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					Globalization of the
Insurance Industry
  Joe Vincent Seminar




31 January 2012
Contents

      1.   Introduction

      2.   Globalization and its impact on insurance

      3.   Natural disasters – global

      4.   Natural disasters – the US

      5.   Natural disasters – Texas

      6.   2012 and beyond

      7.   How we must respond
Introduction
About CGSC




   Domiciled in London
   Largest independent global wholesale and reinsurance
    broker
   Nine brands, including Cooper Gay (globally) and
    Swett & Crawford in the US
   Access to all local and surplus lines insurance markets,
    including Lloyd’s of London
Presentation




   The impact of globalization on insurance, including how
    natural disasters impact prices and how as an industry we
    must respond.


   1.5 CE credits
Globalization and its Impact
   on Insurance
Globalization – a definition


   The International Monetary Fund’s definition: “ The process
    through which an increasingly free flow of ideas, people,
    goods, services and capital leads to the integration of
    economies and societies”


   It would normally entail:
     – Selling your products to a global company
     – Selling your service to companies outside of the US
     – Purchasing products / services from outside of the US
         •   Outsourcing your back office functions
         •   Outsourcing your website design and management
Social-Cultural Changes


   Migration into cities:


     – Increase in population – greater demand for natural resources
     – Demand for infrastructure (roads, railroads, bridges)
     – Increased housing
     – Denser cities


   Greater impact following natural and man made disasters
Social-Cultural Changes



   Westernization of the Middle East


   The Arab Spring presents opportunities for insurers as markets
    open.


   Your clients may expand into these areas and you must be able
    to respond to your clients’ global expansion insurance
    requirements.
Technological Changes


   The increased use of technology has enabled ease of global
    broking
   As a result, placing business into surplus lines markets and
    obtaining greater capacity is easier
   Lloyd’s is stretching its footprint, with various global offices
    and thus greater access to underwriters
   Brokers no longer access only the local markets, but must
    work harder to get the best deal for the client in different
    markets
Technological Changes



   Insurance and reinsurance catastrophe modeling constantly
    improving – RMS11, in-house actuaries
   Tendency for rates to rise locally following a catastrophe
   However, as reinsurers’ exposure increases through large
    catastrophe events, rates also increase globally (the Thai floods
    have been called the ‘market turners’ towards a harder market)
   If brokers’ clients expand internationally, brokers can work with
    local counterparts in the new territories via brokers with
    international reach and networks such as BrokersLink
Economic Changes




   AIG / Fortis both had bailouts in 2008
   Standard markets both domestic and international are
    being pressured to maintain high levels of financial
    stability in light of the international debt crisis and
    public concern over the worldwide economy.
   The knock on from one country’s economic downturn
    to the next continue to create turmoil in financial
    markets.
Economic Changes

   Hedge funds and investors are not getting a good return
    on their investments. Therefore they are looking for
    alternative investment opportunities.
   Often they back new start up insurers & reinsurers
    financially, creating a great deal of capital in our global
    market
   Increased competition = lower rates (greater choice)
   Bad news for brokers and the long anticipated hardening
    of the market
   Will the Thai floods turn the market?
Environmental Changes




   Climate change has increased the frequency and
    extent of natural disasters such as floods, earthquakes
    and wildfires putting pressure on capacity.
Political Changes




   Healthcare reform in the US ruling in 2012 on Patient
    Protection and Affordable Care Act.
   Global political unrest is having an inpact on
    businesses across the world, which in turn impacts the
    global insurance markets.
Legal Changes




   Regulation will increase following the financial crisis
    and subsequent recessions.
   Soon, Basel III in the US and Solvency II in Europe will
    be implemented.
   Will there be a global regulation authority / consistency
    of regulation in the future?
The Role of Emerging Markets


