Post Magazine & Insurance Times
19 August 2010 Editions
Prepared by
Eleanor Mole
Bid assistant, BLM London
[email protected]
Post Magazine
News
Brokers worry about client choice as RSA bids for Aviva
Analysts pour scorn on viability of RSA's Aviva bid
Fortis backing key to UK General's £1.6m Shearings deal
Ace expands Midlands team
Former Marsh VP joins claims firm as complex loss boss
Former Chartis staff join Ace
Axis expands accident & health team
Feature articles
RSA spotlight – Bob Mendelsohn: Whatever happened to Bob?
Having promised RSA that he would make it his mission to track down its former CEO Bob
Mendelsohn to mark the firm's 300th anniversary, Post Magazine’s job was made somewhat
easier than anticipated when he resurfaced at US insurer Navigators last week. With RSA's
big news, it was good timing.
RSA spotlight – Andy Haste: Playing the long game pays off for Haste
Following his interview with former RSA CEO Bob Mendelsohn and the news that RSA has
approached Aviva to buy its UK, Irish and Canadian general insurance assets, Post Magazine
reflects on the general insurance career of the company's current CEO Andy Haste.
Health insurance – IPT rise: A bitter pill
With the failure of the industry's efforts to persuade the Treasury to freeze, or indeed lower,
insurance premium tax on private medical insurance, Post Magazine looks at what it would
take to lobby more effectively.
Health & Safety – Enforcement: Changing priorities
A new report claims the Health & Safety Executive has eased off on enforcing key provisions
of health and safety law. Chris Green looks into the issue.
Insurance Times
News
Allianz gears up for further motor rate rises this year
Feature articles
News analysis – Age restrictions
Huge motor rate hikes, coupled with insurers exiting the market, have made it harder than
ever for young drivers to get affordable cover, which is fuelling a rise in ‘fronting’ and other
tactics to drive down quotes. But some in the market are coming up with new ways to offer a
fair price.
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Claims: The liars, the ditch and the wardrobe
Embarrassing, audacious and just downright stupid, claims departments and loss adjusters
are sent some weird and wonderful claims. From the one-night stand from hell, to an almost
inconceivable IVF claim, here are a few of the best stories.
The Law Society Gazette
News
Professional indemnity insurance boost for sole practitioners
Brokers worry about client choice as RSA bids for Aviva
Brokers have voiced concern that RSA's £5bn bid for parts of Aviva's general insurance
business, including the UK, could ultimately limit client choice and competition.
Although Aviva has thus far strongly rebuked the approach by RSA, some analysts have
noted that shareholder pressure and a higher bid could at least mean the merger is put to a
vote.
Based on 2009 returns to the Financial Services Authority a combined RSA-Aviva would have
a combined gross written premium of £9.14bn, more than twice as much as its nearest rival
Royal Bank of Scotland Insurance with £4.83bn.
Barbara Bradshaw, chief executive of the Institute of Insurance Brokers told Post that if the
merger of these two major players was to go ahead it would reduce competition dramatically:
"Although brokers don't always like them, they feel as though they have to have an Aviva
agency because of the breadth of coverage of their products. I don't think that they would
have the same opinion of RSA."
Nick Sharp, managing director of Barbon's property and commercial division, told Post that
losing options is never good when you are a broker looking to provide the best range of
solutions for clients.
While a spokesman for Towergate added: "It's hard to comment on other companies' actions
but, of course, we know both parties very well so would hope that, whatever the outcome, this
does not become a long-running and unsettling experience for all their people."
Alex Alway, group chief executive at Jelf Group, told Post that he believed RSA would have to
offer a figure closer to £6bn for any bid to have a chance of being successful, and suggested
Axa's general insurance business looked a better fit on paper: "In the UK, RSA have done
well and it has a good management team, but it has still got a long way go to prove it can
reach the same critical mass with its UK regional SME business, as it has in the corporate
space."
Mr Alway added that if the deal were to go ahead the combined business would almost
inevitably lose market share, but that would be taken up by rival players such as Allianz.
He concluded: "I suspect that most of the competitors are probably rubbing their hands with
glee that there is an opportunity of disruption."
Would the deal pass the oft test?
Mergers in the UK are initially looked at by the Office of Fair Trading and transferred to the
Competition Commission if it is believed that the merger may result in a substantial lessening
of competition.
Thresholds whereby a merger may be sent to the Competition Commission include, if it gives
the merged company market share of over 25% and if the turnover of the company acquired
is more than £70m a year.
