Best's Asia-Pacific Weekly - February 7, 2017 Edition - The ...

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3 ACR Takes Full Stake in Malaysian Reinsurer, Retakaful Subsidiaries

4 Willis Capital Markets: Fourth-Quarter Non-life Cat Bond Issuance Rises 50%

6 China’s Regulator Imposes Rules to Restrict Insurers’ Stock Investments

7 Endurance Shareholders Approve Its Acquisition by Sompo Holdings Inc.

8 RGA CEO Reports a Good Year, Despite Australia Disability Disappointment

9 China’s Regulator Approves Establishment of Guofu Life in Nanning

10 Fosun United Health Insurance Cleared To Commence Business By China

10 Chubb CEO Foresees Positive Economic Changes Despite Soft Markets, Cats

New Zealand’s Kaikoura Quake Business Claims Hit NZ$900 MillionThe business claims from the 7.8 magnitude earthquake that hit Kaikoura, New Zealand, in November 2016 have reached more than NZ$900 million (US$657.2 million), according to the Insurance Council of New Zealand.

“It is early days and the figures may change but indications are that there are more than 2,500 commercial material damage and business interruption claims worth more than NZ$900 million,” Insurance Council Chief Executive Tim Grafton said in a statement.

Grafton added the current figures do not include claims made where assets have been insured directly with offshore insurers.

Wellington region has taken the brunt of business losses with two thirds or 65% of the total losses, followed by Upper South Island at 25%, Canterbury at 8% and the remaining 2% from other North Island claims.

Meanwhile, it is too early to indicate the value of residential claims, the ICNZ noted. Homeowners have until Feb. 14 to notify their insurers of any claims, the industry group added.

The ICNZ had earlier agreed with the government-run Earthquake Commission to simplify the claims process for home and contents insurance related to Kaikoura earthquake (Best’s News Service, Dec. 13, 2016).

Under the agreement, private insurers will act as EQC’s agents and receive, assess and settle home and contents claims for earthquake damage from their own customers, even those claims that are under the EQC cap. EQC, on the other hand, will assess land damage as land is not covered by private insurance policies.

The Reserve Bank of New Zealand estimated that the earthquake could cost up to NZ$8 billion in both government and insurance damages. The government is expected to pay up to NZ$3 billion of the repair bill and insurers up to NZ$5 billion.

(By Ernesto Calucag, Hong Kong news editor: [email protected])

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A.M. Best CompanyFebruary 7, 2017 • Issue 6 Insurance Newsletter

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Best’s JournalInsurance Issues and Analysis

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Europe Briefing Non-Life

A.M. Best analysts on U.S. Captives, U.S. State Funds, U.S. Health

Global Reinsurance Market Review

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“...There are more than 2,500 commercial material damage and business interruption claims worth more than NZ$900 million.”

Tim GraftonCEOInsurance Council of New Zealand

Real-time news, see http://news.ambest.com/ Best’s Asia-Pacific Weekly, February 7, 2017 3

ACR Takes Full Stake in Malaysian Reinsurer, Retakaful SubsidiariesACR Capital Holdings Pte. Ltd. has completed the 100% acquisitions of Asia Capital Reinsurance Malaysia Sdn. Bhd. and ACR ReTakaful Holdings Ltd. through the group’s Singapore-based reinsurer Asia Capital Re.

In a statement, the group said the entities will now become wholly owned subsidiaries of Asia Capital Re., which previously held 30% and 20% of ACR Malaysia and ACR ReTakaful respectively. The terms of the deal were not disclosed.

ACR Malaysia, established in March 2007, provides reinsurance products and services in specialist lines including aviation, marine, energy, property, engineering and casualty. Meanwhile, ACR ReTakaful started operations in 2008.

The company provides shariah-compliant risk solutions to Southeast Asia and Middle East through its operating entities, ACR ReTakaful Berhad in Kuala Lumpur and ACR ReTakaful MEA B.S.C. in Bahrain.

“At this juncture of ACR’s evolution and in response to the anticipated long-term development of our industry, we see the need to be able to support our clients in Asia in the most seamless way possible,” ACR Group Chief Executive Hans-Peter Gerhardt, said in a statement.

“The consolidation of all these ACR-branded entities fully under the ACR group is part of our long-term strategy to enhance the client benefits and operational efficiency of all ACR entities so they may be able to grow and move as one unit. The ultimate goal is to build a strong and coherent ACR group of companies for all our clients in Asia and the Middle East,” he added.

ACR Capital Holdings last year entered into 100% buyout deal with Chinese state-owned investment groups Shenzhen Qianhai Financial Holdings Co. Ltd. and Shenzhen Investment Holdings Co. Ltd. (Best’s News Service, Oct. 5, 2016).

