleted into a solid data metric within the Pivot Point system that can be used for reporting.


The MGA that uses a system like Pivot Point will immediately save on hardware and hosting costs. Pivot Point is 100% web-based. The MGA using Pivot Point will further save by reducing work force redundancies as the system encourages multi-tasking by fewer employees. Finally, the MGA using Pivot Point will have a complete performance history of every single specific risk they have bound.


The power of systems like Pivot Point can offer an MGA the efficiency, reporting and underwriting awareness that may not even be possessed by its own market. In fact, Catex has seen several instances of markets asking Pivot Point-licensed MGAs for detailed location level of the risks written on their own paper after a natural catastrophe - it is easier for the Pivot Point MGA to report that data than it is for the market to order an internal data search.


MGAs have fulfilled a critical market need for generations and, per Lloyd's Vision 2025, will do so in the future. But MGAs, like brokers and markets have realised, need now adapt to the new reality of stricter oversight by both business partners and regulators brought on by the need for real-time data.


                      Marine Insurers get Creative


sinking ship       


Given the increasing complexity of risk it's sometimes easy to forget that it was the risk of a sinking of a ship and the subsequent loss of its crew and cargo that gave rise to the earliest "insurance" at Lloyd's.


When you visit Lloyd's for the first time the importance of the maritime influence both past and present are impossible to overlook. Marine insurance remains a vital cog in the worldwide flow of goods.  If you doubt this go to this site,,  which offers real time location and ship data for any vessel on the seas today. It's amazing the number of ships at sea 24/7.


The International Union of Marine Insurance conference was held last month in San Diego and we noticed this story. Bob Umbdesnstock of Resolve Marine Group warned that recent incidents such as mid-ocean explosions and fires, remote coast strandings, problems seeking port of refuse, container handling, dangerous cargo and reef damage had highlighted the mismatch between existing salvage and rescue equipment and what is actually needed.


We found the next few lines especially interesting. Peter Townsend, Swiss Re's head of London marine corporate solutions, said "Salvors are doing a fantastic job but technology for transport has overtaken the ability to salvage especially for container vessels".  He said reinsurers would expect to pick up an incident like the Costa Concordia but they don't expect the same of small and medium -sized containership casualties.


Townsend said that reinsurers "are picking them up (small and mid-sized constainer ship losses) because the cost of salvage and wreck removal exponentially exceeds the cost of the vessel".


Since ultimately the cost of wreck removal ends up with the reinsurers Townsend suggested that one solution would be for marine insurers to invest in specialist salvage equipment and pre-position it at various points across the globe where salvors can charter it under commission from insurers to ultimately reduce the cost of the insurer's claim.


We'll follow this closely but it's a good example of the industry identifying a problem, in this case a technology gap, and signaling a willingness to address it.



Roger Crombie writing for CATEX Reports takes an off-beat view of the world of insurance


One cannot but admire the giant blunder, the astonishingly bad decision taken by an idiot or a group of idiots. It requires a noteworthy lack of brains, for example, to be the guy who turned down the Beatles or J.K. Rowling. Such behaviour makes the rest of us feel good because we're not that stupid.


Einstein pointed out that the difference between genius and stupidity is that genius has its limits. Thus, new chapters are always being written in the book of giant screw-ups.


Meet EIOPA. It's the European financial services regulator. It has recently committed one of the great dumb acts of all time. Take a deep breath: in the name of defeating discrimination in the insurance industry, EIOPA has enacted regulations that will cost most policyholders more for their coverage, by denying the very basis on which the insurance model is built: matching the cost of the risk with the likely financial consequences of the risk.


(Worse even than that, for a particular group of latter-day fascists, the new rules will mean bumper paydays for smokers. Yes, you read that right. EIOPA doesn't stint on the stupidity.)


On December 21, thanks to EIOPA, the cost of vehicle insurance in several European countries will increase for women; annuity income will fall for men; and smokers will receive their first good news in many years, in the shape of improved annuity benefits.