   Economies of scale - emerging markets have smaller
    economies & workforce = less research, less investment in
    technology, thus represent a greater opportunity for
    insurance companies looking to expand.
   As more companies operate in this area, the greater the
    need for insurance as the propensity to buy insurance
    changes.
   Increase westernization = more need for insurance
   Outsourcing of jobs from the industrialized nations to lower
    cost environments creates production quality, transportation
    and distribution channel modifications which impact on
    insurance needs.
The Role of Emerging Markets



   Insurance companies contribute to the development of a well-
    functioning capital market due to the huge amount of assets they
    have to invest.
   From a macro-economic perspective, the insurance market
    could help to mobilize national savings and narrow the
    investment gap of emerging economies.
   In emerging markets, domestic savings have not been fully
    mobilized despite huge funding needs arising from infrastructure
    projects, for example.
The Role of Emerging Markets

   The opening up of the insurance markets in emerging
    economies to overseas competition has long been a
    contentious issue. But it continues to happen – Brazil
    being a good example.
   Numerous arguments, including the unfavourable balance-
    of-payment effect and the need to protect infant industries,
    have been advanced to justify measures to confine foreign
    inroads in the market.
   It is often the case of striking a fine balance between the
    stability of the insurance market on the one hand and
    ensuring efficiency and good value for consumers on the
    other hand.
The Role of Emerging Markets



   Foreign insurance companies can enhance the efficiency
    of local insurance markets by:

    – Providing superior customer service (but not a given!)
    – Introducing new products
    – Transferring technological and managerial know-how
    – Increasing competition
    – Bigger appetite for more complex risks
The Role of Emerging Markets




   Insurers entering developing economies normally have:
    – Greater financial strength and risk diversification capabilities
    – Superior claims paying ability
    – Differing appetite for risk
    – Innovative ways of looking at risks
The Role of Emerging Markets


      Overseas insurer participation:
         – Promotes financial stability
         – Facilitates the trade and commerce of developing economies
         – Often a prerequisite for attracting foreign direct investment
         – Globally active industrial and service companies expect their
           insurers to follow them and provide worldwide support.
         – Participation of foreign insurers could improve the efficiency of
           capital allocation
         – Introduce best practice and efficiencies to emerging markets


Harold D. Skipper: Foreign insurers in emerging markets: Issues and concerns, IIF Occasional Paper, Number 1, 1997.
The Globalization of Insurance




   Fewer barriers to entry:


    – Greater cost of compliance = greater cost of entry
    – Greater cost of compliance = survival of large firms only?
    – Increased regulatory solvency requirements
The Globalization of Insurance


   Shift towards financial loss with regards to contractual
    obligations as opposed to simply property / business
    interruption – smaller brokers have to offer all lines of
    business.
   They must form close bonds with peers in order to
    satisfy the increased variety of clients’ needs as buyers
    become more sophisticated
   Introduction of non-standard products will mean that
    brokers must offer a greater claims service and
    expertise
Investing in the Developed World


    The financial crisis has made it increasingly difficult for insurers -
     one of the world’s biggest investors – to maintain their traditional
     profit levels.
    Government bond yields in developed countries have reached
     historical lows, while changes in global capital and accounting
     standards have pushed down returns on medium-risk assets.
    The solution, Swiss Re suggests, is geographical diversification.
       – At present, investments are highly concentrated in the developed
         world
       – Just four countries – the United States, Japan, Britain and France –
         account for over 60%, or $14.3 trillion, of global insurance assets.
http://blogs.ft.com/beyond-brics/2010/11/24/swiss-re-insurers-should-turn-to-emerging-markets/#axzz1gcEODIm8
Advantages of Investing in Emerging Markets


   Advantages of investing in emerging markets:
     – Returns are far less closely correlated with those of
       developed country stock markets than with each other.
    – Emerging markets are likely to receive higher portfolio
      allocations as their share of global economic output
      increases.
   In China, the insurance sector has been growing at an
    explosive 27% per year. After Japan, it is the second
    insurance market in Asia, with $394bn of assets. Following
    close behind are South Korea and India, with $318bn and
    $148bn of assets respectively.
Natural Disasters - Global
                          Events 1970 - 2010
                Number of Number of events 1970-2010

