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Welcome to the November edition of CATEX Reports. We are getting this month's report out just "under the wire" so to speak because we want to incorporate news gleaned from London during our successful visit there last week.
The combination of CATEX being named Best Technology Provider in the Intelligent Insurer Global Awards competition in September at Monte Carlo and the full release of our Data Vera product resulted in an exhausting London meeting schedule that read like a "Who's Who" in the market. It was great to see old friends and to meet new ones.
It's clear to us that Data Vera addresses huge needs in not only the delegated authority market but from the interest we received from markets and brokers who have no binder business our supposition that the industry as a whole struggles with fast, accurate and reusable Excel conversion has been proven correct. More on that to follow as our lead story.
Last month in CATEX Reports we observed that the ILS deluge might be headed (eventually) in the direction of casualty cover. We received a little pushback on this from ILS managers, mainly over the dilemma of keeping investors in "hold" for a protracted "tail" period but we heard enough to verify that they are thinking hard about ways to connect the two markets.
We have our usual Roger Crombie column too. After reading it you will note that Brussels, no doubt, breathed a sigh of relief that Roger was not involved in the Solvency II negotiations!
We hope you enjoy this month's newsletter and as always if we may ever be of assistance to you please do not hesitate to contact us.
Thank you very much.
Senior Vice President/CATEX
London market practitioners lining up for Data Vera demos
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Data Vera gains Strong Interest in London
CATEX operates systems worldwide that process approximately $4.5 billion US annually in premiums and claims. These systems are reinsurance broker systems, reinsurer systems, MGA systems and delegated authority (binder) systems. One of the common threads of these systems is that they each have a voracious appetite for data.
If any system is hungry for data that usually means that its neighbor on the food chain turns out to be Excel spreadsheets. The problem is that digesting spreadsheets can turn out to be a thorny issue. Here's why.
Think about your own experience in creating a spreadsheet. Do you always format and name the spreadsheet components in the same manner every time? Probably not. In fact, our experience has shown that Excels often reflect the personal idiosyncrasies of their creators more often than not and that, rarely, are any two spreadsheets formatted the same way by two different people.
In fact we've found that sometimes even the same person will format spreadsheets differently but that's another matter. (We haven't yet figured out why certain people will format data one way on a Monday and a different way on a Tuesday!).
Imagine being on the receiving end of hundreds or thousands or even tens of thousands of spreadsheets, each formatted just a bit differently, and each one including the data that you need to enter into a reporting template. That destination, the reporting template, is usually an unforgiving, rigid data template set in stone by a market that forces a user to conform the data from those thousands of Excels into that exact template.
You should be beginning to get the picture by now and be appropriately wary of walking on sidewalks below offices housing Excel format teams at the end of a reporting period.
Typically technology solutions in the market have focused on only helping those beleaguered formatters "map" incoming Excels to the required template. A tremendous amount of pre-processing is involved as you can't map the data from one of those heterogeneous spreadsheets without getting out your scalpel and magnifying glass and examining, line by line and column by column, all of the data and "mapping" it to what you believe may be its similar value on the rigid, set-in-stone, destination template.
In this process accuracy is of course sacrificed. A data "manipulator" is really only interested in matching as closely as he or she can the value of a column or line in an incoming Excel to the template. As far as the contents are concerned, well, that's someone else's problem.
Then there is the question of being able to use this laboriously processed data for any purpose other than the precisely mapped columns and values one may have worked out for a particular destination template. If you want another destination template that means you need to go back through the whole process again --this time mapping to the new template.
Remember that just about all of the data related to the delegated authority market comes into Lloyd's this way and that, depending on who's figure you believe, about 28% of all Lloyd's business comes in via delegated authorities. You can see why Lloyd's management may be just a tad concerned about this process.
We read the newspapers too, and we read the industry newsletters and the press announcements from brokers and markets, so we have a general sense about the difficulties associated with the unstructured data of spreadsheets.
To be candid though it was the necessity CATEX faced in ensuring that our own systems could intake huge volumes of Excel data quickly, accurately and that the data could then be used for multiple purposes that led us to build Data Vera.
Once we built it, and began to use it in connection with our own systems, we saw that there was a need for Data Vera's capabilities with any company using systems that needed to unlock the Gordian knot of the spreadsheet conversion. Our Data Vera demos in London proved that need to us and we would be interested in offering a demo to you.
Our Data Vera product can stunningly, quickly process disparate types of spreadsheets, with an impressive degree of accuracy, into a cloud-based database that can instantly produce multiple products ranging from completely populated template reports for markets, modelers, regulators or for internal systems exports --all from a single processed file.
Imagine combining the ability to load all the risk data about every risk insured, and each and every risk characteristic you can imagine, with the ability offered by certain "Big Data" information engines (link to Dassault's engine for example) that can produce thousands of data points gleaned from billions of sources in seconds.
If you can envision that you'll realize that when Scor's CEO Denis Kessler said that the availability of data has brought about the end of the traditional underwriting cycle he might have been more right than he knew.
