Energy Review 09-2018
26 September 2018
For thousands of years no tribal leaders – or politicians, as they have now become known – have ever gained the full trust of everyone they are deemed to represent. Some human beings see it all black, others see it all white, and most see a combination of some black, varying degrees of grey and some white. It continues to be a balancing act. Therefore there are always people deaf to the heightening tone of the calls to get rid of the British prime minister and impeach the president of the United States.
Some suggest Mrs May wants to leave the European Union by the front door and creep in again through the back door. Brexiteers do not trust her for this approach (a bit like the old EEC) but financial services and international traders who never wanted Brexit stand far less to lose from this proposal and many in the EU are warming to the idea too. Leaders of some EU countries are worried that if this were to come to pass, potentially 20 or so other EU members would want to follow this example. The recent vote in Sweden is a prime example: sift the chaff from the corn and just keep the good bits. Ah, but is the chaff black or white and is the corn white or black? Perhaps immigration is seen as white and easily-facilitated international trade is seen as black.
In the energy world, oil is almost always black; countries like Norway are always in the black. Mind you, if oil was white in colour, who would care as long as it helped earn money – lots of it?
Recent developments in America are looking ominous. Not only is a renowned journalist for the Washington Post cutting to the quick with President Trump, but the state of California is having a go at him as well. Fired up by legislators in Florida, New York and New England, California is objecting to Mr Trump’s offshore drilling plans: the governor has just signed two pieces of legislation proposing the blocking of new federal offshore oil drilling along California’s coast. In addition, he has also signed bills confirming the state’s opposition to the federal government’s plan to expand oil drilling on public lands in California. Frustration with Mr Trump continues to grow.
Whilst California’s sentiment gathers steam, Alaska is ploughing along with increased exploitation of existing oil fields and the exploration for and development of new ones. If finding oil is black for some people, then for them, climate change and environmental damage are white.
On the other side of the Bering Strait and along the Siberian coast, a new trade route for energy supplies is opening up north of the Arctic Circle, as some of the warmest temperatures on record shrink ice caps which used to lock ships out of the area. Once again, we have a black and white situation: it is dismaying to environmentalists who are concerned about global warming, but ship-owners carrying liquefied natural gas and other goods see it as an opportunity. Their cargoes have traversed the region for the first time this year without icebreakers, shaving days off shipping times and unlocking supplies from difficult-to-reach fields in Siberia.
While prime ministers and presidents have to wade through the wide-ranging issues and the beliefs of the people and corporations they represent, and it is true to say that you can’t please everybody, nevertheless the lack of effective leadership and credibility – and therefore trust – we see in two of the world’s most important and visible leaders is alarming.
In the insurance world changes continue apace. There are now more than 35 companies who have started the move to EU-based representative offices and, at last, there are only a few of them remaining who think reliance on a nicely polished name-plate on the front of an impressive-looking building is what post-Brexit is all about. In the UK, however, there is still a lot of bad feeling about the way UK negotiators in Brussels have not been listening to their needs.
The most high visibility appointment for quite some time was announced in the middle of September: John Neal is set to replace Inga Beale as CEO of Lloyd’s. More about this and other news can be found in our People in the News section below.
The latest in the ongoing row between Ecuador and Chevron is in the Energy Casualty section.
We hope that our readers have had an enjoyable summer and we look forward to working with you and providing solutions to your needs and requirements.
Nigerian gas tanker explosion kills at least 35
On the 10th September at least 35 people were killed and hundreds injured when a gas tanker exploded in the northern Nigerian state of Nasarawa and started a blaze, the State Emergency Management Agency said.
The SEMA official said the accident happened at a petrol station along the Lafia-Makurdi road linking the capital city of Abuja with northern and southern Nigeria.
Usman Ahmed, Acting Director at SEMA, said the truck exploded at the point of discharging the gas, citing a witness account.
The agency was investigating the incident, he said.
“We have confirmed 35 dead and over a hundred injured. Most of those who died rushed to the accident spot to see what was happening,” Mr Ahmed told Reuters.
Traffic accidents are common in Nigeria, where roads are bad and safety standards poor.
At least nine people were killed in Nigeria’s commercial capital of Lagos in June when a petrol tanker caught fire and burnt 53 other vehicles.
Varo declares force majeure on supplies after German refinery fire
Varo Energy has declared force majeure on fuel deliveries to its customers after a fire on the 1st September at its Bayernoil refining complex in Germany, a spokesperson said on the 3rd September.
The fire affected the 120,000-barrel-per-day (bpd) plant in Vohburg. The plant was expected to be out of action for several weeks.
The Bayernoil complex is comprised of two plants – Vohburg and Neustadt – with total capacity of 215,000 bpd.
“Varo has declared force majeure because the fulfilment of our deliveries to our customers is significantly influenced by the production of Bayernoil,” the spokesperson said.
Varo Energy owns 45% of Bayernoil. Italy’s Eni owns 20%, while BP and Rosneft are also shareholders.
Varo is a European downstream company which has refineries and storage assets in Western Europe and is owned by oil trading giant Vitol, US private equity firm Carlyle Group and Dutch firm Reggeborgh Invest.
Varo has more than 200 fuel retail stations and also operates the Cressier refinery in Switzerland.