                300


                250


                200


                150


                100


                 50


                  0
                      1970   1975   1980     1985    1990   1995     2000      2005   2010
                                Man-made disasters          Natural catastrophes




Source: Sigma
                                               M
                                                 ire
                                                    ille                                   Indexed that exceed US $3.5bn (in USD bn)
                                                                 '9
                                               An                     1




                                                                                            5
                                                                                                           10
                                                                                                                       15
                                                                                                                                      20
                                                                                                                                                   25
                                                                                                                                                                30
                                                                                                                                                                     35
                                                                                                                                                                                  70
                                                                                                                                                                                         75
                                                  dr                      -W
                                                     e     w                      in
                                        No
                                                                '9                  d
                                          rth                      2




                                                                                                            9.00
                                                rid                       -W




Source: Sigma
                                                   ge                             in
                                                             '9                     d
                                                                  4
                                                Ko                    -Q




                                                                                                                                                        25.00
                                                      be                      ua
                                                             '9                  k     e
                                                                  5
                                                                      -Q




                                                                                                                                           20.60
                                                    Op                        ua
                                                           al                    k     e
                                                              '9
                                                                    5




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                                               Ge                         -W
                                                  or
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                                                                                       d
                                                                '9
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                                                    th                    -W
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                                                     Ba                       W
                                                                               in
                                                                                                                                                                                                                                                                                   1991 – 2011 – By Loss




                Tr                                         rt                     d
                   o         pi
                                                                '9
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                                    l   St
                                                   Flo
                                                          yd                      in
                                          or                    '9                  d
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                                                                                                5.29
                                                                                                                                                                                               Loss $0 - $10b




                                                 Al                       -W
                                                     lis
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                                                                                  in
                                                                                     d
                                                                 '0
                                                                      1




                                                                                             3.70
                                                    Ca                    -W
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                                                                                              4.44
                                               Ch
                                                 ar                           -H
                                                          le                       ail
                                                            y'
                                                                    04
                                                                                                                                                                                               Loss $11- $20b




                                                     Iva                  -W                 3.80
                                                         n                        in
                                                                '0                  d
                                                                     4
                                                                                                            9.30




                                                Je                        -W
                                                   a  nn                          in
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                                                        s'
                                                                 04                  d
                                                                                                                                                                                               Loss $20 - $30b




                                                                                              4.39




                                                                          -W
                                                      Ri
                                                                                                                                                                                                                 Losses from Natural Peril Catastrophes




                                                         ta                       in
                                                                '0                   d
                                                W                    5
                                                                                                    5.94




                                                     ilm                  -W
                                                        a                         in
                                                                '0                  d
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                                                                                                                   11.27




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                                                                                                                                                                                                                                                          Individual Catastrophes Indexed to 2010




                                                       na                         in
                                                                                                                                                                                               Loss > $30b




                                                                '0                   d
                                                                   5
                                                                                                                                                                                                                                                                                                           Individual Losses from Natural Peril Catastrophe




                                                                                                                            14.03




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                 Source: Sigma
                                                                                                                                                                          35.00
                                                   Individual Losses from Natural Peril Catastrophe
                                                   1991 – 2011 – By Type
                                                                                              Individual Catastrophes Indexed to 2010
                                                                                                          Losses from Natural Peril Catastrophes
                                                                                                                          Wind    Earthquake       Hail
                                                  75
                                                                                                                                                                                        72.30

                                                  70
      Indexed that exceed US $3.5bn (in USD bn)




                                                                                                                                                                                                                                        35.00
                                                  35

                                                  30
                                                              25.00
                                                  25
                                                                      20.60                                                                                                                     20.48
                                                  20
                                                                                                                                                14.88
                                                                                                                                                                                14.03
                                                  15
                                                                                                                                                                        11.27                                                  12.00
                                                       9.00                                                                              9.30
                                                  10                                               7.59
                                                                                                                                                                 5.94                                      6.40
                                                                                            4.72            5.29
                                                                                                                   3.70    4.44   3.80                    4.39                                                         4.45
                                                   5                          3.54   3.59
                                                                                    1