Mergers are either dealt with by the domestic authorities, or if it is a merger of €5bn (£4.1bn)
or more it will automatically go to Europe.
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Analysts pour scorn on viability of RSA's Aviva bid
Aviva's concern over capital adequacy if it was a standalone life insurer is the main barrier to
selling its general insurance arm to RSA, according to City analysts.
Solvency II has emerged as a key point of contention between Aviva and RSA, after the latter
made an audacious approach to acquire its rival's general insurance businesses in the UK,
Ireland, and Canada, excluding RAC.
RSA is understood to have launched a £5bn rights issue to fund the proposed takeover,
which was "unanimously" rejected by Aviva after 10 days' consideration.
The insurer is also understood to have explored the possibility of launching a £600m rights
issue in 2009.
In a statement released last week, Aviva confirmed it had rejected the £5bn cash offer on 6
August, having received a written offer on 28 July, stating it had "significant synergies" in its
existing composite life and general insurance model.
Aviva said RSA's move was not in its shareholders' interests and added: "The combination of
the life and non-life businesses allows Aviva to operate with substantially less capital than the
two businesses would do on a standalone basis, which is likely to be further reinforced under
the Solvency II proposals."
In a reactive statement, RSA said there was "no capital advantage" to having life and GI
entities under Solvency I, and it is "too early" to predict whether Solvency II would compliment
Aviva's existing business model.
RSA said it remains "open to discussions" with its acquisition target.
Analyst Joy Ferneyhough, head of insurance research at Execution Noble, told Post she
doubted a deal would be made: "The statements from Aviva have been pretty clear. For Aviva
it is not just a case of what the business is worth as a standalone. It is a case of what
additional benefits the GI business brings the group from a capital efficiency perspective, and
also cash and earnings diversification."
She added: "Capital efficiency is the key. To compensate Aviva for what it thinks it would lose
on that side, the price then becomes unviable for RSA shareholders, or potentially any other
bidders' shareholders. It is an impasse that cannot be gotten over in this case."
Citigroup analyst Raghu Hariharan said a break-up of Aviva would not realise value at the
initial bid price: "A bid of £5bn would not create any shareholder value, since any proceeds
would only be used to unwind the internal leverage and pension deficit. Such a sale would
also materially reduce earnings and capital generation prospects, thus threatening the current
dividend."
Ms Ferneyhough added RSA's shareholders would be unhappy with the prospect of a failed
bid, though ruled the firm out as a potential acquisition target: "The first issue was the £5bn
price tag, which would be solely funded by a rights issue. Does that mean it is constrained
from a capital perspective despite the fact that it has an IGD capital surplus?"
She said the bid suggested RSA had "run out of ideas of what to do next" to grow the
business organically, and could position itself for further targets.
Ben Cohen, analyst at Collins Stewart, told Post: "My sense would be the main sticking point
is not price, but where it would leave Aviva post-disposal. Aviva's strategy has been around
the composite model. It would need a new strategy. It would be difficult to reinvest the cash
profitably."
However, he predicted RSA could return with a new offer if given access to Aviva's balance
sheets: "RSA will probably see whether Aviva opens up a bit more, as it is only looking at
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public information at the moment. It would be difficult for RSA to refine on price when it
doesn't know the details of what it is buying."
He added that in the event of a failed bid, RSA could turn its gaze to other insurers in the UK
market: "Royal Bank of Scotland has said it would rather not sell its insurance business, but it
would seem crazy to not consider it, judging by its results. The big European composites
could also sell their UK businesses. However, you would not get the overlap you would get
with Aviva."
Fortis backing key to UK General's £1.6m Shearings deal
UK General has won a two-year deal with travel firm Shearings — its first major piece of
business since teaming up with new capacity provider Fortis.
The contract, to provide travel and motor breakdown insurance, was previously handled by
First Assist.
Karen Smith, technical director at UK General, said the deal is worth in the region of £1.6m
and that it beat off competition from Towergate among others in the final tender process.
"Shearings said our long-term deal with Fortis was one of the reasons we won the tender. It
felt that it would add further strength to the Shearings brand and help to convert more
insurance sales with customers," she said.
Fortis became UK General's sole backer earlier this year after the MGA's split from Aviva and
Axa.
Claims for the travel and motor breakdown insurance are handled by Direct Group.
