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Sofia Ashmore

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0 21

Pacific Prime has unveiled yet another industry trend, this one regarding the likelihood of clients being declined for health insurance.

PPI analysts have found that the increased competition in recent years has caused strict underwriting to become less prevalent, and as a result, less clients are being declined for health insurance. It is a trend that PPI believes is healthy for the overall industry in the short term.

Insurers have always looked at strict underwriting as a necessity, as covering too many conditions would cause premiums to increase, and business would become less stable. At the same time, however, the increased competition is putting pressure on international insurers, and many are starting to employ less strict underwriting in order to ensure that their client base does not decline. Some insurers, who normally would not have had to use more lenient underwriting to attract customers, are feeling the pressure of competition and are reluctantly following suit.

Insurers are now using other underwriting methods to offset paying for claims that they previously would not have covered. For example, insurers use loadings to balance the risk when a client makes a claim for a pre-existing condition. With a loading, a surcharge will simply be placed on the premium if the client has a condition that exists before they purchase their plan.

Another way insurers offset risk is the use of moratorium underwriting, in which the insurer will cover the condition as long as the client has not sought treatment or medicine within a certain time period. The drawback to moratorium underwriting, however, is that the claims process is often slow.

Pacific Prime analysts view this trend as being positive for the industry as a whole. With less strict underwriting, more clients are able to find coverage, and insurers are able to grow their client portfolios. PPI analysts are curious to see how this trend develops in the future, and whether or not underwriting will become strict again if and when competition slows in the market.

0 31

As the British and Irish Lions rugby team prepares to take on the Aussies for this weekend’s Test series in Brisbane, research by insurance comparison website Confused.com reveals these professional sports men could be penalised on their life insurance policies, as insurers deem them obese.

The research carried out by Confused.com shows that 58 per cent of the 2013 Lions squad would be considered overweight according to official Body Mass Index calculations, which divide weight in kilograms by height in metres squared.* A further 37 per cent of the team would be considered obese.**

Worryingly, some people consider BMI on its own as an accurate factor that can verify if someone is healthy or unhealthy. However, a high BMI doesn’t always mean someone is overweight – as we can see with rugby players. Most top players carry a great deal of muscle and have a high BMI.

The premiums for the players were calculated using a standard monthly premium of £10 and then taking into account how much the players could expect on their premiums solely because of their BMI. The research has been conducted to highlight the weaknesses of BMI, currently used by insurance providers to determine a person’s health, along with age and smoking habits. The insurance price comparison company is urging the insurance industry to move to fairer methods of health checks, such as taking into account waist measurements and dress sizes.

Matthew Lloyd, Head of Life Insurance at Confused.com, says: “The finding that over half of the Lions squad, who are at the pinnacle of fitness as professional sports men, are considered overweight clearly demonstrates that BMI is an out-dated method of measuring a person’s health.

The obvious weakness of BMI is that it doesn’t distinguish between fat and muscle and, therefore, could flag a really lean, muscle-bound person as a higher risk than they would be in reality. Therefore, it means that some consumers, who may be in perfectly good health but carry a high muscle to height ratio, could be being penalised when taking out a life insurance policy.”

We support a move away to include additional measures such as waist size as well as BMI when calculating life policies and welcome the fact that some insurers have already taken steps to do this.”

A BMI of between 18.5 and 25 is considered ideal. Higher than 25 is seen as overweight, and a person is classed as obese if their BMI is over 30.

Confused.com is also encouraging consumers to review their cover if they lose a significant amount of weight as premiums are based on circumstances at the time of application.

0 30

Car Insurance Price Index reveals dramatic drops in prices -Insurers sweeten the deal for young male drivers

Average cost of comprehensive car insurance – £678,decrease of 14.9% yr-on-yr
Comprehensive car insurance premiums fell 30.7% for males aged 17-20
17-20 yr old females see a yr-on-yr increase of 6.2%
Most expensive comprehensive car insurance premium in Inner London – £1,110
Average price difference between men and women is now only £27

The latest Confused.com/Towers Watson Car Insurance Price Index reveals the average quoted comprehensive premium for 17-20 year old males has fallen by a staggering 30.7% across the UK over the last 12 months. This is the biggest yr-on-yr decrease the index has ever reported in this group, seeing them now pay on average £2,493 for their comprehensive insurance.

After several years of soaring increases, car insurance prices have fallen dramatically. The average comprehensive car insurance price now stands at £678 as of Q2 2013, compared with £797 this time last year, a yr-on-yr decrease of £119 (-14.9%). For Third Party Fire and Theft cover, average premiums for Q2 stood at £1,109, showing reductions of 3.5% yr-on-yr with reductions of 5.2% quarter on quarter.

In the last 12 months, 17-20 year old males have seen their comprehensive car insurance premiums fall significantly by £1,103, falling from an average of £3,596 to £2,493. In stark contrast, females aged 17-20 are the only age group to see a yr-on-yr increase in comprehensive car insurance premiums, seeing an increase of 6.2%, paying an average of £1,995. This compares with £1,878 this time last year, representing a rise of £117.

Young female motorists have traditionally enjoyed much lower car insurance premiums than their male counterparts, due to the fact they were statistically less likely to make a claim. However under the EU Gender Directive, which took effect on December 21st 2012, insurers are no longer able to use gender as a factor when pricing insurance.

Despite being subject to hikes in car insurance premiums at the start of this year, women still enjoy lower prices overall than men, though the gap between genders does appear to be decreasing.