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                                                                                                                                                                                                                                   Source: Sigma




Source: Sigma
                Deadliest Earthquakes since 1970


                  Earthquake location      Year    Magnitude             No. of victims
                  Armenia                  1988    MlL 6.9               25,000
                  China                    1976    ML 7.5                255,000
                                           2008    ML 7.9                87,449
                  Haiti                    2010    MW 7                  220,570
                  Indonesia, Thailand et al 2004   MW 9.0                220,000
                  Iran                     1978    ML 7.7                25,000
                                           1990    ML 7.7                40,000
                                           2003    ML 6.5                26,271
                  Pakistan                 2005    MW 7.6                73,300
                  Peru                     1970    ML 7.7                66,000

                                                   MW=Moment Magnitude
                                                   ML=Richter scale




Source: Sigma
                The 2010 Insurance Year



                   Man made and natural disasters claimed approx 304,000
                    lives
                   More than 297,000 of these were due to natural
                    catastrophes
                   Third highest in terms of victims since 1970
                   Deadliest event was the Haiti earthquake – claiming more
                    than 220,000 lives




Source: Sigma
2010


   10 disasters triggered insured losses of $1bn+
   Chile earthquake $8bn
   New Zealand earthquake $4.4bn


   Second highest earthquake losses since 1994:
    – Northridge, LA - $20bn
    – Others in 1994 include Bolivia, Cape Mendocino (California),
      Kuril islands (Russia), Mindoro (Philippines), Honshu
      (Japan)
              2011


                   Record year for catastrophe losses


                      – Japanese earthquake and subsequent tsunami - $35-40bn
                      – Thai floods and landslides - 813 deaths
                      – New Zealand earthquake - $13bn
                      – Brazilian landslides & floods - 1,348 deaths
                      – Tropical Storm Washi (Philippines) - 1,527 deaths




Source: Reuters – 9 January 2012
               2011 insured losses hit $105bn

                          The worst year on record.



Source: Insurance Times – 5 January 2012
                      Although monetary costs were

                                   high, 2011 fatalities were

                                   extremely low at 27,000

                          compared to 296,000 in 2010.


Source: Reuters - 9 January 2012
Natural Disasters – the US
Recent Events

   Texas – Tropical Storm Hermine 2010
     –   Damage exceeded $500 million
     –   Left at least $240 million in losses

   Texas – Wildfires 2010 (Bastrop)
     –   Losses are thought to be $250 million
     –   Estimated Insured losses $500 million

   Virginia – Earthquake 2011
     –   Damage estimated $200 million to $300 million of which $100 million was
         insured

   U.S – Super Outbreak 2011
     –   Insured damage estimated $6 billion and total damage exceeded $10 billion
     –   Costliest Tornado outbreak
2011 Storms


   Tropical Storm Arlene        Tropical Storm Jose

   Tropical Storm Bret          Hurricane Katia
                                 Unnamed Tropical Storm1
   Tropical Storm Cindy
                                 Tropical Storm Lee
   Tropical Storm Don
                                 Hurricane Maria
   Tropical Storm Emily         Hurricane Nate2
   Tropical Storm Franklin      Hurricane Ophelia
   Tropical Storm Gert          Hurricane Philippe
   Tropical Storm Harvey        Hurricane Rina

   Hurricane Irene
   Tropical Depression Ten
                                                                                                                                                                                                                                                                                                     Source: Sigma
                                                               Individual Losses from Natural Peril Catastrophe
                                                                              Individual Catastrophes Indexed to 2010
                                                               1991 – 2011 – By Location                                             Losses from Natural Peril Catastrophes
                                                                                                                                                  Asia/Oceania                USA           Europe
                                            75
                                                                                                                                                                                                                                                  72.3

