CATEX Reports
Issue 35  May 2014
In This Issue
John Charman, Pat Ryan and a cast of hundreds
Lloyd's E&S book grows
Is Bigger Better? Why "bigger" may be needed if Aon Benfield is right
Data Vera adds new features for underwriters
CATEX Intelligent Insurer voting
Roger Crombie on Insurance and Evolution
9/11 Museum, climate change, ILS discipline and Pyongyang problems


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Dear Colleague,

    The voting has begun for the 2014 Intelligent Insurer annual awards and the results are being collected. Last year CATEX was named Best Technology Provider of the year from a field of five finalists.


    If you are receiving CATEX Reports there is a very good chance that you are either a CATEX client or a business partner of one our clients and already receiving data and reports from CATEX Systems.  We would appreciate any consideration you could give us in the voting for this year's award.


   Please go to this site and select the survey link --you will see it in the 6th paragraph.  We would be deeply appreciative for any consideration you give to us. 


   Now, on to the May issue of CATEX Reports. Much of the information we have in the May issue was gleaned from the InsiderScope New York conference sponsored by Insurance Insider on May 8th.


   We make no apologies for this as the attendance included people such as Toby Esser, Rod Fox, Sean McGovern, Eric Andersen, Jeb Rhoads, David Priebe, Michael Millette, John Charman and Pat Ryan --and that list is not nearly complete.


   If there was news to be made this month in our industry it was going to be made on May 8th or discussed on May 8th.  It was a good chance to hear firsthand from people instead of reading quotes attributed to them.


   As you will see we have focused on the next convergence we see coming and that may be the overflow of alternative capital directly into the retail insurance space. It could be a game-changer.


   We have our usual Roger Crombie column and oddly enough --and this is scary --on at least one point he and Warren Buffet seem to think alike!


   We will have a team in London the week of June 16 to meet clients and prospects and we will mention that as well in our Data Vera update.


   As always please feel free to contact me if you are interested in more information about CATEX and our products. 


Thank you very much.




Stephanie Fucetola

Senior Vice President/CATEX






Ryan                              Charman   


Insider has a hit with Charman and Ryan



The Insurance Insider "InsiderScope" New York meeting was held last week at the NY Athletic Club. It was an event with some pretty big names present on the panels as well as in the audience.  Fortuitously for the Insurance Insider the next to last panel had among others as participants, Cooper Gay's Toby Esser, Endurance's John Charman and Ryan Specialty Group's Pat Ryan.


If you have been to conferences you know that by the mid-afternoon people begin to check train schedules wondering if they can catch an earlier ride home. There was no schedule-gazing in New York though. No disrespect to the earlier panelists but it was clear that the Charman-Ryan panel was the main event.


Charman arrived first, just during a coffee break immediately preceding his panel. He was sighted mingling with people in the refreshment hall and then moved to near the dais toward the end of the coffee intermission. Heads craned a bit from the audience --yes, there was John Charman but where was Pat Ryan?


Then holding a cup of coffee in one hand, and a manila file folder under his other arm, emerged Pat Ryan ambling out of the refreshment area moving toward the dais. We were on the other side of the room but spotted him immediately (maybe because we were looking for him?) but Ryan just sort of kept moving very anonymously but purposefully up toward the dais. No one seemed to notice him, including those to whom he excused himself as he picked his way through the milling people towards the group around Charman.


When he reached Charman of course the conversation stopped and Charman and Ryan exchanged hearty handshakes and hellos. (These two seem not to be the "embracing man-hug types"). Later on the dais as the panel was getting seated Charman could be seen raising and lowering his arms while offering a gentle bow in the direction of Ryan. It was meant to be both funny and sincere -- coming from Charman it made clear where Pat Ryan sits in the (re)insurance pantheon.




Lloyd's E&S share grows






One of the things we learned was that Excess & Surplus lines business is growing in importance to Lloyd's as the corporation continues to increase its share of it. Lloyd's is the now largest amount US E&S writer with about 30% of the business coming to Lloyd's through 900 US based "well established" coverholders.