EIOPA, which is based in Frankfurt, Germany, is part of the European System of Financial Supervision, which consists of three European Supervisory Authorities and the European Systemic Risk Board. EIOPA is an independent body that advises the European Parliament and the Council of the European Union. EIOPA's core responsibilities are to support the stability of the financial system, to ensure transparency of markets and financial products, and to protect insurance policyholders, pension scheme members and beneficiaries.


(EIOPA is the body that may or may not be introducing Solvency II; it's hard to tell. The last we heard, no one, including EIOPA, thought 2014 was possible for the start of the new regime. Suggestions now range from 2016 to 3016. Stay tuned. This one will run and run.)


Separately, and presumably to show that it is not a total waste of time and money, EIOPA has decided to act against insurance companies that use statistical information to differentiate, say, good drivers from bad, longer-living women from men, and shorter-lived smokers from those with healthier lifestyles.


 'Discrimination' is the key word in EIOPA's thinking. Perhaps because there are so many people from so many countries on the committee, EIOPA is unaware that 'discriminate' has two meanings, one of them good. I would be delighted to be thought of as terribly discriminating.


Many insurance companies, as you know, have traditionally based their pricing on the nature of the risk they are asked to adopt. For instance, young men drive more aggressively than women and therefore incur a higher claims rate, everything being equal and that sort of thing. Women live longer than men. Smokers live shorter lives than non-smokers. The facts are not in dispute. Few but EIOPA would argue that it therefore makes sense to charge all drivers the same premium, or to calculate annuities by ignoring the age at which policyholders are statistically likely to die. It is the ability to quantify these risks that places actuaries among the most highly-paid professionals in the world, alongside insurance columnists.


EIOPA, however, is interested in only one fact: that insurers discriminate - against skin colour, sexual orientation, bad risks, whatever. Or, in this case, just against bad risks. As punishment, a one-price-fits-all scheme will soon be mandatory where insurance companies are concerned. The punishment will hit the consumer in the wallet, thus defeating EIOPA's prime directive. Brilliant, eh?


Premiums will rise for those in whose favour insurance companies have until now correctly 'discriminated'. That's the price to be paid for political correctness, which is an attempt to legislate the way people think.


Insurance companies have not had much to say publicly on the new rules. In part, this is through a desire not to upset the all-powerful regulators at EIOPA, and in part it is because the new regs will increase premium income without a corresponding increase in risk adopted. The only fair way to treat drivers under the new rules is as if they were all the very worst driver, and charge accordingly.


Imagine the outcry if insurers introduced such policies on their own. They will, of course, carry the can when the renewal notices are opened by policyholders, who will be unaware of the background to the shock they've just received.


Smokers, on the other hand, will be delighted, especially those nearing retirement age. I hadn't been planning on taking out an annuity when the facts of my heavy smoking were against me. Now, I'm thinking of annuitising my furniture and everything else I own.


Thank you, EIOPA. What Great Idea are you working on next?



 * * * * *

Roger Crombie is an American Society of Business Publication Editors national award winner. An English chartered accountant who lives in London, he writes and broadcasts news and opinion in the US, UK, Bermuda and the Caribbean, in print and online. His main beat is insurance and financial services, with 30-year sidelines in music and humour. All views expressed in Roger's columns are exclusively his own. Contact Roger at


Copyright CATEX Reports

October 11, 2012





Quick "Bytes"

One of the goals of the Lloyd's Vision 2025 plan is to increase the spread of so-called "microinsurance". It is after a market with billions of untapped customers and it seems that Mahindra Insurance Broker Ltd. of India sees the potential too. Mahindra is part of the huge Mahindra Group and accepted an investment this week from the microinsurance specialist investment company LeapFrog Investments... If you sell CGL insurance in Florida you surely noticed this story. A 32 year old man died after participating in a live cockroach and earthworm eating contest held at Ben Siegel Reptiles store in Deerfield Beach. Autopsy results are not in yet but Mr. Siegel said the deceased (who won the contest) had signed a liability waiver prior to his first bite...


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