In fact, this price gap has reduced dramatically over the years; currently 17-20 year old males are paying £498 on average more than women for their comprehensive car insurance in Q2, 2013. This compares with the biggest difference seen in Q1 2011 where men aged 17-20 paid £1,787 more on average for their car insurance than women (£3,798 compared to £2,011).

Despite prices plummeting, 17-20 year old drivers in the UK are still being quoted average comprehensive car insurance premiums of £2,173, paying more than three times the average insurance premium (£678).

Men vs. Women – removing age from the equation

In Q2 2013, men have enjoyed an 18.4% decrease compared with this time last year, paying on average £690 for insurance. Women experienced a less impactful drop in premiums, with a decrease of 10% over the same period. As a result of these price changes, the difference between men and women’s car insurance premiums on average now stands at just £27.

This is a huge contrast to price differences seen this time last year, when men were paying £110 more than their female counterparts on average for their car insurance (£846 compared to £736).

How the picture looks regionally

The Confused.com/ Towers Watson Price Index also reveals that all regional areas are seeing a significant decrease. The biggest yr-on-yr decreases in insurance premiums in Q2, 2013 can be seen in Scotland, the North West and the North East. Even areas within the big cities such as London, Manchester & Merseyside are seeing decreases of more than 15%.

Regionally, the most expensive comprehensive car insurance premiums are in Inner London, where the average cost stands at £1,110. This is closely followed by premium prices in Manchester/ Merseyside, Outer London and the West Midlands where motorists can expect to pay in excess of £850 on average.

In contrast, North East & East Scotland enjoys the lowest comprehensive car insurance premiums paying on average £457.

At the opposite end of the spectrum men aged 17-20 in Manchester/ Merseyside areas have enjoyed significant price decreases of 32.7% on average. However, while insurance premiums continue to fall for this age group they are still left facing huge costs of up to £3,656 in Inner London for their insurance premium.

In the Scottish Highlands region male drivers aged 17-20 are quoted a more modest £1,878. But they are still paying £1,200 more than the average cost of comprehensive car insurance (£678).

Gemma Stanbury, Head of Car Insurance at Confused.com says:

“It will be welcome news that the second quarter of 2013 has brought car insurance premium reductions across the board. In fact we have seen a 15% decrease in comprehensive insurance premium, meaning cheaper prices all round for British drivers.

“There has always been a clear distinction between the cost of car insurance for men vs. women. But following the EU gender ruling the gap is almost diminished with a price difference of only £27, compared to a difference of £132 just a year ago.

“Unlike previous years younger drivers are no longer being singled out with price rises and are also enjoying dramatic price drops. In Q4 2010, 17-20 year old male drivers saw year on year comprehensive price hikes of 40.6%, in contrast to Q2, 2013 which sees them drop by a staggering 30.7%.

“We would recommend to all drivers to take advantage of these latest price drops if they are able to renew and not accept their renewal price, as the insurance market is highly competitive and can change fast. As the research shows, within three months, the average comprehensive car insurance premium has fallen by a significant £58.

“At Confused.com, we have more than 130 insurance providers competing for customers. So for all those drivers that have been impacted by these price movements and find themselves eligible for cheaper premiums, it would be worth shopping around for a new policy which could save them a considerable amount of money.”

0 28

Prudential Real Estate Investors announced today that Eric Adler has been named CEO of Prudential Real Estate Investors, succeeding Allen Smith. PREI, among the largest real estate investment management and advisory businesses in the world, is a business of Prudential Financial, Inc. (NYSE: PRU).

Smith, after 26 years of service, has announced plans to leave the company to become president and CEO of Four Seasons Hotels and Resorts. He will remain with PREI to assist with the transition until Adler takes the helm in September.

Eric AdlerAdler, currently PREI’s chief investment officer, joined the company in 2010 as head of its European operations. He was promoted to chief investment officer in January 2013 to oversee the company’s global investment and risk management processes as part of the company’s long-term succession plan. As CIO, he serves on PREI’s Global Management and Global Operating Committees and chairs the Global Investment Committee.

“Eric has proven himself a terrific leader, working closely with Allen to position the firm for growth around the world,” said David Hunt, CEO of Prudential Investment Management. “While we will miss Allen and wish him all the best in his new role, I am thrilled to have the depth of management talent that enables us to continue to build our business. Eric’s knowledge of global real estate markets brings a fresh view that will help us strengthen our current client relationships and build new ones as we seek to expand PREI’s business, particularly beyond its strong, well-known U.S. franchise.”

Before joining PREI, Adler, who was raised in the U.S, co-directed Tishman Speyer’s European activities and was a member of its Global Management and Investment committees. Earlier, he led Morgan Stanley’s MSREF’s activities in Germany, France, Italy and Spain. He also had overall operational responsibility for MSREF’s Special Situations Fund II. Before that, he worked for Credit Lyonnais and Unibail in Paris.

Adler graduated summa cum laude from the University of Arizona. He also holds a graduate business degree from HEC Business School in France.

PREI, which has been investing in real estate on behalf of institutional clients since 1970, is a leader in the global real estate investment management business, offering a broad range of investment vehicles that invest in private and public market opportunities in the United States, Europe, the Middle East, Asia, Australia and Latin America. Headquartered in Madison, N.J., PREI has other offices in Atlanta, Chicago, Miami, New York, San Francisco, London, Lisbon, Luxembourg, Munich, Frankfurt, Paris, Istanbul, Abu Dhabi, Mexico City, Sao Paulo, Beijing, Hong Kong, Seoul, Singapore, and Tokyo. In addition, PREI has representatives in Milan and is establishing a presence in Sydney (pending regulatory approval). As of March 31, 2013, PREI managed approximately $53 billion in gross real estate assets ($37.3 billion net) on behalf of more than 490 clients worldwide.