As Sean McGovern, Lloyd's General Counsel and Director of Risk Management was going through his presentation about Lloyd's and the E&S market most of the audience duly took notes and no doubt were impressed with the gains made by Lloyd's over recent years.




It wasn't until Eric Andersen, CEO of Aon Benfield spoke that the light bulb went on. Andersen has been with the reinsurance side of Aon for only the past 6 months. Prior to that he had been on the retail side of Aon which ranks among the largest retail brokerages globally.


Andersen noted that on the retail side there is a distinct lack of product. He said that companies find it almost impossible to buy coverage for auto product liability, pharmaceutical product liability, financial institution professional liability, drilling risk for energy companies and liability risk for shale oil rail tank cars.


As Andersen noted, since they can't find coverage, should a business be required to pay even one claim in any of these areas it could mean "turning the lights out" and the bankruptcy of the business. He said that the products aren't available to sell what is desperately needed by these potential clients. And one of the reasons the products aren't available is that there is a lack of underwriting capacity and underwriting will to create them.


When Andersen came to the reinsurance sector six months ago he immediately contrasted the enormous sums of capital entering the market and the creativity of the reinsurance products spawned by a need to put as much of that capital to work as possible.  It was a flood compared to the drought in retail.


By now of course even a disinterested observer would note that the reinsurance capacity barrel may be getting close to full. The reinsurance sector is small compared to the retail capacity needs and it's clear that the reinsurance sector alone isn't big enough to take in all the alternative capital that's come in and will come in.


So, per Andersen, we have an over-capitalized reinsurance market with a roster of high tech tools and creative products for clients on the reinsurance side. On the retail side you have no alternative capital, a desperate lack of products and a willing client base of people who will try anything to shift liability, often at a level that could threaten their futures as ongoing concerns, off their balance sheets.


Here was the light bulb being switched on. Andersen then said "that the people who can connect the two, the alternative capital and the retail buyer, will change the industry". He said that because of the unavailability of certain types of liability product the insurance industry is simply becoming less relevant to the retail buyer.


Andersen noted that even though alternative capital came to reinsurance first that it inevitably will jump to the retail client. He said that the clients will support a structured alternative capital liability product because they are afraid of being closed down in the event of a claim. He said "retail has never heard of Nephila, they are agnostic to the capital --they just want product."


Andersen said that it's a huge opportunity and one that Aon intends to take advantage of by going to the ultimate client, determine their needs, structure a product and find the capital to support it.


Andersen is a compelling speaker and the room was impressed with his presentation. Several thoughts though were expressed by subsequent panelists which seemed indirectly aimed at his conclusion.


There was no dispute that clients such as liquefied natural gas facilities, shale oil rail carriers or pharma liability currently face a lack of relevant insurance product choices for the risks that really keep them awake at night.


While it could be possible to identify alternative capital which might be willing to underwrite such risks at a fair premium price the question was raised as to how specific or individualized would the CAT bond or ILS instrument have to be?  Could one really expect to be able to effectively raise capital for a liability event particular to one client in one area against one peril? Isn't that a slippery slope? Where does that end --do we end up marketing individual CAT bonds to cover specifically named private citizens?


Fair points indeed. After all the costs associated with creating a CAT bond or a collateralized ILS are not to be ignored. The end result of speculation like Andersen's could be that those reinsurance side cars, that have been set up to write CAT risks through a rated carrier's underwriting staff, might end up as a near infinite number of instruments aimed at supporting products for a near unlimited number of industries and perils.


We would observe several points though. When we started CATEX 20 years ago we encountered Clem Dwyer then EVP at Guy Carpenter in NY. Clem was one of the first to spot the convergence of alternative capital and reinsurance and one of his oft stated points was the imbalance between the level of potentially insurable interests in the world and the amount of global insurance and reinsurance capacity available to insure those interests. The amount of capacity available to insure those potential risks are a metaphorical thimbleful.