Fire breaks out at Shell chemical plant, nearby Essar refinery unaffected
A fire which broke out at a Shell-owned chemical plant on the same site as Essar Oil UK’s Stanlow refinery in north-western England on the 22nd August has been extinguished.
Essar said that operations at its refinery were unaffected by the fire, the cause of which is currently unclear.
The Shell Higher Olefins Plant (SHOP) is separated from the refinery by a road and rail tracks. Essar operates the chemical plant as well as the refinery.
“Earlier this afternoon, a fire occurred at the SHOP chemical plant,” an Essar spokesperson said. The fire was extinguished later on the day, they added.
“Operations and production of fuels and other products from Stanlow Refinery have not been affected. All supplies to customers are normal,” the spokesperson said, adding that all staff were safe and accounted for.
At Stanlow, Shell uses ethylene to manufacture polymer, lubricant and detergent intermediates, plasticisers and detergent alcohols, according to its website.
Earlier on the 22nd August, fire engines from five different locations were sent to the 200,000-barrel-per-day oil refinery.
“There was a report of a large plume of black smoke. We have several pumps at the scene,” a spokesperson for the Cheshire fire service said. The service said engines from five locations were on the scene.
Essar Oil UK, owned by the Indian billionaire Ruia brothers’ Essar Group, bought the refinery near Ellesmere Port from Shell in 2011. Around 900 people work at the refinery, according to its website.
“The site produces a range of oil products including about one sixth of Britain’s transport fuels annually – about 4.4 billion litres of diesel, three billion litres of petrol and two billion litres of jet fuel,” Essar Oil UK’s website said.
Energy Transfer says natgas pipeline fire in Pennsylvania put out
Energy Transfer Partners said a fire on its 24-inch natural gas gathering line was extinguished in Beaver County, Pennsylvania, on the morning of Monday 10th September.
There were no injuries reported.
Several homes in the area were evacuated after the fire broke out, the company said in a statement. It added that the cause of the incident was unknown.
French cooperative insurer Covéa is working on a new approach to its planned takeover of reinsurer SCOR
After its friendly €8.2 billion offer was rejected earlier in September, Reuters reports citing “two sources close to the deal”.
Covéa had proposed to acquire a majority stake in SCOR but the proposal was met with unanimous opposition from SCOR’s Executive Committee.
On 30th August 2018, SCOR’s board of directors reviewed the terms and conditions of this unsolicited proposal in detail and determined that it is fundamentally incompatible with SCOR’s strategy of independence, which is a key factor of its development, that it would jeopardise the group’s strong value-creating strategy and that it reflects neither the intrinsic value nor the strategic value of SCOR.
SCOR has said that the company’s independence was part of its success story and that the offer price did not reflect the firm’s value.
In a second attempt, Covéa is reportedly seeking to convince SCOR’s board to accept a deal by offering to keep the firm listed.
A new bid would potentially be higher than the €43 a share originally offered, according to Reuters. Furthermore, Covéa would keep SCOR independent with floating capital of at least 20%, one source reportedly said. “Covéa is ready to refloat a stake on the market after a takeover,” Reuters cited the source as saying.
Covéa may want to become a major actor on the European stage through the SCOR acquisition.
The insurer is already SCOR’s largest shareholder with an 8.5% share of the voting rights. Allianz Global Investors Europe is the second largest shareholder with 5.0% of voting rights. The Reuters article noted that Allianz could also be interested in bidding for the reinsurer.
China Reinsurance Group to acquire Chaucer
(13th September Chaucer Press Release)
Chaucer is pleased to announce that The Hanover Insurance Group, Inc., (NYSE: THG) has entered into a definitive agreement to sell Chaucer to China Reinsurance (Group) Corporation (China Re), subject to the successful completion of all legal and regulatory requirements.
Chaucer’s Senior Management Team will continue to lead the business under the Chaucer brand through their Lloyd’s Syndicates 1084 and 1176, international network and underwriting agencies, and Chaucer Insurance Company DAC, their insurance company in Dublin.
China Re Group (01508.HK) is one of the world’s top 10 reinsurance companies and has always maintained a leading position in China’s reinsurance market. The company’s four main businesses are P&C reinsurance, life and health reinsurance, primary P&C insurance and asset management. It has three international business platforms, namely Beijing International Business Department, Lloyd’s China Re Syndicate 2088 platform and China Re Singapore Branch. China Re Group has outstanding comprehensive strength and is highly rated by A.M. Best and S&P Global Rating.
John Fowle, Chief Executive Officer, Chaucer, commented: “We are very honoured to have China Re as our new partner. We have been extremely impressed by the experience, commitment, and professionalism of China Re since our first meetings and we are excited about the future together.
At Chaucer, we are fully committed to delivering a first class underwriting and claims service to our brokers, coverholders and clients, and believe that the support of China Re will enable us to build on our success to date, and accelerate our strategy which has profitable growth at its core.”
Yuan Linjiang, Chairman, China Re, commented: “We are deeply impressed by Chaucer’s long history, outstanding management and corporate team, robust profitability and strong risk management capabilities.
With Chaucer’s established market leading position in specialty insurance, we are convinced that with this acquisition, our Group’s core competitiveness will be greatly strengthened. Together, we will secure greater and more diversified business and a higher status in international markets.”