0 0

According to a new forecast report from Timetric, women and youth are two upcoming customer groups for retail banks. They are expected to drive growth in this sector. Timetric advises the banking industry to address their specific needs to achieve growth.

The needs of women customers are different from those of other customers. Women prefer to visit the bank in person and value the social aspect of service according to Timetric. Services aimed at them must focus on these personal interactions. More women-only branches and maternity-related services will make them feel valued.

An example is Bulbank in Bulgaria which opened a new branch for female clients. The bank was built to appeal to the female customer and focused on forming relationships with them. Women advisors were hired and the products were titled “Donna”. The branch catered to the banking needs of the modern woman.

Ajman Bank in UAE has also opened a women-only bank with seven branches in Abu Dhabi, and Dubai, Sharjah.

An emphasis on online banking benefits the younger customer

Young people are quick to adapt to new trends. According to a Timetric analysis, they use online and mobile tools frequently for their banking needs. Timetric suggests that a focus on web-based channels will benefit them greatly. The youth requires limited help in person and should instead be offered self service tools. Extended branch timings are useful for young people with late working hours.

Citibank launched the “Smart Banking” concept in their branches a few years ago. This was inspired by the Apple store and focused on customer innovations. The latest technology was brought in and advising hours extended for clients.

0 0

Earlier this month, the preliminary hearing was held for the Employment Tribunal, in which John McCririck is alleging that Channel 4 discriminated against him under the Equality Act 2010, on the grounds of age. He is claiming £500k in basic compensation plus a further £2.5m for unfair dismissal. Channel 4 is looking to reduce its financial liability by arguing that McCririck was a self-employed freelancer rather than defend against the accusation of age discrimination

Jelf Employee Benefit’s Head of Jelf Money after Work, Lee Coles said: “An employer attempting to justify direct age discrimination must point to a legitimate aim of a social policy or public interest nature and not just individual business interests. In the case of the media industry, employers may believe that their viewers prefer to see younger, fresher faces but they will struggle to prove that the sacking of older employees is not, in the main, anything other than a commercial decision.

“There will be other industries, where the age and appearance of employees are arguably part of the product being sold – for example high-street fashion stores and health clubs – that will need to tread very carefully when terminating employment contracts.  It remains to be seen what is deemed to be in the ‘public interest’ in future cases.

“Bottom line, some employees will want to carry on working for as long as possible, and as long as they are performing their role to an acceptable standard, their employer may simply have to accept the employee has the right to do so.

“Anti-age discrimination may well have introduced the unwanted consequence of making retirement a taboo subject. Employers feel they can’t ask any questions of the employee, and employees are concerned about possible consequences if they suggest they’re thinking of retiring.

“Better outcomes for both employer and employee can, however, be achieved through better communication, and workplace education can be the catalyst. Employees are more likely to commence an open dialogue about retirement where they can see a secure financial future and an attractive lifestyle beyond their current employment, and external specialists in this area are often best-placed to help with this.

“Whilst Channel 4 must have thought through the implications of their decision and whether or not McCririck benefits financially from his claim, employers and employees would do well to avoid finding themselves in a similar costly and stressful situation.”

0 7

AXA has announced today the departure of Dominique Carrel-Billiard, Chief Executive Officer of AXA Investment Managers and a member of the AXA Group’s Executive Committee, who has decided to leave the Group. He will be replaced by Andrea Rossi, Chief Executive Officer of AXA Assicurazioni, who will also join AXA Group’s Executive Committee. Frédéric de Courtois, Chief Executive Officer of AXA MPS, will take the lead of AXA’s main insurance operations in Italy.

Henri de Castries, Chairman & Chief Executive Officer of the AXA Group, very warmly thanked Dominique Carrel-Billiard for his management of AXA Investment Managers over the last seven years: “Thanks to Dominique’s actions, AXA IM is well equipped to face the challenges brought on by the financial crisis, and today AXA IM boasts a solid balance sheet and strong investment performances. Growth is back, and the net positive flows recorded since June 2012 are continuing at an accelerated pace. The foundations on which AXA IM’s teams will continue to develop the company to serve our clients are therefore excellent. I wish Dominique all the best in his future endeavors.”

“It is with pride and gratitude for AXA IM’s teams that I look back on the last seven years during which I led them through extraordinarily tough market conditions. I thank them for their professionalism and their commitment. I would also like to thank Henri de Castries for the trust and support he gave me throughout these years. It was a very rewarding experience and I am now leaving AXA to pursue other professional projects. I would like to offer Andrea and all AXA IM employees all my best wishes for their future successes” said Dominique Carrel-Billiard.

Andrea Rossi is appointed Chief Executive Officer of AXA Investment Managers and will join AXA Group’s Executive Committee. He has been Chief Executive Officer of AXA Assicurazioni since 2008.

Commenting on this appointment, Henri de Castries said: “AXA Investment Managers is a truly great company and I am fully confident in Andrea’s ability to lead it towards a new development stage. Throughout the various positions he has held across the AXA Group, he has demonstrated strong leadership skills, and I know he will be able to rely on the quality of AXA IM’s teams to develop trust-based relationships with our clients, distributors and partners. I am also looking forward to benefiting from his experience and dynamism within our Executive Committee.”