Insurable interest can be just about anything these days like infrastructure, patents, IP, lives, homes, boats, buildings, refineries, planes, rolling stock, etc. and, as we saw in an earlier edition from Roger Crombie, even one of the Kardashians' derriere. Any estimate for this number will be huge --really, really huge and despite intensive research we were unable to come up with even an approximate number for it! We thought about going back to the number we believed Clem Dwyer used all those years ago and then somehow adjusting it for 20 years of inflation and adding an estimate of organic growth but we realized that it would be futile. We don't know what the number is.


We do know that there are some $100 trillion in managed assets globally and one would assume that at least part of that pool of money certainly qualifies as an insurable interest. We may assume then that the total value of global insurable interest may be north of $100 trillion? Maybe. Like we said, this will be a really, really huge number.


Here's what else we do know. The combined gross written premium totals of the global commercial insurance and reinsurance industry is only $1.2 trillion (Yes, we know that there are many "accurate" numbers for this total. This is the one we chose.) leaving a presumed gap of many trillions of dollars representing interests that could be insured if products were built to sell to holders of those interests and if underwriting mechanics came up with a fair price. Presumably included in that group of as of yet uninsured interests are the vast pool of retail buyers described by Andersen as desperate for insurance.


No wonder this has attracted Aon's attention. No wonder they brought someone in from the retail side to be the CEO of the reinsurance side. This is the "pot of gold" to beat all others but it will be a long and methodical road to reach it.


As Andersen noted the first step is to understand the client and what their coverage concerns are. Then structure a product that you think will meet their needs and then revert to them to fine tune it. Once they say to you --yes, we would certainly buy something like that if it's at a fair price --Aon would normally take it to the market to find a carrier to underwrite it.


Andersen's point is that rather then hear the declinations from the industry (who, after all, apparently are not writing the business now anyway) Aon would go to the capital markets and structure an instrument that would be prepared to support the product after underwriters establish a price.


Andersen notes that the CAT model tools available for reinsurance was part of what made reinsurance the logical entry point for alternative capital products but believes that a combination of better modeling at the retail level, loss histories (remember GRIP?) and a dire need for cover by the ultimate purchase (the business) have combined to offer a perfect storm of opportunity.




You can take it to the bank that someone will begin to structure alternative capital products for retail and as they do others will follow. Rod Fox of TigerRisk noted that securitized retail capital is already coming into the market. After all if David Bowie can successfully securitize proceeds of his songs for 10 years in exchange for $55 million then really, how hard would it be to securitize premium payments that are set at a fair price in exchange for liability responsibility for a defined period of time. There might need to be a runoff requirement after that defined period but that could be part of the fair premium price.


One of the things Andersen reviewed were what in his mind were the three functions of insurance. First, insurance prices and accepts risk; second, it keeps up with new products for new risks faced by clients; and third, exhibits a willingness to pay claims. Andersen noted that this "willingness" to pay claims means more to a broker than can ever be known.


This point was reinforced later by Jed Rhoads of Markel when he observed that rather than examine a contract for a reason why a claim cannot be paid (which seems to be a common complaint against ILS products) an insurer will frequently pay the claim simply for good business practices and to strengthen the relationship. Given the volume of claims at the retail level compared to reinsurance any capital backer would have to be prepared to pay losses and understand that they are in for the long haul.


Will it happen? Look at it this way. Later in the day both Pat Ryan and John Charman spoke about the increasingly diverse and global needs of clients which leads them to think that the larger a market is the better it can serve a client as a one stop shop. There would have to be a number of unprecedentedly large insurers and reinsurers to fill that $25 trillion hole. It is likely that, if alternative capital has the appetite, it can be put to work in the insurance arena.


We have written in the past in CATEX Reports about the insurance needs of the developing world. It will not be too long until Chinese, Indonesian and Latin American citizens demand the same kind of liability indemnification that the West has had as it industrialized. Between those needs, in the developing markets, and the needs of businesses in the West that are working with those new markets, it would seem to be inevitable that the industry will respond.