Marsh & McLennan to pay £4.3 billion for British insurance broker JLT
Marsh & McLennan Cos, Inc. has agreed to buy British rival Jardine Lloyd Thompson (JLT) for $5.7 billion (4.3 billion pounds) as the world’s biggest insurance broker looks to expand its global presence and increase its focus on faster-growing niche insurance areas, Reuters reported on the 17th September 2018.
Shares in JLT, which reorganised earlier this year into three divisions and has been preparing for a so-called hard British exit from the European Union in March, leapt by 32.3%, just shy of MMC’s cash offer of 1,915 pence per share. MMC shares were down 3.4% in morning trading.
The acquisition is the latest in a series of deals in the insurance sector, which is struggling with stagnating premiums as insurers compete ruthlessly to win market share. Brokers, who get most of their revenue from commission on premiums, have felt the knock-on effect.
JLT Chief Executive Dominic Burke said the deal to create a company with annual revenue of $17 billion had been struck quickly and was first discussed formally on the 7th September.
“We were not looking to sell, We were approached by MMC and it was a compelling offer,” said Burke, who will become vice chairman of the combined company.
Several London-based insurance analysts were taken by surprise by the announcement, given JLT’s relatively high valuation.
“If JLT has now ‘fallen’ it heightens the possibility of other bid approaches within the sector,” Panmure Gordon analyst Barrie Cornes said, adding that the company’s recent move into the United States had potentially been the trigger for Marsh to make the offer.
Other big deals in the insurance sector so far this year include France’s AXA buying Bermuda-based XL Group for $15.3 billion in March, after American International Group said it would buy reinsurer Validus for around $5.6 billion.
TransRe plans Luxembourg subsidiary in European expansion
TransRe, the reinsurance arm of Transatlantic Holdings and a wholly-owned subsidiary of Alleghany Corporation, is planning a subsidiary in Luxembourg as it looks to restructure and bolster its presence in the European Union.
The new simplified corporate structure will see TransRe Zurich re-domiciled to Luxembourg and renamed while its Continental European offices in Munich, Paris and Zurich, as well as Dubai, will become branch offices of Luxembourg.
TransRe expects to build up its staff in Luxembourg over time to focus on risk, compliance and central management functions.
The company said the new structure will have no impact on the business activities and staff of TransRe’s operating offices (including TransRe London).
TransRe expects to complete the restructure by mid-2019.
Lloyd’s Lab selects 10 tech teams to help transform the market
Lloyd’s Lab, the global insurance market’s new innovation accelerator, has opened its doors following a global search for technology talent that drew more than 200 applications from 36 countries.
The launch event on the 4th September was attended by the Economic Secretary to the UK Treasury, John Glen MP, and Lloyd’s CEO Inga Beale. Some 20 teams pitched their ideas for the chance to develop products, platforms and processes that will help transform Lloyd’s into an increasingly technology-driven market.
Start-ups, entrepreneurs and businesses from as far afield as the US, Canada, Israel, the Netherlands, Ireland and the UK, presented ideas ranging from live-streaming drones for fast risk and disaster assessment, to harnessing the Internet of Things for live cargo tracking, to on-demand insurance for the gig economy.
Following the process, Lloyd’s selected ten teams which will be offered a spot in the founding Lloyd’s Lab cohort. These included: Layr, an AI-powered insurance platform providing faster access for small businesses buying liability insurance; CargoSnap, a mobile transportation inspection app connected to a powerful online platform to collect, analyse and share information in the supply chain, speeding up claims; and DropIn, an on-demand live video streaming platform to streamline insurance inspections and catastrophe response assessment using mobile phones and drones.
Some of the others selected included Insurercore, a digital-based risk appetite directory for those seeking to place and write risks quickly and conveniently; BelMead Tech, a claims support platform using blockchain and other technologies to improve the insured’s claim journey whilst also improving efficiencies for the claim handling team; Parsyl, a platform which uses data and predictive analytics, allowing insurers to better anticipate risk and improve the claims process; and Geollect, creators of proprietary intelligence software for businesses to improve efficiencies, safety and security.
The final three were: ZASTI, an AI technology platform built using proprietary Deep Learning algorithms to provide predictive and diagnostic solutions to solve multiple business problems; Qnity, a digital insurance that allows individuals to design their own insurance solutions; and iCede, a cloud-based platform that enables large insurance companies to interact across borders in order to arrange insurance cover for multinational corporations.
The teams joining the Lab will gain access to the world’s largest market for specialist insurance and reinsurance, in support of its digital evolution. This tech talent will help deliver innovative solutions to some of the key challenges the Lloyd’s market faces.
Over ten weeks, the selected Lab teams will have access to a co-working space located in the Lloyd’s building in London, potential funding and the chance to develop products, platforms and processes that will help transform Lloyd’s into an increasingly technology-driven market.
Mr Glen said: “InsurTech is booming. There was US$724 million of InsurTech investment globally in the first quarter of 2018 and the UK attracted 12% of that funding, placing it second only behind the US. We’re doing everything we can to maintain this momentum and cultivate innovation in the sector, but ultimately, it is down to firms like Lloyd’s to take the lead, and that’s exactly what they’re doing with their Lab.”