Both Chinese groups said the ACR acquisition is in line with the aim to increase their exposure in reinsurance business. Shenzhen Investment Holdings has significant shareholding in Hong Kong-listed Ping An Insurance group while Shenzhen Qianhai Financial has a 20% stake in Qianhai Reinsurance Co.

(By Ernesto Calucag, Hong Kong news editor: [email protected])

JLT Re Appoints Managing Director To Grow Its Philippines BusinessJLT Re is expanding its operations in the Philippines, opening an office and appointing a managing director focused on strategy and market development.

William Pang will relocate to Manila before the end of the quarter, the reinsurance broker said in a statement, as its first managing director of JLT Re Philippines.

“The Philippines is a natural progression for JLT Re’s regional expansion plans, given that it’s the fourth-largest economy of the [Association of Southeast Asian Nations] countries after Indonesia, Thailand and Malaysia,” Stuart Beatty, JLT Re Asia-Pacific chief executive officer, said in a statement.

4 Best’s Asia-Pacific Weekly, February 7, 2017 Real-time news, see http://news.ambest.com/

“It is already a key region of focus for us and we intend to invest further with an aim to be a market leader … This is part of our broader strategy to establish a presence in key countries so we can develop a focused client servicing capability across treaty, fac and analytics.”

David Flandro, global head of analytics for JLT Re, recently said insurance penetration is low in the Philippines but could rise significantly because of economic growth (Best’s News Service, Oct. 28, 2016). JLT already had an office in the Philippines.

For the past five years, Pang managed JLT Re clients in Singapore, Vietnam and the Philippines from the company’s Singapore office as an executive director. Earlier, he was deputy head of client management at Munich Re.

Pang joins JLT Re’s Asia-Pacific executive group. He will continue to work with some clients in Singapore and Vietnam, the broker said, reporting to JLT Re Asia CEO Kenny Moyes. His appointment is subject to regulatory approval.

JLT Re is an affiliate of Jardine Lloyd Thompson Group plc, the fifth-largest insurance broker with 2015 revenue of $1.76 billion, according to Best’s Review’s annual ranking.

(By Renée Kiriluk-Hill, associate editor, BestWeek: [email protected])

Willis Capital Markets: Fourth-Quarter Non-life Cat Bond Issuance Rises 50%The insurance-linked securities market continued to grow in assets under management in the fourth quarter and for 2016, influenced in part by a diversification of product form, according to Willis Capital Markets & Advisory.

The investment banking business of Willis Towers Watson said in a statement total ILS assets under management in 2016 rose to $75 billion from $70 billion the previous year.

In it latest ILS report, WCMA said “after a quiet summer,” market activity picked up as the fourth quarter of 2016 saw $2.1 billion of non-life catastrophe bond capacity issued through five transactions, compared with $1.4 billion issued through five deals in the same quarter a year earlier.

Bill Dubinsky, head of ILS at WCMA, said in a statement “growth alone was not, however, the whole story as diversification by peril became increasingly important to investors, as did different approaches to liquidity and leverage, dependent on each investor’s appetite for ILS risk.”

“Our 2017 expectation is that assets under management will continue to grow at roughly the same pace as in 2016,” said Dubinsky. “Leverage and diversity will also increase, led by a greater level of sophistication amongst the established investor base. At the same time, newer investors will continue to seek the greater liquidity that the traditional cat bond product offers.”

WCMA said in its report “with the presence of leverage in its various forms, $75 billion in AUM no longer means $75 billion in limit.” The report noted “many sidecar arrangements cap the supported limit at a modeled return period.”

“Sidecar and reinsurance premiums provide additional leverage, as do excess of loss fronting arrangements,” the report said.

“Our 2017 expectation is that assets under management will continue to grow at roughly the same pace as in 2016.”

Bill DubinskyHead of ILSWillis Capital Markets & Advisory


WCMA said it expects AUM in 2017 to grow at a similar pace to 2016. “Nonetheless, leverage will grow more rapidly as investors use fronting and similar techniques to enter insurance and reinsurance. This could mean more capacity and more competition even if AUM grows more modestly,” WCMA said.

“Similarly, cat bond issuance and outstanding cat bond capacity no longer tell the story of market success as a whole,” the report said. “Instead, these figures remain the most transparent piece of the overall ILS market. They speak to the depth and breadth of the ILS investor base. Cat bond market share grows when players who require more liquidity become more prominent.”

WCMA added many of the more established players “are happy to trade illiquidity for higher rates and less competition. In contrast, a minority of the established investors as well as investors newer to the sector favor the liquidity and transparency of the cat bond product.”