Maybe John Nelson knew what he was talking about when he said that he saw an additional $1.5 trillion of new premium coming into the commercial insurance market by 2025.  In fact he just may have been too conservative!



Insider logo


Is Bigger Better?





We suppose that, in light of the Endurance takeover attempt of Aspen, we do need to report on the presence of John Charman at the New York conference. Anyone waiting for a full throated response to the ongoing comments aimed in his direction emanating from Aspen as they continue to say "no", "we're not interested", "the bid is derisory",  "even your own underwriters think it's bad" and "your position on Lloyd's, which is central to our success, is well known", would have been disappointed. He was quite charming and offered no exposure to anyone who could be looking for a misstatement. There were jokes at our table that his lawyers were in the front row at the ready with "cut" signals in case he went off script. Doubtful --he can clearly take care of himself.


Here's what he did say though and it was pretty interesting. He said that reinsurers need to consolidate and in fairness to their shareholders they must create larger companies more able to respond to the needs of clients. He said that if reinsurers do not listen to their customers they will be by-passed and "I certainly don't intend to be by-passed".


Pat Ryan added that one consideration that's often overlooked in acquisitions is the desire of the acquiring company to increase its talent pool. He said that acquiring another company doesn't mean that you think less of your own company but that the resulting concentration of talent means that the revenues will increase and that's what makes it a simple decision.



Toby Esser had an interesting point on Ryan's remark. He said that when you acquire a company it's a spark for change when driving two businesses into one and you are forced to make decisions that you wouldn't have had to make otherwise


Charman hadn't yet arrived when Eric Andersen was talking about the retail market but he said that a market needs to be a combined reinsurer and insurer with a geographic and product diversification broad enough to provide customers with what they need.


In what seemed to be a line of thought Charman didn't follow (but since we make back office systems that are designed for markets that are both insurers and reinsurers our ears perked up) he said that the imperative in an acquisition is the back office. We're not sure what he meant but presumably it related to the need to quickly combine both back offices as soon and as efficiently as possible.


Charman, when asked about the future of reinsurance merger activity said that he thought the evolution of the Asian market has a long way to go. He believes that there are balance sheet issues, that he termed as legacy issues, that need to be resolved before their regulators (his own or Asian --we weren't sure) allowed such acquisitions. But, he said, that in the West there is more than enough capital to allow activity for the next three to five years. (You could hear a collective sigh of relief from the investment bankers present.)


Ryan said that it's key to look for strategic not opportunistic acquisitions and continued with the larger and more integrated the footprint is the better and he cited Berkshire saying "look at that talent pool and that balance sheet."


Ryan also noted that a lot of the capital that attracts talented people is finding that they don't need infrastructure and that this is creating opportunities for entrepreneurs. He said that it was "very healthy" and that the traditional entry points for entrepreneurs into the market such as delegated authority are going to undergo a rebirth.


About the closest Charman came to headline was after he responded to an inquiry about any concerns he might have about the pace of M&A activity in the market. He said that "it's just the market trying to evolve to find the most efficient way to distribute its product and I'm not concerned about it at all". He went on to say that the independent directors of any target company need to be on the side of the shareholders. Period. End. He actually stopped right there, with a smile on his face.




Data Vera Strides









If you are an Artemis reader you may have seen our ad for the CATEX Data Vera System.  The web-based application, which easily and accurately imports Excel data into structured data produces many multiple outputs of templates for modeling, regulatory requirements or internal legacy needs.


We will be in London the week of June 16 showing a number of new features to the system. Over the past months our clients have suggested enhancements to the system and we have been listening --just like Eric Andersen suggests we all do --lto our clients!


We have enhanced the "clearance" functionality of Data Vera. This capability allows a user to select "match" criteria and identify similar records in the system to drive better data quality. Not only can users identify "duplicate" data but the same functionality can be used to "cleanse" or "prepopulate" related information.