                                            70

                                                                                                                                                                                                                                                                                                               35.00
Indexed that exceed US $3.5bn (in USD bn)




                                            35


                                            30

                                                              25.00
                                            25
                                                                         20.60                                                                                                                                                                                20.48
                                            20

                                                                                                                                                                                        14.88
                                            15                                                                                                                                                                                          14.03
                                                                                                                                                                                                                                                                                                 12.00
                                                                                                                                                                                                                          11.27
                                                 9.00                                                                                                                         9.30
                                            10
                                                                                                                       7.59
                                                                                                                                                                                                               5.94                                                        6.40
                                                                                                           4.72                  5.29
                                                                                                                                                        4.44       3.80                             4.39                                                                              4.45
                                            5                                         3.54       3.59                                        3.70



                                                 Mireille -   Andrew - Northridge -   Kobe -   Opal - Wind George -   Lothar - Bart - WindFloyd - Wind Tropical Cat 88 - Hail Charley - Ivan - Wind Jeanne -   Flanes -   Rita - Wind   Wilma -   Katrina -   Ike - Wind Kyrill - Wind NZ - Quake NZ - Quake   Japan -
                                                  Wind         Wind      Quake        Quake      1995       Wind        Wind      1999        1999 Storm Allison 2003          Wind        2004       Wind      Wind         2005        Wind      Wind          2007        2007         2010       2011      Quake
                                                  1991          1992      1994         1995                 1998        1999                            -Wind                   2004                  2004      2004                     2005      2005                                                         2011
                                                                                                                                                         2001




              Source: Sigma
             Severe Weather Reports
             1 January – 13 October 2011




                                              There have
                                             been 29,385
                                           severe weather
                                            reports to 13
                                               October;
                                           including 1,805
                                              tornadoes;
                                             9,287 “Large
                                            Hail” reports
                                           and 18,293 high
                                             wind events




Source: NOAA Storm Prediction Center                     41
             Severe Weather Reports

            Number of Severe Weather Reports in US, by Type: 1 January – 13 October 2011



                                                          Tornadoes,
                                                           1,805, 6%




                                                                    Large Hail, 9,287,
                                                                          32%




              Wind Damage,                                                     Tornadoes accounted
               18,293, 62%                                                        for just 6% of all
                                                                                  Severe Weather
                                                                                    Reports to 13
                                                                                 October, but more
                                                                                  than 500 deaths
Source: NOAA Storm Prediction Center
             Location of Tornadoes in the US
             1 January - 13 October 2011




                                                1,805 tornadoes
                                               killed 546 people
                                                 to 13 October,
                                               including at least
                                                340 on April 26
                                                  mostly in the
                                               Tuscaloosa area,
                                               and 130 in Joplin
                                                   on May 22




Source: NOAA Storm Prediction Center;                           43
             Location of Wind Damage Reports in the US
             1 January – 13 October 2011




                                                         There were 18,293
                                                          “Wind Damage”
                                                            reports to 13
                                                         October, causing
                                                         extensive damage
                                                           to homes and,
                                                             businesses




Source: NOAA Storm Prediction Center                                     44
2011 Atlantic Hurricane Season


   The 2011 Atlantic hurricane season
    – produced a total of 19 tropical storms
    – (the average is 11)
    – of which seven became hurricanes
    – three major hurricanes
    – third-highest total (tied with 1887, 1995, and 2010) since
      records began in 1851

   Irene was the lone hurricane to hit the United States in 2011,
    and the first since Ike struck southeast Texas in 2008.

                                   Source: national oceanic and atmospheric administration
              2011 US Weather Disasters


                   Among the events were tornado outbreaks in April and
                    May that rank among the 10 largest U.S. weather
                    disasters ever.
                   If taken as a whole, and adjusted for inflation, the 2011
                    spring tornado season:
                      – was the fourth-costliest disaster in US history
                      – trailing only hurricanes Katrina and Andrew and the
                        September 11, 2001, attacks on the United States.