Ian McInnes, procurement and projects director at Shearings, said: "Giving peace of mind to
our customers is essential, and the UK General team put together a compelling proposition.
We were impressed by its specialist travel team and look forward to developing our
partnership with UK General during the coming months."
Ace expands Midlands team
Ace UK has named two new staff to its Birmingham-based Midlands regional management
team.
Dave Hall joins Ace from Chartis as Midlands property and casualty manager and will be
responsible for the delivery of the P&C underwriting strategy and growth in the region.
Tez Roberts has been appointed as regional property underwriting manager and will focus on
the performance of ACE's property portfolio in the region. Mr Roberts joins from Aviva.
Commenting on the new appointments Pat Drinan, director of corporate risk for UK and
Ireland said: "Our investment in developing strong regional underwriting and service
capabilities is an important part of our strategy as we build ACE's Corporate segment in the
UK and Ireland.
"Dave and Tez bring with them relevant expertise and insight which reflects our commitment
to deliver support and services that are directly aligned to the needs of large to medium sized
corporate clients and their brokers."
Former Marsh VP joins claims firm as complex loss boss
Munters MCS has named Simon Hurst as the UK’s major & complex loss director.
A former vice president for Marsh, Munters MCS said Mr Hurst joins with a brief to promote
and develop the major and complex loss capability within Munters MCS in the UK.
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"Munters MCS has an enviable reputation for its major and complex loss capabilities globally.
The skills and expertise are already evident and proven in the UK operation, my job is to
ensure we maximise the opportunities we have," he added.
Darren Francis, UK property performance services director, commented: "Simon's
appointment confirms our absolute commitment to the commercial, high net worth and major
loss markets where the provision of bespoke, technical, cost effective solutions are critical.
Simon's experience and expertise will enable us to develop long term strategic partnerships."
Former Chartis staff join Ace
Ace UK has made two appointments to its Midlands regional management team.
Dave Hall joins Ace as Midlands property & casualty manager based in the Birmingham office
and reporting to Paul Jennings, Ace Midlands regional manager. His responsibilities include
the delivery of the P&C underwriting strategy and long-term sustainable growth in Ace’s
Midlands region.
Mr Hall joins Ace from Chartis where he was regional development manager for P&C. He has
held a number of senior underwriting roles with the former AIG, Aviva and Provincial
Insurance Company (now Axa) and has worked for Aon.
Tez Roberts has been appointed regional property underwriting manager, also based in
Birmingham and reporting to Dave Hall. His role focuses on the performance of Ace’s
property portfolio in the region. Mr Roberts joins from Aviva where he was supporting the
strategic development of the insurer’s commercial on-site trading propositions. Previously, he
has held roles with Chartis, RSA and NZI (now part of Aviva).
Pat Drinan, director of corporate risk, UK & Ireland, said: “Our investment in developing
strong regional underwriting and service capabilities is an important part of our strategy as we
build Ace’s Corporate segment in the UK and Ireland. “Dave and Tez bring with them relevant
expertise and insight which reflects our commitment to deliver support and services that are
directly aligned to the needs of large to medium sized corporate clients and their brokers.”
Axis expands accident & health team
Axis Global Accident & Health, a division of Axis Capital Holdings has appointed Giles Allen
as senior vice president, international accident & health insurance operation Global Accident
& Health.
Axis Global Accident & Health is currently developing insurance products for the international
market.
These products include personal and business travel accident programmes for employer
groups, as well as accident and specialty health cover for associations, affinity groups,
financial institutions and other organisations. Axis Global Accident & Health currently markets
insurance products in the US.
Before joining Axis, Mr Allen was executive director of the accident & death division at Willis'
Global Markets International for five years. Previously, he served in a similar capacity at Aon
for four years and worked with several Lloyds’ brokers in the accident & health market over
the last 17 years.
“With his vast experience in the international accident and health brokerage market, Giles
offers us an insightful perspective as we establish our presence and build our product
portfolio internationally” said Paul Chapman, chief executive officer, international accident &
health, to whom Giles will report. “He recognizes our vision for challenging the norm and
exceeding expectations.”
Allianz gears up for further motor rate rises this year
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Insurer chief sets positive tone as the firm prepares to add two new corporate partners.
Allianz Insurance is planning double-digit rate increases in its broker private motor book in the
second half of 2010, according to chief executive Andrew Torrance. That’s on top of the 15
percentage points already put through in the first half.