Ms Beale added: “Lloyd’s has always been at the forefront of innovation – the launch of our new innovation accelerator is an important step forward into our technology-driven future and we’re excited to see how the ideas develop. The Lab is an important part of our future focused strategy which will further strengthen our position as the global centre for insurance innovation.”
What will happen to EU financial services firms after no-deal Brexit?
Britain will unilaterally accept some European Union rules and give EU financial services firms continued access to the UK market in order to maintain stability if the country crashes out of the bloc without a deal, the country’s top negotiator said on the 23rd August.
The details come in a raft of documents laying out government plans for a “no deal” Brexit and offering people and businesses advice on how to prepare.
The first 25 of more than 70 papers published cover everything from financial services to nuclear materials.
Britain says it will allow EU financial service firms to continue operating in the UK for up to three years – although it cannot guarantee the reverse will also be true.
The documents say “people and businesses should not be alarmed” by the planning.
Brexit Secretary Dominic Raab said Britain was determined to “manage the risks and embrace the opportunities” of Brexit.
He dismissed alarming headlines suggesting the UK could run out of sandwich supplies and other staples. “You will still be able to enjoy a BLT after Brexit,” he said in a speech in London.
Despite the upbeat tone, the documents reveal the scale of disruption to the British economy and daily life which could follow Brexit.
While the UK currently has customs-free trade with the 27 other EU countries, the documents say a no-deal Brexit would mean a much harder border.
For goods going to and coming from the EU, “an import declaration will be required, customs checks may be arrived out and any customs duties must be paid,” one document said.
Apollo acquires Aspen for US$2.6 billion
Alternative investment manager Apollo is offering US$2.6 billion to buy Bermuda-based Aspen Insurance Holdings and take the insurer private.
Under the terms of the agreement, which has been approved by Aspen’s board of directors, the Apollo Funds will acquire all of the outstanding shares of Aspen for US$42.75 per share in cash, representing an equity value of approximately US$2.6 billion.
Aspen reported an underwriting loss of US$558.1 million for 2017 after an underwriting profit of US$51.9 million in the previous year. The combined ratio deteriorated to 125.7% from 98.5% over the period.
For the year ended the 31st December 2017, Aspen reported US$12.9 billion in total assets, US$6.7 billion in gross reserves, US$2.9 billion in total shareholders’ equity and US$3.4 billion in gross written premiums.
The transaction is expected to close in the first half of 2019. Upon completion of the deal, Aspen will be a privately-held portfolio company of the Apollo Funds and Aspen’s ordinary shares will no longer be listed on the New York Stock Exchange.
Aspen provides reinsurance and insurance coverage to clients in various domestic and global markets through wholly-owned subsidiaries and offices in Australia, Bermuda, Canada, Ireland, Singapore, Switzerland, the United Arab Emirates, the UK and the US.
The Hartford to acquire specialty insurer Navigators in US$2.1 billion deal
The Hartford Financial Services Group has agreed to acquire specialty insurer The Navigators Group in a transaction that values Navigators at approximately US$2.1 billion.
Under the terms of the agreement, Navigators stockholders will receive US$70.00 per share in cash upon the closing of the transaction. The US$70.00 per share offer price represents a multiple of 1.78 times Navigators’ fully diluted tangible book value per share as of the 30th June 2018 and an 18.6% premium to the 90-trading-day average stock price.
Stamford, Connecticut-based Navigators is a global insurance holding company which specialises in maritime, construction, energy, environmental, professional services and life sciences – 22 vertical markets in all – and it has relationships with global retail and wholesale brokers. It has offices in the United States, the United Kingdom, Continental Europe and Asia.
In addition to an established presence at Lloyd’s, the company also has growing underwriting operations in Europe, Asia and Latin America. The company currently operates three business segments: US Insurance (58% of 2017 gross written premiums), International Insurance (29%) and Global Reinsurance (13%).
Navigators has approximately 820 employees globally who will join The Hartford upon closing. Approximately 600 of its employees are based in the US and 150 are located in the UK.
Its US offices include sites in New York, Chicago, Houston, San Francisco, Los Angeles, Atlanta and Seattle.
The Hartford said the Navigators business is “highly complementary” to its current commercial lines portfolio with added specialty and surplus lines capabilities and reduced workers’ compensation concentration. It is also complementary geographically and its Lloyd’s platform will help support future specialty lines growth.
Navigators has specialty lines coverages and markets where The Hartford does not currently underwrite or have a significant market presence, including marine, energy, environmental, construction wrap ups, international and the deal increases the scale of The Hartford’s existing positions in construction, professional liability, financial products and life sciences.
Combined the two will have more than $8.2 billion in commercial lines net written premiums – which would rank it seventh among US commercial lines insurers.
In June, Navigators completed its acquisition of Belgian specialty insurer Bracht, Deckers & Mackelbert NV, a specialty underwriting agency, and its affiliated insurance company, Assurances Continentales – Continentale Verzekeringen NV, and a Luxembourg reinsurance company, a wholly-owned subsidiary of ASCO.
LIIBA warns on missing Brexit equivalence regime for brokers
London & International Insurance Brokers’ Association (LIIBA) Chairman Roy White has written to the UK’s Prime Minister Theresa May to drive attention to the fact that insurance intermediates do not have an equivalence framework in place to allow for business continuity after the UK leaves the EU.