Source: Reuters - 9 January 2012
               In the United States, 171 events produced

                                   $35 billion in economic losses.

                         Nearly $26 billion of that came from

                        thunderstorm events, shattering the

                previous record by more than $10 billion.



Source: Reuters - 9 January 2012
                   The cost of the Japanese earthquake

                and tsunami equalled the insured cost

                of all the natural disasters to strike the

                              United States during the year.



Source: Reuters - 9 January 2012
Natural Disasters – Texas
Tornadoes


   Nearly half of Texas is located in “Tornado Alley”
   Two of the 10 costliest U.S. tornadoes since 1950
    occurred in Texas
   The three decades ending in 2009 show that Texas:

    – was ranked second in the United States for total number of
      tornado-related deaths and for the total number of “killer” tornadoes
    – led the nation in the number of F2 or greater tornadoes and
    – was third in the nation for the number of F4 and F5 tornadoes



                                    Source: Roger Edwards, Storm Prediction Center, The Online Tornado FAQ
                                                            http://www.spc.noaa.gov/faq/tornado/rank30yr.pdf
Earthquakes




  Nearly every year, earthquakes
   large enough to be felt by the
     public occur somewhere in
               Texas.

                   Source: USGS (U.S. Geological Survey, U.S. Department of the Interior)
Events in Texas



   According to the Federal Disaster Emergency Agency
    (FEMA), in Texas, there have been:


    – 86 major disaster declarations since 1953, with two caused
      by wildfires
    – 12 emergency declarations since 1993
    – 114 fire management assistance declarations since 2005
Floods




   Texas regularly leads the nation in the number of flood-related
    deaths.
   Texas has the most annual flood damage on a regular basis.
   Texas has world-record rainfall rates and an extreme
    predominance for major storms.
   Austin, Texas, is one of the most flood-prone regions in North
    America.



                                                           Source: www.floodsafety.com
Wildfires




   Texas had the most wildfires of any state
    in 2010:

    – 16,614 fires
    – damaging more than 750,000 acres of land
Drought



   Texas - from October 2010 to August 2011, Austin has
    had the least rainfall since the 1950s.


   This is a result of La Niña conditions in the Pacific Ocean
    where water turns unusually cooler than normal.


   KCBD in Lubbock reports that in all, 213 counties in Texas
    have lost at least 30 percent of their crops or pasture.
                  Drought and wildfires led to the decision

                    by the US Department of Agriculture to

                            declare the entire state of Texas a

                                                       natural disaster.


Source: CNN Money, “Wildfires and drought cost Texas billions,” by Aaron Smith
                                     Estimated damages to

                       homeowners more than $100

                                                   million in 2011.


Source: CNN Money, “Wildfires and drought cost Texas billions,” by Aaron Smith
                 Estimated economic damages of

                           at least $5.2 billion from the

                                                                  drought.


Source: Travis Miller, professor of soil and crop sciences, Texas A&M
                    Insured losses in Texas wildfires in

                fall 2011 estimated at $250 million by

                          the Insurance Council of Texas.



Source: “Insured losses in Texas wildfires top $250M: industry group”,
                Fire losses for 2011 have already

                             surpassed the record $115

                                   million suffered in 2009.



Source: chron.com (Houston Chronicle), Insurers report record claims from wildfires statewide, by Purva Patel, Houston Chronicle
Tropical Storms




 Tropical storms have also caused their
  share of damage:

   – 1989 & 2001   Allison
   – 1979          Claudette
Hurricanes



   Industry data shows that 65% of insured losses from
    natural disasters in the U.S. over the past half century
    are due to hurricanes.




                                Source: University of Houston’s Texas Hurricane Center for Innovative Technology
Hurricanes



   Some of the most destructive hurricanes in U.S. history
    have impacted Texas.


    – Indianola, 1875, killed approximately 400 people
    – Indianola, 1886, that destroyed the town.