Frédéric de Courtois, Chief Executive Officer of AXA MPS, the bancassurance subsidiary of AXA in Italy, will be appointed Chief Executive Officer (amministratore delegato) of AXA Assicurazioni and will oversee the main insurance operations of AXA in Italy.

Jean-Laurent Granier, Chief Executive Officer of the Mediterranean and Latin America Region of AXA, a member of AXA Group’s Management Committee, said: “I would like to very warmly thank Andrea for the tremendous work he accomplished over the last several years to transform AXA Assicurazioni into a dynamic and profitable company, leaving it prepared and ready to face the new challenges of the industry. I have great faith in Frédéric’s ability to lead all of our insurance operations in Italy. His leadership skills and knowledge of the Italian market make him the ideal person to take on this challenge. AXA MPS and AXA Assicurazioni already work closely together on numerous projects and, while preserving their respective identities, Frédéric will pursue this fruitful collaboration to support AXA’s development in Italy, in the best interests of our clients and distribution networks. I wish him all the best in this new enlarged role, and I know that he can count on AXA Assicurazioni and AXA MPS’s teams to successfully carry out this project.”

These appointments will be effective July 22nd, 2013.

0 0

The CII has announced that it is reviewing the existing standards and eligibility criteria for corporate Chartered titles (CCT) to ensure they continue to underpin customers’ expectations of a Chartered firm.

Chartered has been hugely successful in encouraging professionalism in the insurance and financial planning sectors and against this background the CII will be launching an open consultation next month so that firms can express their views on a long term vision for corporate Chartered titles.

The initial phase of the review has seen the CII undertaking a series of one to one interviews with stakeholders from across the insurance and financial planning sectors as well as facilitating a series of focus groups with consumers and SME’s. The feedback from this early fieldwork will be published next month as an open consultation with members, non-members and other stakeholders invited to share their thoughts on what the standards and criteria that underpin corporate Chartered status could look like in the future.

Amanda Blanc, president of the CII and a Chartered insurer, said, “Chartered is widely recognised by customers as the ‘gold standard’ and has been hugely successful in encouraging firms to embrace the challenges of professionalism. The CII is mindful of the importance of ensuring that any future CCT scheme is able to withstand robust scrutiny from the public.

“Consequently any long term vision for Chartered must support the CII’s mandate to ‘secure and justify the confidence of the public’ in the insurance and financial planning sectors and recognise the importance of maintaining the reputation of the Chartered brand.”

The CCT review was commissioned by the CII Board. The development and progress of the review is overseen by the PFS Board and the Professional Standards Board (PSB).

0 24

KPMG welcomes the revised proposals on insurance accounting published by the IASB.

“The new accounting model for insurance contracts proposed by the IASB would introduce more volatility to the profit and loss account but more accurately reflect the risks and liabilities undertaken by insurers, bringing insurance accounting into the 21st century – but not without a cost. The level of change and the complexities associated with implementing these proposals should not be underestimated. Insurers would be likely to feel the consequences throughout their organisations. The devil is in the detail and the scale of change would depend on the accounting bases that insurers use today.”  according to Gary Reader, KPMG’s global insurance advisory leader.

The issuance of the proposals marks a major step towards implementing a common insurance reporting framework across much of the world. The debate has run for more than 15 years and the conclusion of the insurance project is now in sight.

Frank Ellenbuerger, KPMG’s global head of insurance, commented: “The IASB has made great efforts to improve the proposals by addressing the key concerns of constituents while retaining the objective of a current value basis for measuring insurance contract liabilities – bringing a final IFRS for insurance a great deal closer. The length of the debate on the insurance project indicates there is not a single model that will please everyone. The proposals are likely to be complex and this is the last chance for insurers and users to influence the outcome of the project. Given the current diversity in practice, KPMG considers it essential that the IASB finalises a global insurance standard.”

Joachim Kölschbach, KPMG’s global IFRS insurance leader, commented: “The IASB’s proposals would affect the way in which insurers report their profitability and financial position and would likely result in an overall increase in volatility in profit or loss and equity for most insurers as a result of having to continually remeasure insurance contract liabilities at a current value, rather than on an historical cost basis. Some of the remeasurement will be through other comprehensive income  (OCI) and the extent to which this mitigates volatility in profit or loss and equity would be highly influenced by whether financial assets which are linked to the insurance contract liability under proposed revisions to IFRS 9 Financial Instruments are measured at fair value through OCI, fair value through profit or loss or amortised cost.  The need to consider the implications for asset-liability management would be accelerated, as the requirements of IFRS 9 are currently expected to come into effect before the insurance proposals.”

In addition, those insurers writing long-term life business with options and guarantees may need to report changes in these items’ value in the income statement. As a result, there may be debate as to whether other changes in the insurance liability should also be presented in OCI  and about the residual volatility expected in both earnings and equity.

The re-exposure also introduces a new presentation approach for both the statement of profit or loss and OCI and statement of financial position, which would dramatically change the way insurers – especially life insurers – report performance. Insurance contract revenue would be allocated over the coverage period in proportion to the value of the services provided in each period, which would be completely different to the premium figures presented today.

Kölschbach continued: “This would be the biggest ever financial reporting change for most insurers – far surpassing the adoption of IFRS. The extent of change would be far-reaching, and there is no question that insurers’ financial statements would look very different compared to today.