In the letter, Mr White said: “We have noted the proposals the government has made in its white paper for trade arrangements for financial services after UK leaves EU. However, we are concerned that any agreement to an “enhanced equivalence” regime will create uncertainty for insurance intermediaries. As you will be aware, there is no equivalence framework either under Insurance Mediation Directive nor Insurance Distribution Directive (IDD), which comes into force on the 1st October. Clearly in the absence of an existing equivalence regime, enhancements will not work.”
The letter goes on to propose that the government seeks an equivalence regime akin to that enjoyed by investment managers under the Market in Financial Instruments Regulation. This allows firms to provide services to professional clients in the EU provided they are registered with the European Securities and Markets Authority (ESMA). Investment firms do not need to have an establishment in the EU under this regime.
LIIBA CEO Christopher Croft continued: “Buyers of insurance must not be the unintended victims of Brexit. Major EU corporations could be faced with profound consequences post Brexit without access to London insurance. We need to find a way of maintaining client access to the specialty expertise in London that allows us to provide the cover that simply could not be sourced anywhere else.
“The government’s white paper provides a measured foundation from which the right future trade agreement for financial services can be built. We understand in general why that focusses on the existing equivalence regimes but our relevant directive – IDD – has no such concept. We are keen to work with the government to help find a workable way forward.”
UK insurers push ahead with Brexit plans in absence of trade deal: A.M. Best report
In the absence of a Brexit trade deal between the United Kingdom and the European Union, insurers in the UK have accelerated their plans to establish new EU subsidiaries and ensure business continuity after Brexit, according to a report published by A.M. Best.
The ability to continue to conduct cross-border business is a particular concern for Lloyd’s, London market carriers and other UK-based commercial insurers, said the Best’s Briefing, explaining that this is less of an issue for retail insurers because of their focus on UK domestic business.
The formation of EU subsidiaries will enable insurers in the UK to underwrite EU business after March 2019, or following an agreed transition period, said the briefing, entitled “Insurers Step up Brexit Plans in Absence of Clarity.”
On the other hand, small insurers, which do not have the resources to form EU-based subsidiaries, are forming relationships with local carriers who can front business for them in the EU, the report added.
London is likely to remain one of the world’s leading insurance centres and the principal insurance hub in Europe, supported by its pool of underwriting talent and access to related services.
In the absence of a political solution for Brexit, UK companies which currently make use of EU passporting rights “will not be able to service claims on existing EU policies after Brexit,” the report said.
As a result of these uncertainties, a growing number of insurers “are exploring potentially expensive Part VII transfers of existing EU business to their newly created subsidiaries,” it added. [Editor’s note: Part VII transfers, in part, enable a UK insurer to transfer its cross-border contracts into an EU subsidiary.]
Rationale Varies for EU Domiciles
While Luxembourg and Ireland have emerged as the popular EU domiciles for UK insurers, A.M. Best commented, “no single city appears likely to challenge the position of London as Europe’s principal re/insurance hub.”
The choice of domiciles is driven by the needs of individual insurers, including proximity to clients, the available talent pool, an existing presence in a location (such as a branch), the local tax regime and the approach, expertise and accessibility of the domestic regulator, the Best’s Briefing explained.
However, the principal driver of the chosen EU domicile is whether there is an existing operation, the report affirmed.
“Where companies have established branches or a material presence in a particular market, it is usually because they believe it will help them access attractive business,” A.M. Best explained. “In addition, they will already have underwriting talent and infrastructure in place at that particular location, and they will usually have a relationship with the local regulator.”
Amlin and QBE have selected Brussels as their EU domiciles – decisions which were “largely driven by the fact that they have an existing presence there,” said the report.
It noted that Beazley, Aspen and XL chose Dublin because they had operations in that city, while Chubb opted for Paris for similar reasons, as did Markel when it decided to locate its EU headquarters in Munich.
While Lloyd’s did not have business or operations in Brussels previously, it chose this domicile as the location for its EU subsidiary due to the strength of the regulatory framework, said Mathilde Jakobsen, A.M. Best Director.
“In cases where an insurer does not have existing operations in an EU location, Luxembourg is proving to be an attractive domicile,” the briefing said, noting that the local regulator is viewed as business friendly and efficient, while the domicile has good support services such as lawyers and accountants.
“In each of these chosen locations, A.M. Best expects subsidiaries to be small relative to the insurer’s UK operations,” the report stated.
“London is likely to remain one of the world’s leading insurance centres and the principal insurance hub in Europe, supported by its pool of underwriting talent and access to related services,” the report added.
Cost Implications of EU Units
The Best’s Briefing pointed to the cost of setting up new risk carriers in the EU, which is weighing on insurers and will impact their earnings.
Further, the formation of a separately capitalised subsidiary in the EU “may reduce the fungibility of capital across an insurance group and its capital efficiency,” the report affirmed.
As a result, insurers are seeking “to reduce capital requirements at these new subsidiaries and minimise trapped capital,” it continued. “One way to achieve this is to transfer material underwriting risk back to other group entities through reinsurance.”
