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14 September 2017 Insurance

The inaugural Intelligent Insurer Editor’s Choice Awards

At a time of unprecedented change for an industry buffeted by disruptive forces the like of which it has never experienced before, Intelligent Insurer decided to introduce a new set of annual awards designed to recognise, celebrate and explain some of the most important deals, innovations and other changes the industry has experienced in the past 12 months.

We make no excuse for the fact that these highlights are chosen by Intelligent Insurer’s in-house editorial team—and that the final decisions are those of the editor alone. We spend all day, every day, discussing, covering and writing about the risk transfer industry. If something important has happened, we know about it. On that basis, this is our pick of the most important and game-changing moments we have seen over the past 12 months.

We have chosen categories that we feel are able best to reflect the dynamic innovation and change currently taking place in the industry. It has been another big year for consolidation in the industry with many small deals occurring but also some very big game-changers.

The insurtech market continues to gather momentum—or hype, depending on which side of the fence you sit. What is interesting is the difference in the strategies large reinsurers and insurers are adopting to ensure they stay abreast of changes in this market and, they hope, lead from the front when a new technology gains traction.

This has meant the bigger and more ambitious players are making equity investments in some insurtech startups, several of which are highlighted in these awards. The fact is, there will be winners and losers in the insurtech world and as re/insurers place their bets, some will win in a big way and others may lose their stakes completely.

We have also seen some big changes in the upper echelons of the industry this year. Several industry legends are unable to tear themselves from the coalface to the golf course and are now holding
the reins of some of the world’s most influential insurers again. We assess and celebrate their moves.

There is also a big move towards re/insurers exploring new product lines and areas of growth that may in some way compensate for the tough market conditions and premium shrinkage they are experiencing in some of their traditional lines of business. We admire the boldness of some players and will watch their progress with interest.

Meanwhile, alternative capital continues to make an impression in the industry in the form of capitalising sidecars, investing in innovative ILS deals and other risk transfer mechanisms. This will continue and continue to reshape the industry. Re/insurers cannot ignore it and most are embracing it in every way they can.

The industry is going through a period of rapid change and those who look best placed and most willing to adapt are recognised in these awards. There will be winners and losers. As change management expert Campbell Macpherson says in a piece on page 34: “Change may indeed be inevitable. Successful change, however, is not.” Only time will tell whether those we have recognised here will succeed or fail in their endeavours.

As always, we welcome feedback and debate.

Merger/acquisition of the year

Winner: Fairfax’s acquisition of Allied World

After something of a lull in terms of big deals in 2016, the last nine months have not disappointed those with an interest in seeing—or facilitating—consolidation among reinsurers. There have been a couple of very big deals including the acquisition of Endurance by Sompo (see next page) and Fairfax’s acquisition of Allied World, which are of a size to change a few cedants’ panels if not the industry as a whole.

There has also been a plethora of smaller M&A of significance. Noteworthy are AXIS Capital’s $600 million acquisition of Novae, Hannover Re’s acquisition of Lloyd’s business Argenta, AIG’s deal to acquire Hamilton USA, PartnerRe’s acquisition of Aurigen and the acquisition of Asia Capital Re by two Chinese investment funds.

We plumped for the acquisition of Allied World Assurance Company by Canada-based Fairfax Financial Holdings for $4.9 billion in cash and stock as our deal of the year.

Despite the many drivers of consolidation in the industry at the moment, this looks like a gutsy and brave deal by Fairfax. It is the biggest in the company’s 31-year history and represents an endorsement of both Allied World and the traditional reinsurance model while also betting on faster growth in the US economy under Donald Trump.

Prem Watsa, Fairfax chairman and CEO, said he expects the Trump administration to boost GDP growth in the US allowing Fairfax to benefit from Allied World’s large exposure to the US market. He believes that Trump’s policies of reducing taxes, bureaucracy and regulation while incentivising infrastructure spending will have the desired effect.

Allied World generates 79 percent of its $3.1 billion of its 2015 gross written premiums from the North America market. Through the acquisition, Fairfax will become the fifth largest US excess & surplus lines writer by direct premiums written.

Watsa was also clear about the significance of the deal to Fairfax. “This transaction is transformative for Fairfax and will be the largest and best company Fairfax has purchased over 31 years,” he said.

He also praised the track record of the company he is buying, saying he sees Allied World as a good acquisition because of what he called the outstanding track record of the company under CEO and president Scott Carmilani and his team since the company’s inception 15 years ago.