“The current lack of consistency in the way different insurers report their financial results makes it difficult for analysts and investors to analyse and compare insurers’ performance. A new global standard for insurance accounting would mean a big improvement in transparency and consistency, with benefits for both investors and the industry. This would be a new world for insurance – a world in which financial reporting metrics and stakeholders’ perceptions of insurers would change.”

The proposals would be likely to result in greater emphasis on the entire statement of profit or loss and OCI rather than just profit or loss. These changes to the accounting and financial reporting requirements would need to be explained to analysts, investors and other stakeholders.

Insurers may have to contemplate major changes to data and systems, education and communication to stakeholders and changes to asset-liability management. Profit profiles and product offerings may be impacted and insurers would need to ramp up resourcing in the finance and actuarial functions. However, some insurers would be able to re-use and repurpose current efforts to implement accounting change for financial assets and for regulatory purposes. For example, insurers in Europe may be able to find efficiencies with the implementation of their Solvency II models.

Reader summarised: “If insurers start planning now, the wave of change could open up opportunities for synergies in areas such as data collection, modelling capability and investment in systems and resources. The bottom line is that the technical aspects of the proposals would need to be made operational.”

The comment period for the proposals expires on 25 October 2013.

0 26

As announced in April’s Budget statement, the Government proposes to introduce a new childcare voucher system from 2015. Yet research* from Jelf Employee Benefits found that over a third (36%) of employers who currently offer a childcare voucher scheme are considering scrapping their existing scheme long before the replacement system is finalised or available.  Jelf is concerned that such a decision by employers may, in extreme circumstances, force some employees to re-evaluate whether they are financially able to continue working.

Steve Herbert, head of benefits strategy, Jelf Employee Benefits said: “With more than 2 years before the proposed replacement scheme is available, it’s difficult to see why employers would want to remove their Childcare Voucher offering earlier.  Although the percentage of employees who use this benefit is relatively low, for those that do, it is often a key incentive, and an important bridge to meeting the ever growing costs of childcare in the UK.  If employers remove this benefit now, they risk losing key employees, and disengaging many others.”

Jelf is also highlighting that there are some key changes between the existing schemes, and the proposed replacement in 2015. The new system is intended to only be available to two parent families where both parents work, and is only initially targeted at children under age 5, whereas the current system is available for two parent families with only one income, and for most school age children.  It is proposed that those who will be worse off under the new system will be able to retain their existing rights, yet crucially this may only be available where employees are able to continue to save in their current provision in the run up to the 2015 change.

Herbert continued: “If employer’s pull the plug on their Childcare Voucher offering  prior to the commencement of the new system, they are condemning their workers to a period with no Government support for this significant daily cost, and also potentially preventing some parents from ever again being able to achieve such support in the future. Jelf would therefore strongly urge employers to consider the implications to both employees and employer before any decision to remove Childcare Vouchers is taken.”

0 23

KPMG has concerns as to whether the recommendations from the long-term guarantees assessment impact study will be mutually satisfactory to all parties, and hence whether the insurance industry will be saved from further delays to the Solvency II timeline. 

The study, which was completed by insurers across Europe, tested the application of Solvency II to products with attaching long-term guarantees – a topic of long debate. Since 31st March, when the results were due in, the European Insurance and Occupational Pensions Authority (‘EIOPA’) has been analysing the results in order to recommend potential solutions to this debate.

EIOPA has now publicly disclosed its letter of recommendations to the European Commission which include detailed analysis of the results of the study and rationale for their proposals. The key recommendations are to replace the counter cyclical premium with a volatility balancer which will be formulaic and hence predictable; to converge to the ultimate forward rate after a long period of time (e.g. 40 years); and to implement the strictest form of matching adjustment only.

Peter Ott, European Head of Solvency II at KPMG, was pleased to see some areas of clarity in the proposal – but was also concerned as to whether the proposed solutions go far enough to ensure that all parties are satisfied and hence further the debate.

Peter Ott said: “Although the “volatility balancer” concept will add some much needed predictability to the issue of volatility in unstable market conditions, the suggested magnitude is unlikely to be large enough to be fully effective. Coupled with the suggestion of a long convergence period, it is likely that certain European countries will look very unfavourably at the EIOPA proposals.”

EIOPA also specifically proposes to exclude the ‘extended matching adjustment’ which would have allowed credit for a wider variety of products and asset types than the narrower ‘classic matching adjustment’.

Nick Dexter, KPMG’s Head of Solvency II for the UK, commented: “The proposal to include the classic matching adjustment will be somewhat bittersweet for UK and Spanish companies. Whilst it is the narrowest form of matching adjustment tested, and therefore provides the lowest solvency benefit, it will at least be preferential to no allowance at all for matched assets held to maturity, which was the position we were in a few years ago.

“The proposal for a longer convergence period appears justified, given the recent concerns about the volatility introduced by a short convergence period and hence the disconnects between the market and the model. I think some European countries will still call for a short convergence period, so this conclusion will not necessarily ease the debates that will follow.”

Although the EIOPA report has been delivered in a timely manner, the proposals may not yield the preferred outcome of an agreed and signed Omnibus 2 Directive by the end of this year.

Nick Dexter concluded: “Although the European Parliament plenary vote on Omnibus 2 was pushed back to October to accommodate the findings of this study, new concepts such as the volatility balancer may require further testing, resulting in further delays. In addition, the proposed matching adjustment is effectively the same as that in previous drafts of the Directive and hence it may be viewed that the debate has not moved on. It could therefore be difficult for all European parties to reach a mutually agreeable conclusion this year.”