ILS Effects: Florida homeowners rates dropping
It's the old story we guess --"if you live long enough you'll see everything". After years of hearing that Florida homeowners rates probably could never be priced high enough to cover the risk of wind loss from hurricanes now we're actually seeing rates decrease in some instances.
Bill Gray, and the weathermen out at Colorado State, would presumably be among those who would warn that just because Florida has (thankfully) experienced a few consecutive benign seasons we don't need to be popping any champagne corks.
We did, after all, albeit 9,300 miles from Miami, just experience Typhoon Haiyan which was reportedly the strongest storm to ever make landfall in history. Imagine the modelers running Haiyan through a scenario with the Fountainbleau Hotel at 4441 Collins Avenue, Miami Beach as its landfall
point. But in Florida right now the cost of property catastrophe reinsurance is dropping mainly because of the influx of ILS coverage and the absence of claims.
As a result, since July at least nine rate decrease requests for homeowners insurance have been filed with the FL Insurance Department. There have been more than 20 rate increase requests but the fact that 9 decrease requests have been filed would have been unthinkable even a few years ago.
The Florida state CFO has written to the FL Insurance Commissioner Kevin McCarty saying that "insurers had made representations that if reinsurance rates were to fall they would pass those savings on to their customers" and wondered why more insurers are not lowering rates.
McCarty replied that his department is already on the case (his department already had approved the 9 decreases) and is carefully looking at all rate change applications to see whether the dropping rate of reinsurance is being properly factored in.
McCarty is a realist and has been the Insurance Commissioner for 10 years. He started working at the Florida department the year after Hurricane Andrew hit so he knows the drill as well if not better than anyone else. His job is to serve the state's citizens and if the state's insurers are experiencing their own cost savings with lower reinsurance premiums those savings must be passed along to the consumer.
You have to wonder somehow though if McCarty is not thinking that someday he will be "passing through these parts" again but this time heading in the opposite direction.
More on the view of the "new" markets....
Throughout history it has seemed the East, meaning China, Asia and India, has been the focus of marketing efforts for Western goods and products. We were reminded of that after walking by (several times) the East India Arms tavern on Fenchurch Street in London last week.
Once again the East is being looked to as the source of new revenue and trade opportunities for western companies. Everything from consumer goods to jet engines to food to insurance are supposedly fair game for increased trade.
So how are things going in terms of the insurance and reinsurance efforts in the East? We've see a few items this month that provide some evidence.
John Nelson and Robert Hiscox have said that the market will come up with the creative ingenuity to develop new insurance and reinsurance products for the buying needs of a new group (a very big group) of customers. So far, according to Guy Carpenter, this product development remains at best a work in progress.
Insurance Insider reported that Carpenter noted that demand for CAT reinsurance from Asia Pacific countries is failing to keep pace with the region's economic growth because existing products don't meet buyers' requirements. While total CAT cover did rise in the area again for a 10th consecutive year demand lagged far behind the growth in GDP.
Maybe this is what Nelson means when he says that the creativity of the Lloyd's market and brokers will need to develop meaningful insurance and reinsurance products that all these new buyers actually are interested in purchasing.
The gap doesn't seem to be from lack of trying either, as Carpenter also announced that in the wake of the costly Thai floods of 2011 the broker expanded its database of digitized boundaries of office parks in Asia to include Vietnam, South Korea and Malaysia.
You may recall that the Thai floods inundated hundreds of Bangkok area light industrial office parks within which it was subsequently discovered included thousands of small tech manufacturing operations contributing to the global IT industry which once knocked out caused delays up and down the production chain affecting dozens of very big firms.
This is a pretty big pie we're talking about too. Munich Re estimates that more than $1.38 trillion US in additional premiums will be generated in the Asia Pacific region in the next 6 years with nearly $1 trillion (these are very hard numbers to grasp!) of that total coming from China and India.
Oddly, Munich Re says that India, which is the world's largest democracy, has regulation that is still "too spontaneous" for the reinsurer to increase investment while it will focus on China as its biggest growth market. We suppose that there are certain predictable, "non-spontaneous" traits exhibited by Beijing's rulers that are attractive to business managers. Those same traits may perhaps be unwelcomed by activists of other stripes.
We did see one other data point coming from Sean McGovern at Lloyd's. He said emerging economies are seemingly having some difficulty becoming comfortable with the concept of "delegated authority" as most countries do not recognise the model (such as Brazil and China).
As delegated business has been the traditional way for Lloyd's to access local markets, and the Lloyd's Vision 2025 plan bets heavily on the prospective success of delegated business in emerging markets, you can be sure Lloyd's is working on overcoming these difficulties.
Roger Crombie writing for CATEX Reports takes an off-beat view of the world of insurance
In the past few years, bankers have slipped down the scale of social acceptability. They now rank just above child-molesters and journalists. I had until recently always defended the banks. I can't do that any more.