   These events allowed Galveston to take over as the chief
    port city.
Hurricanes


 Inthe U.S., 83% of category 4 or 5
  hurricane strikes have pummeled either
  Florida or Texas.
       Source: Blake, E.; Rappaport, E. & Landsea, C. (2007). The Deadliest, Costliest, and Most Intense United States Tropical Cyclones from 1851 to 2006




 Two          of the 10 costliest U.S. hurricanes
  (Ike and Rita) struck Texas.
                                                                                                           Source: Insurance Information Institute. (2007)
Houston


   Houston
    – the fourth largest city in the US
    – the Energy Capital of the World
    – home to
        •   the Texas Medical Center (largest in the world)
        •   NASA
        •   The Port of Houston
   is only 30 miles north of Galveston, which was destroyed
    by a major hurricane in 1900.
   The Galveston area is brushed or hit by a hurricane every
    2.62 years.
            Source: Atlantic Oceanographic and Meteorological Laboratory, part of the National Oceanic and Atmospheric Administration
Because it is already plagued with

large-scale flooding problems, the

  threat to Houston by a strong

   hurricane is unprecedented.
2012 and beyond
The Industry’s Concerns


   Survey by Aon Risk Solutions at 2011’s RIMS
    conference:
    – Another economic slowdown, a slow recovery and loss of
      income
    – possibilities of rigid governmental changes
    – the increase in competition
    – possible injury to brand reputation
    – For the first time, businesses stated concern over not being
      able to meet the needs of their customers
    – Modernizing and advancing business techniques
    – Most of the businesses were concerned about finding (and
      retaining) quality employees
Lloyd’s Risk Index 2011 – The Top 5 Risks



   Loss of customers
   Talent and skills shortages
   Reputational risk
   Currency fluctuation
   Changing legislation
                                        Source: Lloyd’s Risk Index 2011
The Domestic Market



   We believe that the domestic market pricing is showing
    some signs of hardening, at both the primary and E&S
    market place.
   The coastal property market, as well as storm prone areas
    such as central Oklahoma.
   Standard carriers are re-underwriting specific classes of
    business i.e. manufacturing, LRO’s, etc.
   E&S and standard carriers are trying to get increased rate
    on their renewal books.
Emerging Markets


Fitch anticipated premiums written
by the Central American insurance
    industry would reach nearly
 USD3.3 billion by year-end 2011.


Almost 7% higher than in 2010.
For US Insurance Brokers




       9 December - Fitch Ratings predicted
        revenue and earnings increases for
        American insurance brokers in 2012
       Figures likely to equal or top those that
        were reported January - September 2011

The report of Fitch Ratings’ findings is entitled the “2012 Outlook: U.S. Insurance Broker Industry”, and it is available in its entirety at the firm’s official website.
For US Insurance Brokers


        However, Fitch Ratings also indicated that the
         basic nature of competition of the marketplace for
         property & casualty insurance, and the lukewarm
         global economic recovery will continue to provide a
         struggle for more significant growth and operating
         performance.
        Top-line increases may be able to take advantage
         of increases in prices within some specific business
         lines, which will improve the brokerage revenues
         from commissions over the upcoming year.

The report of Fitch Ratings’ findings is entitled the “2012 Outlook: U.S. Insurance Broker Industry”, and it is available in its entirety at the firm’s official website.
For US Insurance Brokers


        Fitch Ratings anticipates that the revenue growth
         from brokers will be relatively modest as a result of
         primarily flat rates within the wider market for
         commercial insurance in combination with a
         decreasing supply of acquisition targets that are of
         adequate size to boost the total revenues of the
         acquirer.
        Forecasted favourable credit trends in 2012, due to
         expected growth in earnings from margin
         expansion and gains in incremental revenue.