0 1

The European Insurance and Occupational Pensions Authority (EIOPA) has published today its Technical Findings on the Long-Term Guarantee Assessment (LTGA).

EIOPA conducted the assessment at the request of the Trialogue parties (the European Parliament, the European Commission and the Council of the EU) as input to the political discussions on finalisation of the Omnibus II Directive. The LTGA tested the so-called Long-Term Guarantee package – a set of potential measures aimed at ensuring an appropriate supervisory treatment of long term guarantee products, under volatile and exceptional market conditions.

EIOPA concluded that the final Long-Term Guarantee package to be included in the Solvency II framework should fulfil a number of principles in order to ensure a high degree of policyholder protection, as well as effective supervisory process: – Alignment with the Solvency II framework and the economic balance sheet concept; – Full consistency and comparability in order to enhance the single market; – Efficient linking of all the three pillars (quantitative basis, qualitative requirements and enhanced reporting and disclosure); – Proportionality and simplicity; – Adequate treatment of transitional issues. On the basis of the assessment and the outlined principles, EIOPA supports the inclusion of some of the measures tested: Extrapolation, “Classical” Matching Adjustment, Transitional measures and Extension of the Recovery Period, with slight amendments to provide the right incentives for sound risk management. EIOPA advises to exclude the so-called Extended Matching Adjustment on the basis that it would not provide sufficient policyholder protection and would be unduly difficult to supervise. In addition, the Counter-Cyclical Premium was judged to be likely to have an adverse financial stability impact due to the way it would be triggered, as well as the perverse impacts on undertakings’ solvency requirements that it generated.

As a consequence, EIOPA advises to replace the CCP with a simpler, more predictable measure, the Volatility Balancer, which would deal with the unintended consequences on undertakings’ capital requirements of short-term volatility.  EIOPA further recommends that the impact of the application of the measures on the solvency position of individual undertakings be publicly disclosed as part of the normal disclosure process.  EIOPA’s Technical Findings on the Long-Term Guarantee Assessment and all the relevant documentation can be accessed here: https://eiopa.europa.eu/consultations/qis/insurance/long-term-guarantees-assessment/index.html

0 0

Fitch Ratings has affirmed Royal & Sun Alliance Insurance Insurer Financial Strength (IFS) rating at ‘A’ and Long-term Issuer Default Rating (IDR) at ‘A-‘. The agency has also affirmed RSA Insurance Group plc’s Long-term IDR at ‘BBB+’. RSA Insurance Group plc is the group’s top holding company and RSA is its main operating entity. The Outlooks on the IFS rating and IDRs are Stable. The subordinated debt and capital securities guaranteed by RSA (GBP500m 2039, GBP450m perpetual, and GBP375m perpetual) have been affirmed at ‘BBB’.

KEY RATING DRIVERS

RSA’s ratings reflect the group’s solid operating profile, strong business franchise and growing geographical diversification. The ratings also take into account the insurer’s ability to maintain strong underwriting profitability through the cycle, its prudent reserve levels and its low risk investment portfolio. Fitch considers that these strengths to some extent compensate for a capital position that looks weaker than similarly rated peers.

RSA’s level of capital, as assessed using Fitch’s risk-adjusted method, is somewhat below that expected for the insurer’s rating level, with coverage showing a modest deterioration in recent years, largely due to growing premium volumes. RSA’s own economic capital surplus figures and insurance groups directive (IGD) surplus also indicate a decline. For the rating to be maintained at the current level, Fitch would expect to see a reversal of this trend. In this respect, Fitch considers the reduction in the dividend payout ratio as positive for the ratings because it should allow RSA to retain more funds to strengthen its capitalisation. It will also be necessary for growth in retained earnings to exceed growth in the capital charges associated with larger premium volumes.

Fitch views RSA’s stable earnings generation, with solid underwriting controls, as a positive rating factor. For 2012, RSA reported another year of strong underwriting performance: its combined ratio remained fairly stable at 95.4% (2011: 94.9%). This outcome reflects RSA’s consistently solid management of its operations. In a context of continued expansion abroad, RSA’s operations in overseas and emerging markets also delivered a stable positive technical result. In 2012 its emerging market combined ratio improved to 96.9% (2011: 98.7%), reflecting strong premium growth and controlled expenses.

Fitch views the continued geographical expansion and increased revenue and earnings diversification of RSA’s business positively. RSA has successfully diversified its premium income away from the historically core UK market and in recent years most of its operating profits have been generated outside the UK. Recent acquisitions have, however, led to an increase in goodwill and intangibles, negatively affecting the quality of RSA’s capital.

RSA continues to adhere to a conservative investment strategy, with a focus on high quality, fixed income instruments. The agency expects the prolonged low interest rate environment to result in lower investment income and consequently put pressure on earnings.

RATING SENSTITIVITIES

Key triggers for a rating downgrade would include: a significant and sustainable deterioration in RSA’s capitalisation as measured by Fitch’s risk-adjusted capital assessment and IGD coverage of 1.7x or below (2012: 1.9x).

A significant deterioration of underwriting performance (i.e., a group combined ratio consistently above 103%) would also trigger a downgrade, as Fitch views this metric as one of RSA’s key strengths.

Fitch views RSA’s financial leverage and fixed-charge coverage as being in line with the rating level. However, if financial leverage increased consistently above 35% or fixed-charge coverage fell below 3x, this could lead to a downgrade.