My recent dose of how modern banking works began with the experience of a close relative. He and his Mrs. divorced, and he instructed the bank precisely how to split their joint holdings. The bank got it all wrong. Months later, when my relative asked for a statement, the bank mistakenly sent the statements for each party to the other party. This could have been catastrophic, had everyone not been honest and on amicable terms.
Then came the capper. The bank held separately, in trust, some equities that were not part of the divorce arrangements. Without being instructed to, the bank sold the equities and kept the money for itself. I kid you not. Taking the money, of course, is nothing like as bad as the breach of the trust under which the shares were held.
At first, the bank denied everything. "Can't happen, therefore hasn't happened" was their line. Later, without notification, the bank deposited the share proceeds into my relative's account. He pointed out that he wanted the shares, not the proceeds. He also mentioned that a significant capital gains tax liability had been visited upon him through the bank's error.
As the months passed, the bank wriggled and squirmed, and eventually the tax year ended. The tax authorities don't care why shares are sold; taxable events know no background story. The bank finally agreed to pay the tax.
Then, out of the blue, having said all along that the transaction could not under any circumstances be undone, the bank 'undid' it. My relative was given to understand that he had his shares back.
For all the aggravation he went through, the bank gave him compensation of £150 ($225). He still has no idea, a year later, where he stands with all this. The bank, of which he has been a customer for 40 years, has stopped replying to his letters. He has applied to the Financial Ombudsman (a Government-sponsored independent agency) for relief, but has heard nothing from them, either.
While all this was happening, I asked my bank manager whether he would make me a bridging loan to buy a property I wanted. I needed financing for no more than two months between the time of buying the new place and selling the highly desirable one I then lived in.
I've been a customer of the bank for 44 years, and have never been overdrawn without consent, or committed any other imperfect manoeuvre. The manager said no. But had he lent me the money, he said, I'd have to pay 2.25 percent upfront and something like 10 percent per annum. There would, however, be no money for me, even though I offered the security of both properties and some investments, to cover the amount of the loan by about 1.7 times.
Later, the bank conducted a telephone survey on its performance, and I rated it accordingly. The manager phoned a few days later. "I didn't exactly say no," he said. So may I have the loan, I asked. No, he said, we don't do bridging finance. You're a bank, aren't you, I asked. Yes, he said, but we don't do that sort of lending. This is one of the UK's (and the world's) largest banks.
My manager's level of competence was on a par with that of his colleagues throughout the bank and, if I am informed correctly, throughout the banking system. Burned to the core by their earlier reckless activities, the banks have now adopted the attitude of tax authorities around the world: the question 'May I ...?' is automatically answered in the negative, the better to avoid any possible repercussions. A bank that doesn't lend can't do so incorrectly, can it?
I'm beyond disheartened by these developments. Not so much because of the inconvenience and fear that all this catastrophic incompetence has caused my family, but for everyone in the world. If the banks are unwilling to do even the most blatantly profitable business, and incapable of carrying out even the most mundane activities correctly, how will they survive?
Everything is correlated to banking. If the banks are no good, how is any of the financial system any good?
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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 email@example.com.
Copyright CATEX Reports
November 25, 2013
Insurance Insider reports that Lloyd's Tom Bolt has said that the Aon-Berkshire arrangement has been a positive move for the market as figures indicate that more business has found its way into Lloyd's....Frank Majors at Nephila Capital indicates that the firm is taking a "breather",
albeit a temporary one at that, in accepting new funds to underwrite risks via ILS....Bill Berkley fired a shot over the bow of the "plug and play underwriter" crowd when he said capital suppliers "entering the business entirely based on models and forecast are going to find that human
judgments actually are of value and importance." Discussing the potential of such new capital suppliers underwriting longer tail LOB's he said "A number of them will get badly burned as they step away from the highly forecastable pieces of the business to other parts.".... Credit Suisse said that the ILS market will double in the next 5 years all the way up to $90 billion by 2018. In case you need to connect the dots that would be the "capital suppliers" Berkley is referring to....Who's on the hook for this risk? The singer Kanye West's "Yeezus Tour" was interrupted because
Kanye West Circular screen at tip of mountaintop
a truck crash destroyed a 60 foot circular LED video screen he uses in his performances. The destroyed giant TV was classified as "essential" to Mr. West's creative vision and he had to cancel a number of concert dates until he replaced it. (Imagine going to Best Buy for a 60 ft circular TV.)...Finally, a report from the front that the 174th Attack Wing of the USAF had lost a Reaper drone that typically carries two Hellfire missiles
when it went down in a large freshwater lake. The problem was that the lake was Lake Ontario and the nearest land was New York State. The Air Force helpfully notes that there were no missiles aboard but that they have temporarily suspended drone flights over NY. No comment from us on that --who knows who might be hiding out in the wilds of upstate New York --after all they found Abbie Hoffman somewhere up there. Here's a good fact though for you. In the past 15 years there have been over 130 accidents involving Reaper and Predator drones flying over the US. "Look, up in the sky! A bird, a plane a...drone?" Strange times indeed.