In the 12 months before September-end, Allied World generated a net income of $298 million. This compares to Fairfax’s $443 million.

Another driver for the acquisition is size and scale, which Carmilani said will give Allied World a competitive advantage.

The companies’ combined gross premium written were $11.7 billion in 2015, of which 57 percent were generated in casualty, 30 percent property and 13 percent specialty. Together with Allied World, Fairfax will become the seventh largest North American insurer by market capitalisation excluding Berkshire Hathaway.

Insurtech launch

Winner: Bought By Many

There have been a lot insurtech launches in the past 12 months but we like the concept behind this one—and the fact it has raised a bagful of money from blue chip backers.

Bought By Many uses social media and search data to offer “insight-driven insurance” to customers. It has developed a proposition enabling individuals with specific insurance needs to get better insurance offers from existing providers through collective buying power. Examples include pet insurance for rare breeds and travel insurance for people with medical conditions.

The company has also secured £7.5 million of funding from companies including Munich Re, which also has a long-term insurance agreement with the firm. The latest funding round was led by Octopus Ventures, with Munich Re/HSB Ventures participating, as well as existing Bought By Many investors.

Strategic acquisition of the year

Winner: Sompo’s acquisition of Endurance

The difference between this and Merger/acquisition of the year? Not much, but we wanted to recognise the importance of both deals and this deal was a critical one for Sompo Japan Nipponkoa, potentially propelling it into the international re/insurance landscape and giving it the platform from which it can now target more deals and very ambitious growth.

The detail was that Sompo acquired Bermuda-based Endurance Specialty Holdings for $6.5 billion. Endurance had been seeking greater scale for some time while Sompo became the latest Japanese insurer to seek diversification away from the domestic market in Japan by making an acquisition.

Following the acquisition, Sompo launched a fully integrated global commercial insurance and reinsurance platform based in Bermuda, which has been named Sompo International. The new corporation will have its own board, led by John Charman as chairman and CEO, reporting to the Sompo CEO Kengo Sakurada.

The new underwriting platform will include Endurance and encompass Sompo’s existing international commercial re/insurance businesses.

Sompo has been clear about its ambitions, targeting a top 10 spot globally in reinsurance. A desire to access the US market was a big driver behind the deal and the Japanese company said further deals could be in the pipeline.

“We are trying to become one of the top ten in the global enterprises and to do that we still have a gap. The Endurance transaction is not enough to fill this gap,” the company said. “In terms of mid-term perspective we do not deny the possibility of further acquisitions.”

MGA launch

Winner: Arma Underwriting

The managing general agent (MGA) market has been heating up in recent years as re/insurers look to put capacity to use. This has allowed innovative and entrepreneurial underwriters to go it alone while also embracing the latest technology on offer to set themselves apart.

The Arma Underwriting deal was unusual in its partial focus on reinsurance, ambitious in the leadership it has recruited and outward-looking given its base in the Dubai International Finance Centre.

Arma intends to underwrite a broad spectrum of business lines, backed by Lloyd’s capacity. The MGA will be under the leadership of Michael Rafter as CEO and will have an office in the Dubai International Finance Centre led by Hajar Fadel as senior executive officer.

Both Rafter and Fadel join Arma from Oman Insurance Company. They will be joined on the board by former AIG president and former CEO of Oman Insurance Company Patrick Choffel, with Asta’s CEO Julian Tighe and director of underwriting Simon Norton.

Asta, a third-party managing agent at Lloyd’s, has announced its investment in Arma and will support the company’s infrastructure including finance and IT.

Arma is an approved Lloyd’s coverholder that writes multi-line re/insurance business backed by A+ rated Lloyd’s security.

The company said that Arma intends to develop close relationships with brokers and cedants in Middle East and Africa markets, to target individual risks as well as portfolio-driven strategies. The initial business lines are property (including terrorism and jewellers’ block), liabilities, energy, personal accident and motor.

Startup of the year

Winner: Premia Group

This deal was testament both to the growth—and expected growth—of the run-off sector globally and the appeal Bermuda still has for investors forming new risk-transfer vehicles of any type.

Premia Group became the largest ever startup re/insurer dedicated to run-off when formed on Bermuda with more than $500 million in capital.

The Class 4 property/casualty reinsurer, focused on providing run-off solutions, raised $510 million from founding investors including Kelso & Company, a private equity firm, its co-investors, and an affiliate of re/insurer Arch Capital Group.