However, such moves would require a nod from regulators, who also will be key “in determining what constitutes a meaningful presence in a particular market…”
A.M. Best provided a list of the planned re/insurance domiciles in the EU, as of the 27th June:
- Lloyd’s: Belgium
- MS Amlin: Belgium
- QBE: Belgium
- Chubb: France
- Ironshore (Ironshore International’s Mergers & Acquisitions and Tax Insurance unit): Germany
- Markel: Germany
- St Julians (transfer of domicile from Malta): Gibraltar
- Aspen: Ireland
- Aviva: Ireland
- Beazley: Ireland
- Chaucer: Ireland
- Equitable Life: Ireland (to be confirmed)
- Everest Insurance: Ireland
- Legal & General: Ireland
- NEON Underwriting: Ireland (to be confirmed)
- North P&I Club: Ireland
- Royal London: Ireland
- Standard Life: Ireland (to be confirmed)
- The Standard Club: Ireland
- Travelers: Ireland
- XL Group: Ireland
- Sompo Japan Nipponkoa Insurance: Luxembourg
- AIG: Luxembourg
- Aioi Nissay: Luxembourg
- CNA Hardy: Luxembourg
- FM Global: Luxembourg
- Hiscox: Luxembourg
- Liberty Specialty Markets: Luxembourg
- RSA: Luxembourg
- Tokio Marine: Luxembourg
- Starr: Malta
- Compre (transfer of London & Leith Insurance SE): Malta
- The UK P&I Club: Netherlands
- Steamship Mutual: Netherlands
- Chesnara: Netherlands
- Admiral: Spain
Acrimonious, disruptive no-deal Brexit is growing risk, says Fitch
Ratings agency Fitch said on the 16th August that it saw a growing risk of a bitter and economically damaging Brexit that could lead to a further downgrade of Britain’s sovereign credit rating.
“We no longer believe it is appropriate to identify a specific base case,” Fitch said in an update on its views on how Brexit might affect Britain’s economy and public finances.
“An acrimonious and disruptive ‘no deal’ Brexit is a material and growing possibility,” it said.
Previously Fitch had assumed Britain would leave the EU in March next year with a transition deal in place and the outline of a future trade deal with the bloc.
However Prime Minister Theresa May is struggling to get her own Conservative Party to support her proposed Brexit deal, while the European Union has raised objections to key parts of her plan, suggesting it will seek more concessions which could deepen the divide within the Conservatives.
“An intensification of political divisions within the UK and slow progress in negotiations with the EU means there is such a wide range of potential Brexit outcomes that no individual scenario has a high probability,” Fitch said.
Bank of England Governor Mark Carney said this month that the possibility of a no-deal Brexit was “uncomfortably high” and British trade minister Liam Fox put the chance at 60%, helping send sterling to a 14-month low against the US dollar.
An adverse Brexit scenario which slowed growth sharply could push up Britain’s budget deficit towards 2.5% of gross domestic product, meaning the debt-to-GDP ratio would decline by less than expected over 2019 and 2020, it said.
“A severe enough shock could reverse the downward trajectory in the ratio since 2015. Worsening public finances leading to a rising government debt ratio could also lead to a downgrade of the UK,” Fitch said.
The ratings agency currently rates British government debt at AA with a negative outlook which means a further lowering of the rating is possible.
Fitch cut its top-notch AAA rating on Britain in 2013, citing the weaker public finances outlook.
Moody’s forms Stockholm subsidiary to prepare for Brexit
Credit ratings agency Moody’s is converting its Stockholm branch into a subsidiary as the sector faces regulatory pressure to have enough staff in the European Union post-Brexit.
Moody’s, one of the “Big Three” global agencies along with Standard & Poor’s and Fitch, has hitherto run a large chunk of its European operations from a base in London, but Britain is due to leave the EU next March.
Under EU rules, credit ratings for customers in the bloc can only be issued by agencies registered with the European Union’s European Securities and Markets Authority (ESMA).
ESMA said it has “registered” Moody’s Stockholm branch, meaning it will become a fully-fledged operation.
“Moody’s Investors Service (Nordics) AB is based in Sweden and intends to issue sovereign and public finance ratings, structured finance ratings and corporate ratings,” ESMA said.
ESMA data shows Moody’s has an EU market share of 31%, behind S&P’s 46%.
Lawsuit: Owners of Wisconsin oil refinery negligent in blast and fire
A lawsuit alleges that negligence by the owners of Wisconsin’s only oil refinery caused an explosion and fire which injured 36 people and caused a mandatory evacuation in the city of Superior.
The class action lawsuit against Husky Energy says the evacuation after the refinery explosion on the 26th April forced the three plaintiffs to spend extra money on food, supplies, transportation and childcare.
The Star Tribune says one woman’s mother, who was in home hospice, was so stressed by the evacuation that she died soon after.
The explosion sprayed shrapnel and pierced a tank of asphalt which ignited a massive fire.
Federal investigators suspect a worn valve allowed air to mix with hydrocarbons, triggering the blast.
Husky Energy said that the Canadian-based company has successfully closed about 98% of claims since the explosion and is cooperating fully with investigating agencies but declined further comment on the ongoing litigation.