Torrance also hinted that Allianz would be signing up two corporate partners, to be
announced in the second half of the year, although he declined to name the companies
concerned. A partnership agreed between the insurer and the Volkswagen/Audi group on 1
January was, he said, “developing very nicely”.
“As we look into 2011, we are beginning to see the prospect of an underwriting profit in the
motor account – and not before time, I might add,” Torrance said.
Allianz’s broker private motor book ran at a 116% combined ratio for the first half of the year.
While Torrance said this was an improvement over the industry-wide 2009 combined ratio of
around 120%, he added: “It underlines the distance there is to go in that market.”
Torrance noted that the number of broker private motor policies was falling “modestly” as a
result of the company’s rating action. However, he does not expect to lose more than 2%-3%
of policyholders during the rest of the year, and is optimistic that the company will lose even
fewer. “The market is moving at this sort of rate, so the rate of policyholder loss has been
falling month by month in 2010,” he said.
There is also a shortfall in broker household account prices, Torrance believes. Allianz
Insurance increased its rates by two percentage points in the first half of the year, and the
company is looking for a further two to three percentage point increase in the second half. “I
don’t believe today’s household rates have adequate margin built into them to deal with the
weather events that are part and parcel of writing the account,” he said.
Despite the rate increases required for broker personal lines in motor and household,
Torrance was pleased with the performance of Allianz Insurance’s retail book overall. Its
combined ratio improved 4.3 points to 95.6% from 99.9% and its gross written premium
increased 5.4% to £349.7m.
He also expressed satisfaction with the overall result, despite the first-half combined ratio
worsening to 95.3% from 94.9%, and the IFRS operating profit dropping 11% to £78.4m from
£88.3m, which Torrance attributed to low investment returns. “We are very pleased by the
continued growth in the business,” he said. “We are very much on track to deliver our planned
year-end results and to meet the expectations of our shareholders.”
While declining to name the corporate partners with which Allianz is in discussions, Torrance
hinted that one would be in the personal lines household arena. He also indicated that one of
the deals would be of comparable size to the Volkswagen arrangement, while the other “will
potentially be a bit smaller”.
Professional indemnity insurance boost for sole practitioners
Travelers, the second-largest professional indemnity insurer, has struck an exclusive
agreement with Quinn’s former broker, Prime Professions, to offer cover to sole practitioners
left in limbo by Quinn’s expected departure from the market. Quinn presently insures around
1,900 sole practitioners and about 1,000 small firms.
The development will be welcomed by the smallest firms as they seek cover in the toughest
renewals round yet. However, Prime director Richard Brown stressed that Travelers will only
take on around three-quarters of the 1,900 sole practitioners currently insured by Quinn, and
will charge them premiums 15-20% more than it charged sole practitioners last year. Market
sources suggested that Travelers may take on fewer practitioners than indicated by Brown.
Travelers declined to comment.
Around 500 sole practitioners currently insured by Quinn are therefore likely to face the
extremely difficult task of finding alternative cover. Elsewhere in the market, the Gazette
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understands that insurer RSA, which had a 6% share of the PII market last year, will cut a
significant number of its existing customers, and will not take on any new firms this year. RSA
declined to comment on its renewal policy, but said in a statement: ‘RSA has decided to
continue to insure solicitors in England and Wales in 2010. Only existing clients will be
considered for primary (compulsory limit) covers. This means that no new business will be
written for these primary covers.’
RSA also noted ‘significant concerns’ regarding the assigned risks pool, and said that it wants
to work with the Solicitors Regulation Authority to address these.
There was more encouraging news from insurer Lemma Europe, a branch of Ukrainian
insurer Lemma Insurance. It is to increase its PII capacity by up to five times, from £4m
capacity last year, to £20m this year, according to Nick Rowe, business production and
development manager at broker Monitor Insurance Services, which brokers for Lemma.
Lemma typically insures one- to five-partner firms, Rowe said.
Earlier this month, Chartis, the UK’s largest PII insurer with a 15% market share last year,
said that it does ‘not have an appetite’ to take on new law firms with fewer than 10 partners
this year, although it is not reducing its existing client base. Zurich, the third-largest PII insurer
with a 13% market share last year, said in July that it will significantly’ cut the amount of new
PII business it underwrites for law firms this year.
Last month a new entrant, Vision Underwriting, entered the market after striking a deal with
the Law Society.
In a further development, the Law Society this week opened its PII helpline for solicitors.
Email [email protected] or call 020 7320 9545.
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