Arch will also serve as a key strategic reinsurance partner, allowing Premia to compete on the largest global run-off transactions, the company said. The remainder of the capital comes from other institutional investors, the Premia management team and senior members of Arch.

The new company was founded and will be led by reinsurance industry veteran Bill O’Farrell, the former chief reinsurance officer at Chubb (formerly ACE) who will serve as chief executive officer.

Premia’s leadership team will also include Scott Maries as chief financial officer and Joe Calandro as executive vice president, along with additional talented team members within its operating units.

Its first high profile publicised deal was a loss development cover for AmTrust Financial Services, which provides up to $400 million of reinsurance for adverse net loss reserve development in excess of AmTrust’s stated net loss reserves as of March 31, 2017, of approximately $6.59 billion. It covers AmTrust’s exposures through April 1, 2017.

Overall, this is significant because it could mark a sign of things to come for both Bermuda and the run-off sector and also indicate that investors are starting to see run-off as a valid investment opportunity just as perhaps they did ILS five years ago.

Insurtech investment of the year

Winner: Munich Re’s investment in Trov

Insurtech is the buzz word of 2017 but some reinsurers are putting significant sums of very real money to work as they bet on what the next big breakthrough will be.

California-based insurtech startup Trov closed $45 million in funding led by Munich Re’s venture capital arm HSB Ventures earlier this year. Sompo has also participated in Trov’s latest financing round through its wholly owned subsidiary Sompo Japan Nipponkoa and is partnering with Trov to offer its on-demand insurance exclusively throughout Japan.

Trov offers on-demand insurance, enabling users to buy insurance for specific products, for specific amounts of time through their smartphones. Users can turn insurance on and off with a swipe and also file claims through the app.

The recent financing round brings Trov’s total funding to just over $85 million. The new capital will be used for Trov’s global expansion and new product development atop its on-demand insurance platform, the company said in a statement.

In addition to its investment, Munich Re is expanding its strategic alliance with Trov to include underwriting throughout Europe, Asia and South Africa.

This deal is a fascinating one on many levels since it combines the cutting-edge innovation of a technology company targeting insurance with the money and expertise of the world’s biggest and one of its oldest reinsurers. It is exactly this sort of partnership that makes the future of risk transfer so exciting.

Disruptive force of the year

Winner: Lemonade

Where do you start with probably the most high-profile and disruptive startup the industry has seen in a decade? Embracing the concept of peer-to-peer insurance and artificial intelligence (AI), the company boasts a raft of high-profile insurance executives and is claiming that it is stealing business from traditional insurers on a daily basis.

It is enjoying a good start to business, growing its premium base rapidly. In April 2017, it reported a 4.2 percent share of the renters’ insurance market in New York and a 27 percent market share of first-time buyers.

The company is never one to shy away from making a splash and, as its CEO has pointed out, in homeowners’ insurance in the US, a 1.6 percent market share makes you a top 10 insurance company (see story on page 10).

The success of Lemonade is especially impressive because, despite the hype that has developed around anything termed insurtech in the past two years, very few startups of any description have gained real traction in the market, never mind real premium income and growth.

Lemonade looks like the real deal and its influence is likely to pervade the insurance markets and the way other carriers operate for many years to come.

ILS deal of the year

Winner: The World Bank’s pandemic cat bond

The ILS market is starting to come of age with new risks being securitised and new issuers coming to the market. The investor base has always been there. But the World Bank’s $320 million deal designed to fund the Pandemic Emergency Financing Facility (PEF) was innovative for more many reasons, not least the fact that it is designed so that funds can be released early enough to help stem or stop the spread of qualifying pandemics that occur. That is a bit like paying out ahead of a hurricane to prevent more damage, and it deserves accolades for innovation.

Taking a step back, this is also the first time that World Bank bonds are being used to combat infectious diseases. It is also the first time that pandemic risk is being transferred to the market to cover low-income countries.

The PEF was formed as part of a joint effort in response to the 2013–2016 Ebola crisis in West Africa, during which it took the affected countries and international community several months to mobilise the resources necessary for an adequate response.

The PEF’s structure combines funding from the insurance and reinsurance market with proceeds of catastrophe bonds issued by the World Bank. The mechanism is designed to allow funds to reach affected countries more rapidly, with the goal of making sufficient resources available early enough to prevent an outbreak from developing into a fully-fledged pandemic.