A material and sustained improvement in the company’s capital position, as measured both by Fitch’s own risk-adjusted assessment and IGD coverage of 2.2x or more, could lead to an upgrade.

    0 1

    Friday’s revised Solvency II proposals for European insurers offer no prospect of an end to the long-running dispute between regulators and insurers over suitable capital levels for products with long-term investment guarantees, Fitch Ratings says.

    The latest proposals from the European Insurance and Occupational Pensions Authority (EIOPA) contain some concessions on capital requirements for when bond markets are particularly volatile. But the industry is unlikely to be satisfied by this, given the potentially significant extra capital that might still be needed to support business with investment guarantees. These products are an important part of insurers’ business in several European markets, particularly Germany.

    EIOPA’s proposals follow its Long-Term Guarantees Assessment, an industry study designed to clarify appropriate capital requirements for long-term guaranteed products under volatile and exceptional market conditions. However, we understand that several major insurers consider the study to be inconclusive because the scenarios underlying the assessment were not, in their opinion, meaningful.

    We expect the latest proposals will be just a starting point for more negotiations, potentially leading to further impact studies before any final decisions are made. The process is at risk of extending beyond the end of the current European Parliament and European Commission next year, which could lead to even longer delays as a new set of politicians would have to take over the process of bringing Solvency II into force.

    In Fitch’s view, Solvency II itself – and deliberations over Solvency II proposals – are unlikely to have any significant impact on insurers’ balance sheets in the next few years because of the timescale involved in finalising and then phasing-in new rules. We do not therefore expect Solvency II to have an impact on insurers’ credit ratings during this time.

    0 26

    AXA Assistance UK  has extended its trading partnership with insurance broker Insurance Choice by providing misfuelling insurance as part of an enhanced motor breakdown service for its motor insurance portfolio.

    The new deal sees AXA Assistance UK include misfuelling insurance as a standard part of the breakdown cover for cars, taxis, mini-buses, couriers and motor homes insured through Insurance Choice. AXA Assistance UK has been providing Insurance Choice motor customers with roadside recovery and homestart services across the UK and Europe since 2010.

    Misfuelling insurance covers the costs of draining and removing contaminated fuel either at the roadside or taking the vehicle to the nearest garage. Putting the wrong fuel in a vehicle is one of the most frequent factors behind vehicle breakdowns with around 150,000 UK motorists making the mistake every year.

    Paul Moloney, Head of Account Management at AXA Assistance UK, said: “We work hard with our clients to identify opportunities to further enhance our offerings to their customers. Additional elements of cover such as misfuelling insurance provide valuable benefits that respond to real customer need.”

    Russell Bence, Head of Retail at Markerstudy Group, which owns Insurance Choice, said: “AXA Assistance UK has demonstrated its commitment to providing our customers with cover to suit them and a high quality service. Building on our partnership in this way means we can ensure our customers have the best experience possible in the event of a claim.”

    0 26

    Xbroker has extended its panel of capacity providers to include Alpha Insurance A/S in collaboration with Swiss Re.

    The new capacity enables Xbroker, part of the Moorhouse Group, to expand its motor offering to brokers to include motor fleet for self-drive hire, haulage and couriers. The new capacity fits with Xbroker’s strategy of expanding its range of innovative insurances to brokers, particularly in underserved areas such as courier.

    Xbroker is also in the process of recruiting a senior motor fleet underwriter to help administer the new capacity. Further Xbroker expansion is planned with the launch of a range of new products over the coming months.

    The new capacity has been added at a time when the motor fleet market remains immensely competitive.  While Xbroker does not compete with the composite market for standard car and van business, the Xbroker Motor Fleet product allows brokers direct access to an underwriter to place risks that would otherwise go into the London market.  This allows brokers to develop a much closer relationship directly with the underwriters.

    Karl Railton, head of underwriting and propositions at the Moorhouse Group said: “Joining forces with Alpha and Swiss Re will enable us to better target risks within motor that brokers often have difficulty finding a market for. Blending our specialist underwriting experience, the high degree of flexibility Alpha provides and the strength of Swiss Re we are able to provide a competitive and sustainable market to brokers for niche motor fleet risks.”

    0 0

    Arc Legal Assistance (Arc Legal) has welcomed the publication of the Financial Conduct Authority (FCA) Thematic Review of motor legal expenses insurance (MLEI) but believes that the emergence of new products and business models needs ongoing Regulator scrutiny to ensure consumers’ needs are meant.

    Richard Finan, Director of Arc Legal, said: “We fully support the FCA’s position and have championed for a number of years the benefits of a proper MLEI policy, and that these benefits need to be made clearer to end consumers.

    “However, the Thematic Review was conducted prior to the changes brought about by LASPO and fixed recoverable costs, and therefore doesn’t consider the impact of the new MLEI products and models being introduced to the market. This growth demonstrates the ongoing need for clearer information to be provided to customers over what their policy does and doesn’t cover. As a result, there is due reason for the FCA to accelerate the follow up review. “

    Speaking about the challenges the sector is likely to face as it moves away from opt-out sales methods, Finan commented: “Despite everyone’s efforts to ensure customers are fully informed of the benefits of MLEI at the point of sale, conversion levels will reduce. This does have the potential to result in customers becoming involved in motor related litigation without adequate insurance for legal costs.

    “In the post LASPO world this is likely to result in these customers, without BTE cover, having to ‘top up’ their solicitors’ costs out of their damages.”