For example, if a duplicate address record is found in the system, Data Vera can not only identify it but allows the user to copy latitude and longitude coordinates from the previously cleansed record. This feature can significantly reduce the time associated with identifying duplicate information and/or capture supplement information from previously processed records.


And the clearance function also permits underwriters to better understand multiple insured risks in the same locations such as industrial parks or office buildings.


One of the Data Vera's strong features is its ability to validate total insured value across a number of categories and subcategories. For example, it can identify any records where Buildings, Contents, and BI do not sum to TIV. We have enhanced this capability to now identify allocation percentages based on specified range and thresholds. For example, Data Vera can be directed to identify any records where "Building" is not between X% and Y % of the TIV. Data Vera can also adjust allocated TIV value across various categories based on business product rules. This feature ensures that the numbers add up across categories and subcategories and also enables the user to control the exact allocation of each category/subcategory.


The same capability that imports and validates excel data for the Delegated Authority of binding business is now extended to Facultative and Treaty reinsurance risks. That capability, which allows Data Versa to import, validate, and export Bordereau Data, can now be used to import/validate large schedules of data (property locations, vessels, warehouse list, etc.) for facultative and treaty business. By providing a single user experience, we continue to promote uniform business practices across different types of business and maintain uniform high quality of data standards.


We have also been busy enhancing a number of other Data Vera features such as rating engines, analytics, and tighter Bordereau Management system integration over the last few weeks. If you're interested in seeing the latest Data Vera demos in London the week of June 16th, please let us know.



Intelligent Insurer Awards



    Last year CATEX was named the Technology Provider of the Year by Intelligent Insurer magazine. We received a very high level of support from our clients and friends and the recognition has allowed us to increase our profile, our client list and substantially improve our products.


    We are in your debt for your past support.


    The voting for the 2014 Intelligent Insurer Awards is now in progress. CATEX is once again one of the finalists.


     It would mean a great deal to us if you could take a few minutes and respond to the survey. Naturally we hope that you at least complete the technology section but feel free of course to respond to all the questions.


    The link to the survey is found in the sixth paragraph here. Thank you.






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

 Is Insurance Ready for Evolution?


       You may have read that a man in Utah launched a legal challenge this month to enable him to marry his computer. He is unlikely to succeed, because judges are not often the most progressive of thinkers and, besides, the whole idea is ludicrous.


        First, we must dispose of two distasteful elements of this story. If the bid were in any way related to comment on gay marriage, it behoves (or, in American, behooves) me to pour scorn on it (the bid, not gay marriage), so let us consider it poured. And second, the man argued that he loves his "porn-filled" Apple device, which is wrong on so many counts that I need not enumerate them.


        Dismissing as hateful both those aspects of the matter, on reflection this seems to me an eminently suitable slice of modern thinking. I spend more time with my computer than with all human beings combined, by a significant multiple. My computer can be turned on at a moment's notice. It empowers me, something that few of my girlfriends ever did. It costs very little to run and, thanks to passwords, is never handled by others. My computer doesn't mind if I stare at it for hours on end. When I press the wrong buttons, it doesn't become enraged (ever) or non-cooperative (usually).


            As if that weren't enough to prove my point, consider the following. Unlike a human being, a laptop:

            * never answers back.

            * mostly does what it's told.

            * can be replaced with a newer model at a tiny fraction of the price of a divorce settlement.

            * would enable me to claim the married person's tax allowance without having to share it.

            * educates and informs me without massive resistance on my part (which was rarely the case with my human companions).

            * can, in a fit of rage, be punched and thrown off the balcony without criminal charges arising, unless it lands on someone down at street level. I've never hit anyone, and never would, but I have dealt severe damage to a recalcitrant laptop. Oh yes.

            * accompanies me to the movies, without unseemly arguments about what we're going to see.

            * provides the correct answer without seeming smug (traditionally more my problem than my girlfriends').