The insurance window will provide coverage of $425 million for an initial period of three years. The PEF covers six viruses that are most likely to cause a pandemic. PEF financing to eligible countries will be triggered when viruses reach a certain level of contagion, including number of deaths, the speed the disease spreads and whether the disease crosses international borders.

A number of re/insurers and brokers colluded on the deal, including Swiss Re Capital Markets as joint structuring agent and sole bookrunner. Munich Re Capital Markets was joint structuring agent and co-manager; GC Securities was co-manager; and the risk modelling was done by AIR Worldwide.

Investment in cyber capabilities (products and expertise)

Winner: Chubb

With good cyber underwriters—along with any underwriter who claims to understand cyber—now at a premium in the jobs market, there are few re/insurers that have not investing in building capabilities in this field in recent years.

Chubb seems to be taking things to a different level. As well as recruiting top talent, it has formed a standalone cyber risk business globally, launched a number of new products including one designed specifically for tech firms and a new end-to-end risk management solution for Europe.

Its new global cyber practice sits under division president Bill Stewart and is intended to deliver Chubb’s risk transfer, loss mitigation and incident response services for the rapidly evolving threats faced by businesses of all sizes and individuals.

Stewart is tasked with leading the development and implementation of Chubb’s strategy to deliver the next generation of full suite of property/casualty cyber insurance offerings, worldwide. He will collaborate with David Cowart, Chubb’s chief information security officer and the enterprise risk management team in developing cybersecurity best practices for the company.

Meanwhile, Michael Tanenbaum, executive vice president, North America cyber practice, will spearhead the practice in North America and report jointly to Stewart and Scott Meyer, division president, North America financial lines.

The move came not long after Chubb launched a new so-called MasterPackage solution for technology companies domiciled in the UK and Ireland which includes improved cyber coverage.

This is a comprehensive first and third party policy designed specifically to cater for the unique insurance needs of technology developers, producers and distributors operating in the middle market either domestically or on a multinational basis.

MasterPackage for technology companies includes, in one policy, all of the technology company’s property, business interruption, employers’ liability, public liability, product liability, professional indemnity and cyber covers.

Last year the insurer launched Cyber Enterprise Risk Management, an end-to-end risk management solution, designed to meet the needs of middle-market and larger companies as well as multinationals in Continental Europe and the UK.

Fund/sidecar launch

Winner: Limestone Re

Not too many new sidecars have been launched of late—most large re/insurers already use this form of alternative capacity in one form or another. An honorary mention should go to Hamilton Re, which formed its first collateralised reinsurance sidecar vehicle in the form of Turing Re with $65 million of capital in June.

This is worthy of mention partly because of just how innovative the Hamilton Group seems to be in terms of both its use of technology and data analytics and its close ties to AIG now that its founder has moved to take the reins there. TigerRisk Capital Markets & Advisory acted as the sole structuring and placement agent for Turing Re.

Marginally more significant is Limestone Capital, a segregated accounts vehicle formed on Bermuda by Liberty Mutual initially taking the form of a $160 million multiyear collateralised sidecar.

This deal is interesting because it will take risks written by Liberty’s US and Lloyd’s platforms and share them directly with third-party investors, effectively giving the insurer a source of fully-collateralised third-party reinsurance capacity, which it can control.

Perhaps more significant is the fact that Liberty previously used ILS as part of its risk transfer programme but retreated from the market citing the higher costs of doing this type of deal. Now, it has clearly found an alternative that works for it and this could be an approach that other big insurers will replicate.

Investment in terrorism capabilities (products and expertise)

Winner: XL Catlin

Like cyber, terrorism is a growing business for re/insurers and the market for expertise and new products has been hotting up as a result. XL Catlin has been busier than most in this space, acquiring talent, launching new products such as its Active Assailant, Loss of Attraction and Threat (ALT) insurance solution, and raising its terrorism insurance coverage limits to $250 million in the US on the back of what it said was businesses’ increased concerns about potential terror risks.

This coverage limit has now been increased by 25 percent, from $200 million previously. The company had doubled its $100 million initial offering in February 2016.

The standalone policy helps businesses address potential insurance coverage gaps provided by the federal Terrorism Risk Insurance Program Reauthorization Act (TRIPRA).

The ALT insurance solution responds to the impact of terrorism or an active assailant attack or the threat of an attack on the operations of businesses and public service providers. The company noted when the policy was launched that it is constantly evaluating coverages and looking for ways solutions can evolve.