    0 26

    The floods in Germany are likely to be even costlier than those in 2002, Fitch Ratings says. If flooding progresses as it has in the past, economic damage in Germany is likely to be around EUR12bn, with gross insured losses of between EUR2.5bn and EUR3bn. However, the insurance sector is likely to remain in underwriting profitability, meaning the impact on insurers’ credit profiles should be minimal.

    Most claims are likely to be on homeowners’, contents and motor insurance policies, as well as business interruption insurance. Insurers with high market shares in the homeowners’ and contents sectors are likely to be the hardest hit. These include most public sector insurers in western Germany, including Versicherungskammer Bayern and the Sparkassen Versicherungen, and Allianz in the east of the country. Insured losses are likely to be significantly below the total economic damage because many residents in areas prone to flooding will not have been able to obtain natural hazard cover in their home or contents insurance, or only at a prohibitively high price.

    On average about 32% of all home insurance policies in Germany include natural hazard cover. However, there are large regional differences. Among the areas currently affected by the floods, Bavaria has the lowest level of natural hazard cover (21% of policies). In Saxony the level is 42%. Within these regions, coverage may be even lower in locations that are particularly susceptible to flooding.

    Annual claims across the sector are around EUR50bn a year, so flood claims are likely to be 5% to 6% of the annual total. This would, on average, add between 3.5 and 5 percentage points to an insurer’s gross combined ratio. Reinsurance will cushion this impact, with typical excess-of-loss reinsurance cover reducing the impact on the net combined ratio to between 2 and 3 percentage points. We estimated the net combined ratio in 2012 to have been 96%-97%.

    Overall, the underwriting result for the sector is likely to remain stable in 2013, factoring in increased premiums.

    0 0

    Bluefin has appointed Sarah Hewitt as Head of Client Services in London, with immediate effect.

    As Head of Client Services Sarah will manage the team of Corporate Account Executives and be responsible for the overall service delivery within the London branch. Sarah will report to Peter Anscombe, the interim Branch Director of Bluefin’s London office.

    Sarah joins from Marsh, where she undertook a variety of roles, most recently as Head of Office for Marsh (Isle of Man) Limited and previously as Client Executive Leader and Client Service Director for the Marsh London office.  Prior to this she worked for Reid Hamilton Insurance Brokers.

    Sarah Hewitt said: “I am delighted to have joined Bluefin, the Corporate Division is growing and the opportunities for the business are significant. I look forward being part of its continued success.”

    Peter Anscombe, Branch Director of Bluefin’s London office, commented: “We are thrilled to welcome Sarah to Bluefin. Her experience and expertise, particularly in delivering the highest levels of service to corporate clients, is a great addition to the team and a great asset as we develop and enhance our client service offering.”

    0 27

    To mitigate rising health care costs, an increasing number of companies are considering adopting strategies that will improve the way they pay for health care services in the future, according to new survey data by Aon Hewitt.

    According to Aon Hewitt’s survey of nearly 800 large and mid-size U.S. employers covering more than 7 million employees, 53 percent said that moving toward provider payment models that promote cost effective, high quality health care results will be a part of their future health care strategy, and one in five identified it as one of their three highest priorities.

    “As health care costs continue to rise, a growing number of employers want to ensure that the health care services they are paying for are actually leading to improved patient outcomes,” said Jim Winkler, chief innovation officer for Health at Aon Hewitt. “Just as employers are being more requiring of their employees to take control of their health, employers are seeking to hold providers more accountable. They are beginning to work directly with health plans to embrace more aggressive techniques to reduce unnecessary expenses and create more efficiency in the way they purchase health care.”

    According to Aon Hewitt’s survey, the ever-shifting health care landscape has created a broad array of tactics that employers are considering:

    Increasing Focus on Pay for Performance Models

    Thirty-one percent of employers said they decrease or increase health care vendor compensation based on specific performance targets, and another 44 percent are considering doing so in the next three-to-five years. Additionally, while just 14 percent of employers currently use integrated delivery models, including patient-centered medical homes, to improve primary care effectiveness, another 61 percent plan to do so in the next few years.

    “Vendor accountability models are moving beyond process-based metrics, such as customer service call answering speed, and shifting to ones that focus on fees at risk for clinical health risk improvement and overall medical spending increases,” said Tim Nimmer, chief health actuary for Aon Hewitt.

    Growing Interest in Reference-Based and Value-Based Pricing Models

    While utilization is low today, Aon Hewitt’s survey revealed a growing number of employers also are interested in adopting reference-based and value-based pricing models in the next three-to-five years:

    – While just 8 percent of companies today limit plan reimbursements to a set dollar amount for certain medical services where wide cost variation exists, almost two-thirds (62 percent) are considering adopting this type of reference-based pricing model in the future. According to Aon Hewitt, this type of approach has been commonplace for prescription drug coverage, with many employers requiring participants to pay the full cost difference between a brand name drug and its generic substitute.

    – Fifty-nine percent of employers plan to steer participants—through plan design or lower cost—to high-quality hospitals or physicians for specific procedures or conditions.

    – Thirty-eight percent of companies plan to participate in cooperative purchasing efforts with other employers or groups (coalition-based pricing). Twenty-one percent do so today.

    “Employers are increasingly gaining comfort with the notion that they do not need to pay for the wide cost and quality variations that exist in today’s health care system,” said Winkler. “Their efforts to reduce inefficiency and shift the payment focus toward services and providers that produce higher quality outcomes is only just getting started. It is a shift that our health care system certainly needs.”

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