Chevron wins Ecuador environmental case before international tribunal
Chevron Corporation said on the 7th September that an international tribunal ruled in its favour in an environmental dispute with Ecuador, finding the South American nation had violated its obligations under international treaties.
The tribunal unanimously held that a US$9.5 billion pollution judgment by Ecuador’s Supreme Court against Chevron “was procured through fraud, bribery and corruption and was based on claims which had been already settled and released by the Republic of Ecuador years earlier.”
The decision adds to several court victories that Chevron has won against the plaintiffs and its legal team in the 2011 case. Texaco, which Chevron acquired in 2001, was released from liability through a settlement with Ecuador years earlier, the tribunal found.
Ecuador plans to appeal the tribunal’s ruling, challenging the decision in part on its findings of judicial fraud in the case, Inigo Salvador, Ecuador’s Attorney General, said at a news conference on the 7th September.
“It worries us that the tribunal is asking a country to lift a sentence of one of its courts which was issued as part of a dispute between private parties,” Mr Salvador said.
The tribunal, administered by the Permanent Court of Arbitration in The Hague, will next conduct a trial to determine the damages suffered by Chevron, a process which could take months.
Chevron estimated its damages and legal costs would run “hundreds of millions of dollars,” said spokesman Sean Comey.
“Ecuador had multiple opportunities to put an end to this liability,” said Mr Comey, who said a failure to now accept the decision “will continue to accrue further damages.”
American lawyer Steven Donziger won an US$18 billion judgment in 2011, representing villagers who blamed environmental contamination between 1964 and 1992 on Texaco, which Chevron bought in 2001.
The award was later reduced to US$9.5 billion and in July Mr Donziger was suspended from practicing law in New York by a state appeals court.
Chevron, which has said it never had any assets in Ecuador, has successfully fought efforts to enforce the judgment in Argentina, Brazil, Canada and the United States.
Jury finds Texas pipeline company guilty in 2015 California oil spill
A pipeline company was convicted of nine criminal charges on the 7th September for causing the worst California coastal spill in 25 years, a disaster which blackened popular beaches for miles, killed wildlife and hurt tourism and fishing.
A Santa Barbara County jury found Houston-based Plains All American Pipeline guilty of a felony count of failing to properly maintain its pipeline and eight misdemeanour charges, including killing marine mammals and protected sea birds.
California Attorney General Xavier Becerra said in a statement that Plains’ actions were not only reckless and irresponsible but also criminal.
“Today’s verdict should send a message: if you endanger our environment and wildlife, we will hold you accountable,” he said.
Plains said in a statement that the jury did not find any knowing misconduct by the company and “accepts full responsibility for the impact of the accident.”
“We are committed to doing the right thing,” the company said.
The company said its operation of the pipeline met or exceeded legal and industry standards, and believes the jury erred in its verdict on one count where California law allowed a conviction under a standard of negligence.
“We intend to fully evaluate and consider all of our legal options with respect to the trial and resulting jury decision,” Plains said.
The company is set to be sentenced on the 13th December. Because it is a company, and not a person, Plains only faces fines, although it is unclear how steep the penalties could be.
Plains had faced a total of 15 charges for the rupture of a corroded pipeline which sent at least 123,000 gallons (465,000 litres) of crude oil gushing onto Refugio State Beach in Santa Barbara County, north-west of Los Angeles.
Plains pleaded not guilty to the charges and accused prosecutors of criminalising an unfortunate accident.
But federal inspectors found that Plains had made several preventable errors, failed to quickly detect the pipeline rupture and responded too slowly as oil flowed towards the ocean.
Plains operators working from a Texas control room more than 1,000 miles (1,609 kilometres) away had turned off an alarm which would have signalled a leak and, unaware a spill had occurred, restarted the haemorrhaging line after it had shut down, which only made matters worse, inspectors found.
The spill, two weeks shy of Memorial Day, closed beaches with popular campgrounds for two months and put a crimp in the local tourist economy and fishing industry.
It also crippled the local oil business because the pipeline was used to transport crude to refineries from seven offshore rigs, including three owned by ExxonMobil, which have been idle since the spill.
Last year, Denver-based Venoco declared bankruptcy, in part, because it was not able to operate its platform. The state is now responsible for plugging and decommissioning Veneco’s wells at an estimated cost of US$58 million. That does not include the eventual cost to remove the enormous structure.
Plains apologised for the spill and paid for the clean-up. The company’s 2017 annual report estimated costs from the spill at US$335 million, not including lost revenues.
It is seeking approval to repair or rebuild its corroded pipelines.
The company still faces possible fines from the US government and also faces a federal class-action lawsuit by owners of beachfront properties, fishing boat operators, the petroleum industry and oil workers who lost jobs because of the spill.
The pipeline which spilled has been shuttered but Plains has applied to build a new one in the same location.
Kristen Monsell, Oceans Legal Director with the Center for Biological Diversity, said in a statement that Plains cannot be given “a second chance to spill again.”
“It’s time to get dirty, dangerous drilling out of our oceans, out of our coastal areas and out of our state,” she said.
Fidelis adds energy market capacity with new MGA Kersey
Bermuda-based Fidelis Insurance has acquired an equity stake in a new managing general agent (MGA) Kersey Specialty that will focus on upstream energy subscription market insurance.