The report of Fitch Ratings’ findings is entitled the “2012 Outlook: U.S. Insurance Broker Industry”, and it is available in its entirety at the firm’s official website.
Cat Losses



   It is likely 2011 will be recognized officially as a banner
    year for insurance losses.
   The ISO, PCI and I.I.I. reported in November 2011 that
    insured losses in the first half of 2011 nearly tripled from
    2010.
   Since then, we have had Hurricane Irene and the rash of
    mid-fall snowstorms and tornadoes in the US.
Rates

   Possible increase in rates:


    – Following the Japan earthquake, Aon Benfield revealed that
      it would take losses of at least $51bn to push global
      reinsurance rates up for the 2012 renewal, while losses of
      less than $50bn for the year would be likely to result in
      prices falling.
    – Thai floods were not factored into risk management models.
      Could this be the event to tip the market and push up
      reinsurance rates, resulting in a hardening market?
Embrace Technology


   Ease of global broking


   Ease of information sharing


   Mobile / iPad apps


   Social media to gain an understanding of consumers’
    lifestyles – personal lines
How we must respond
How does an Australian catastrophe increase motor
insurance in Texas?




Large Catastrophe in   Huge financial loss to   Reinsurance claims
     Australia               insurers                  high




                                                Reinsurance rates
 Car insurance in       All Insurance rates     increase globally
 Texas increases         increase globally
                                                   (modelling)
2011 – The Impact on Rates

                                         Greater
        2011 Record
                                         Premiums
          cat losses
                                         for clients




                           Likely
                        reinsurance
                        and therefore
                       insurance rates
                        will increase
Changing Environment: The Impact on our Industry



   More and more of your clients are doing business
    globally.
    – Retail brokers – networks
    – Underwriters
    – Cedants (insurers seeking reinsurance)

   As a result, the nature of global business risk is
    changing, expanding beyond traditional exposures to
    include cyber-liability, e-commerce and
    communication, product liability.
   It is incumbent upon brokers to know and understand the
    risks of doing business at a local level – even if local
    means half way around the world.
   Making greater use of all the insurance tools available -
    primary and surplus lines markets, reinsurance, SIRs and
    captives - has brought segments of the industry closer
    together yet more competitive at the same time.
   All these realities and trends place pressure on the
    insurance industry to think globally but act locally.
Porter’s Generic Strategy

                                    Competitive Advantage
                                 Low cost           Higher cost
                       Broad




                                Overall Cost
   Competitive Scope




                                                  Differentiation
                                Leadership




                                                  Differentiation
                       Narrow




                                Cost Focus            Focus
                                                      (Niche)
What does that mean?


   You should decide if you will differentiate yourself by price,
    service, or offer a completely unique product
   Low price = higher number of premiums, at smaller profit
     – Best suited for standard products – personal lines

   Higher price = Greater service – more in-tune with non-standard
    insurance
     – Less technology used, more manual. Thus the same cost
       regardless if brokerage received is $1 or $50,000
     – Offering the best service possible to your client

   Niche Player = Can charge higher prices
     – How can you become niche in the generic, saturated insurance
       market?
Insurance - Internet Distribution Capability

           Low

                                                                                             Large Commercial Risks


                                                                                                                      Differentiation
                                                               Health Insurance                                            Niche
            Transaction volume




                                                            Commercial Motor


                                       Motor

                                                                                              Annuity Products

                                               Household
                                                                                       Index Linked Life Products


                                                                   Private Liability
                                                      Term Life Insurance

           High

                                 Low                                                                                High
      Cost focus
                                                               Product complexity
Overall cost leadership
How we must respond




   Seek new capacity via various underwriters


   Use wholesale brokers who have access to specialist
    underwriters and surplus lines markets


   Look for international exposures for your clients – can
    you help with the right partner?
How we must respond


   Seek inventive ways / markets in which to place
    business


   Respond to the customers’ needs – bespoke products
    for them, no longer off the shelf.


   Umbrella products
How we must respond




   Whatever line of business we do, and however our
    client base grows due to globalization, we must do one
    thing - stay responsive to market conditions and
    respond to our customers’ increasing demands.
QUESTIONS AND ANSWERS …..

				
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