“The methods attackers use are changing and many do not address the broad range of issues and impacts associated with these events. Our solution seeks to address this with significant capacity of $35 million for active assailant and $25 million for loss of attraction and threat,” it said.

Succession of the year

Winner: Kara Raiguel

The names Ajit Jain and Warren Buffett still inspire something of a sense of awe in the risk transfer industry, so to step up and take the reins of their company, Gen Re, a subsidiary of Berkshire Hathaway, cannot be easy, especially when tasked with making the reinsurer more relevant to the market.

But, taking over from Tad Montross, the chief executive of Gen Re since 2008, that is exactly what Kara Raiguel has done. An actuary by background who has been a key player in Berkshire Hathaway’s reinsurance division for the past 15 years, Raiguel was described by Jain as being his “secret weapon” for the past 10 years.

Her accomplishments at Berkshire Hathaway, he said, have included the establishment of a significant workers’ compensation operation in California, and a foray into the Indian reinsurance market with the formation of its municipal bond insurer. She also played a leading role in some of its largest retroactive reinsurance transactions.

When revealing the succession plan, Jain also commented on the performance of Gen Re and the way it is perceived in the market. He said he had evaluated the business recently and had been very impressed by its platform, client relationships, product portfolio and solid balance sheet. He said Montross had done an “unbelievable” job of addressing old mistakes and avoiding new ones.

But he added that discussions with executives, both internal and external, had led him to believe that Gen Re was becoming less relevant in the marketplace.

“That concern, together with serious headwinds that the reinsurance business is facing and will continue to face, requires us all to consider whether and what actions might be taken to best position Gen Re for the next chapter,” he said.

No career pressure there, then—but we are excited to see how Raiguel repositions the reinsurer and wish her well.

Appointment of the year

Winner: Brian Duperreault as CEO of AIG

Industry legend can be an overused term but surely not in the case of Brian Duperreault. With a CV that includes almost 20 years at AIG, before moving on to build ACE into one of the strongest franchises in the business, helping to turn around Marsh and McLennan, and then launching Hamilton from scratch at the ripe-young age of 70, he might have been forgiven for putting his feet up at last.

Not Duperreault. With investors seeking the head of CEO Peter Hancock at Duperreault’s former company AIG, he has stepped up to the mark and taken the reins. Will there be more cost-cutting and realignment? Never—he is seeking growth and acquisitions, of course.

Explaining his decision to become AIG’s CEO to Hamilton’s employees, Duperreault said: “If you ask me why I’m leaving, it’s not because there are issues at Hamilton.

“I know that Hamilton is in great shape. Some of the best minds in the business work here. I’m leaving because there are issues at AIG. And I think I can help fix them.”

He will do this partly by working more closely with his former company. As part of a renewed partnership, AIG and Hamilton are set to work closer together. AIG, Hamilton Insurance Group, and Two Sigma have entered into a memorandum of understanding which includes expanding their cooperation. AIG will also acquire Hamilton USA for $110 million.

At the centre of this will be the potential represented by the Hamilton/Two Sigma/AIG partnership in the form of Attune, a technology-enabled platform that serves the particular needs of the small and medium-sized company insurance market in the US.

Duperreault, clearly confident he can turn around AIG, has also said he wants to target acquisitions of companies and reduce the pace of share buybacks.

Re-brand of the year

Winner: Ed

This has probably been the rebrand of the century, never mind the year. But once the sniggers in Monte Carlo had subsided Ed, the company formerly known as Cooper Gay, set about reinventing not just its name but its entire proposition to the market and structure. It has exited some areas of the business and invested heavily in others.

Group CEO Steve Hearn said at the time he felt the name change was necessary to draw a line in the sand with the past as he set about reorganising and refocusing the company. He decided to exit retail business completely and sold off various smaller operations either unconnected to the core parts of the business or which were unprofitable.

This left the company focused on wholesale insurance and reinsurance business and with a solid presence in all the major markets globally for risk transfer. He is also targeting growth on the reinsurance side of the business.

Why Ed? Hearn wanted something rooted in the past but also fresh and dynamic.

“Some 325 years ago, Edward Lloyd’s coffee shop became the place to buy marine insurance. That is the tradition but we then wanted to consider what a coffee shop is today. It is modern, cosmopolitan, advanced and fast-moving—everything Ed stands for,” Hearn explained at the time.

A year on, everyone seems to have accepted the name. We look forward to hearing what Hearn makes of his own progress.

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