            * never makes me feel guilty for forgetting its birthday.


        One might continue in this vein for several CATEX Reports, but you're busy, so let's move on.


        The bigger question this farrago of nonsense raises for insurers is this: how to run a business in a world where standards constantly change. You might argue that standards have always changed, and on that point you might be right. I would counter that standards have never changed this fast at any time in history.


         In the past decade, the insurance industry has had to adapt in any number of ways, which I won't enumerate, because you'll know them already (plus, it saves Internet space). In the next decade, the industry will have to adapt even more quickly to even more changes. Here are a few.


         Driverless cars will completely change the way motor insurance is written. If you doubt that driverless cars will ever catch on, you should know that several of them are parked outside my house right now: not a driver in any one of them. (See editor's note below)



         Longevity will increase, making life insurance a whole new ball game. People will have to find out what ILS is all about. Home insurance will change out of all recognition as people work at home, have their groceries and consumer products delivered by drone, and never leave their houses again, grow enormously fat through lack of exercise and eventually explode. Travel insurance will thus become a memory, although contents insurance will soar. And so forth.


         Much of this, as I hope you will have understood, is tongue in cheek. But as developments in robotics continue apace, sooner or later, robots will walk among us and someone will apply to marry one. Then robots will apply to marry each other. Then couches will want to marry side tables with which they are especially compatible.


         It's the future, and it's coming soon to a home near you.



Editor's Note: See this article citing none other than Warren Buffett on his belief that "driverless cars" will cause a complete rethinking of auto insurance rates --presumably at GEICO his US auto insurer.




* * *


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

May 21, 2014




Quick "Bytes"


In New York the National September 11 Memorial Museum opened last week. The opening ceremony was attended by many 9/11 survivors and family members of those who died that day. President Obama was there
as well. Apparently the museum, which is many feet underground, is very somber and has evoked powerful emotions in those who have seen it. The museum is on the site of the Twin Towers....Speaking of President Obama the White House released a report on climate change earlier this month. It was unusual in that this time the report focused on preparations Americans can take to live with the inevitable changes
that are coming. Governor Brown in California has begun the same focus --readying Californians to live with drought and increased severity of wildfires. After a while, we suppose, policy makers have to switch from the warnings to actual preparations...Standard & Poors says that the insurance industry is in good shape for climate change and that the changes will be incremental enough to allow rates to adjust as inevitable higher claims result...Not everyone is quite singing the same
campfire songs about ILS and traditional reinsurance working together. The new CFO of Swiss Re David Cole said that some ILS investors have been blinded by the high yields and may not have the experience or skills necessary to fully understand the risks they are assuming... Validus' Ed Noonan and Ren Re's Kevin O'Donnell warned
                          Noonan                                                 O'Donnell
again on the need for underwriting discipline and Noonan said he notices ILS pricing discipline slipping in Florida...Last month's CATEX Reports went through a lengthy narrative about the hedge fund reinsurers and how they were able to obtain significantly better yield on investments. Not so for Greenlight Re and Third Point Re which saw slippage in investment yields --this time though stabilized by strong underwriting....Finally, last week in Pyongyang, North Korea a 23 story apartment building simply collapsed. It was a new building too and presumably the people who lived there (death toll is thus far unreported)
                                                              Kim Jong Un
are well connected to Kim Jong-un (regular North Koreans are banned from the "showcase" capital) because he was reported to have "sat up all night, feeling painful, after being told of the accident" agonizing over the slipshod construction of the structure. The next day authorities publicly apologized and named Choe Pu Il, the minister of people's
Cho Pu II
security as the culprit responsible. We would bet that the bejeweled Denis Rodman will not meet Mr. Choe on any future visit to North Korea. Mr. Kim is alternatively reported to have had his uncle executed, Jang Song-thaek, by either flamethrower, anti-aircraft guns and fed to a pack of starving dogs. Take your pick. Imagine if your claims person was called by them asking where the check was?