The underwriting capacity will be provided by Fidelis, and Kersey will be managed through Fidelis’ subsidiary MGA platform Pine Walk Capital.
The company has appointed Paul Calnan, who has 30 years of re/insurance experience in the Lloyd’s market, to run Kersey.
Calnan began his career at Lloyd’s in 1988 with Octavian Underwriting and subsequently developed upstream accounts at Navigators, CV Starr and more latterly at Ironshore.
Philip Vandoninck, executive head of partnerships, said: “Paul brings extensive knowledge and experience of the Energy Market, including operational, construction and casualty. Paul’s excellent underwriting track record comes with strong reinsurance support and Fidelis is pleased to collaborate with Paul’s historical relationships. We are pleased to support this new MGA and welcome Paul to the Pine Walk group.”
Calnan added: “I am delighted to be partnering with Fidelis and Pine Walk in creating this new MGA. Our proposition is to provide thoughtful and comprehensive solutions that are appropriate to the genuine needs and wishes of buyers. We look forward to providing a flexible, consistent and prompt service to all of our customers.”
People on the Move
John Neal appointed as Lloyd’s CEO
Lloyd’s has confirmed that former QBE boss John Neal will replace outgoing CEO Inga Beale.
In a statement, Lloyd’s said Mr Neal will take the helm in just over a month’s time, well before Ms Beale’s expected departure, which was slated for next year.
Mr Neal’s appointment was unanimously approved by the Council of Lloyd’s, the statement said.
The Corporation said the executive’s whole career had been associated with Lloyd’s, first as an underwriter and later as CEO of the Ensign Managing Agency.
But Mr Neal’s most recent post was by far his biggest as CEO of Australian reinsurance giant QBE, a position he left at the end of last year.
There, he was responsible for running a US$14 billion book for a company with 14,000 employees across 37 countries, Lloyd’s said.
In a statement, Lloyd’s Chairman Bruce Carnegie-Brown said: “An immediate priority will be the successful launch of Lloyd’s Brussels subsidiary which will enable Lloyd’s to continue serving its customers in the European Economic Area after Brexit.”
Mr Neal, who is in his mid-fifties, will return to his native England to take up the post.
Mr Carnegie-Brown, who has worked alongside Ms Beale since he took the chairman role last year, said he was grateful for the outgoing CEO for her five years of leadership in what he described as a “challenging” time for the market.
Lloyd’s said Mr Neal’s appointment was still subject to approval and consent from the Prudential Regulation Authority and the Financial Conduct Authority.
Tokio Marine swoops for Munich Re head of cyber innovation
Tokio Marine Holdings (TMH) has appointed Munich Re’s Daljitt Barn to the newly-created post of Global Head of Cyber Yisk.
Mr Barn was most recently head of cyber innovation and consulting services at Munich Re, where he was instrumental in setting up the cyber team within corporate underwriting, creating a Munich Re-wide cyber community and developing the group-wide cyber insurance strategy, according to a corporate statement.
Prior to that, he was cyber director at PwC where he built and managed the cyber risk team in the insurance and investment management sectors.
In his new role based in London, Mr Barn will be responsible for the development of Tokio Marine Group’s cyber strategy.
He will help with cyber risk quantification and control, as well as innovation and partnership opportunities.
Vandendael leaves Lloyd’s to become Everest CEO, International
Lloyd’s Chief Commercial Officer Vincent Vandendael has decided to leave the corporation after almost six years to become CEO, International at Everest Insurance in early 2019.
Mr Vandendael joined Lloyd’s in December 2012 as chief commercial officer, responsible for all business development. He also leads Lloyd’s’ global network, which extends to 31 offices which support Lloyd’s licences to operate in over 200 territories worldwide.
Mr Vandendael is credited for his role in driving innovation in the Lloyd’s market and in establishing the Lloyd’s Brussels subsidiary, which is due to open in 2019 ahead of the UK’s exit from the European Union.
Navigators’ Cameron replaces Gittings as LMA CEO
Sheila Cameron, currently Head of International Operations at Navigators Underwriting, is to become the next CEO of the Lloyd’s Market Association (LMA).
David Gittings will be stepping down at the end of the year after 12 years in the role.
Ms Cameron currently has responsibility for leading all operational and change management activity within Navigators International, which includes its Lloyd’s business together with its global platforms in Europe, Asia and Latin America.
She is chairman of the LMA Operations Committee and a member of the Target Operating Model board.
Chubb appoints Nazir from Aspen as Cyber Underwriting Manager, UK & Ireland
Chubb announced the appointment of Raheila Nazir as Cyber Underwriting Manager for the UK and Ireland.
In this role, Ms Nazir will have responsibility for the leadership and direction of Chubb’s UK&I Cyber Underwriting team, in addition to managing product development and overall profit and losses.
A well-known and highly respected figure in the cyber insurance market, Ms Nazir joins Chubb from Aspen where she was Head of International Cyber & Technology.
Markel hires war & terrorism underwriter
Markel International has appointed Tom Simpson as a war and terrorism underwriter.
Mr Simpson most recently served as a political violence underwriter at Novae, now part of AXIS Capital. He will report to senior underwriter Ed Winter and will work alongside underwriters Chloe Gordge and Will Newman.