“All fourth-quarter issuances were sponsored by repeat sponsors and a number of them brought several new perils for those cedants,” said WCMA in its report.

Among the fourth-quarter 2016 transactions, the first was Residential Re 2016-2, sponsored by USAA. That deal secured $400 million of indemnity cover on a per occurrence basis, providing coverage against U.S. tropical cyclones, earthquake, severe thunderstorm, winter storm, wildfire, volcanic eruption, meteorite impact and all other events classified as natural disaster or severe weather.

Following last year’s $250 million placement, the California Earthquake Authority sponsored a new indemnity bond, Ursa Re Ltd. 2016-1, a $500 million bond to provide protection on an annual aggregate basis through a three-year term against California earthquake risk.

Bonanza Re 2016-1, the second catastrophe bond sponsored by American Strategic Insurance, is divided in two tranches, both featuring an indemnity trigger on a per occurrence top and drop basis.

A $150 million tranche of Class A notes provides coverage against named storms and severe thunderstorms while a $50 million tranche of Class B notes provides coverage against named storms only. Both are on a three-year basis.

WCMA helped complete a €255 million (US$265.5 million) insurance-linked securities transaction for Italian multiple-line insurer Assicurazioni Generali SpA for motor third-party liability risks in Europe.

Generali, the largest insurance group in Italy, sponsored the Horse Capital I DAC. “This is an innovative structure to mitigate a deterioration of Generali’s (motor third-party) loss ratio in Italy, France, Germany, Spain, Austria, Switzerland and Czech Republic,” said WCMA. “The transaction provides indemnity protection for a three-year period reducing the volatility of the loss ratio and solvency ratio of one of Generali’s core lines of business.”

XL Bermuda returned to the market with twin Galilei Re Ltd. Series 2016-1, issued before the end of 2016, and Galilei Re Ltd. Series 2017-1 targeting a January issuance, said WCMA. Both series provide cover on an industry loss and annual aggregate basis against U.S. named storms and earthquakes, European windstorms, Australian tropical cyclones and earthquakes.

WCMA said this is the first cat bond using Zurich-based Perils AG’s index in the context of Australian risk. WCMA said the bonds are structured across five tranches of notes. The 2016-1 tranches provide three-year coverage and the 2017-1 tranches provide four-year coverage.

Wills Group Holdings is the fourth-largest broker with $3.83 billion in 2015 revenue, according to Best’s Review.

(By David Pilla, news editor, BestWeek: [email protected])

Upcoming Insurance EventsFeb. 7-9: NAMIC Claims Conference, National Association of Mutual Insurance Companies, La Cantera Hill Country Resort, San Antonio.Feb. 8-10: ICMG Annual Conference, Inter-Company Marketing Group, Hyatt Regency Grand Cypress, Orlando, Florida.Feb. 8-10: DRI Product Liability Conference, Defense Research Institute, Las Vegas.Feb. 14-16: RAA Cat Risk Management Conference, Reinsurance Association of America, Loews Portofino Bay Hotel, Orlando, Florida.Feb. 18-21: ACLI Medical Section Annual Meeting, American Council of Life Insurers, The Ritz-Carlton New Orleans.Feb. 26-28: SIFMA Insurance and Risk Linked Securities Conference, Securities Industry and Financial Markets Association, Eden Roc, Miami Beach, Florida.March 1-3: NAMIC Commercial Lines Seminar, National Association of Mutual Insurance Companies, Renaissance Chicago Downtown Hotel.March 5-7: AIFA 42nd Annual Conference, Association of Insurance & Financial Analysts, Boca Raton Resort & Club, Boca Raton, Florida.March 5-8: ACLI Refocus, American Council of Life Insurers, The Cosmopolitan of Las Vegas.March 6-8: NAPSLO Mid-Year Leadership Forum, National Association of Professional Surplus Lines Offices, Marriott Resort Fort Lauderdale Harbor Beach, Fort Lauderdale, Florida.A complete list of the industry’s upcoming conferences and events is at www.ambest.com/conferences/index.html.


China’s Regulator Imposes Rules to Restrict Insurers’ Stock InvestmentsThe China Insurance Regulatory Commission said it has released new rules to control insurance companies’ stock investments, preventing aggressive takeover actions on listed firms.

The regulator has lowered the investment cap on insurers’ stock investments, with a limit of no more than 5% of their total assets as of the end of the previous quarter in a single stock. Equity investments should not exceed 30% of total assets of the insurers, said the CIRC in a statement.

Insurers are prohibited from teaming up with non-insurance companies to jointly take over a publicly listed firm through stock trading. The CIRC said insurers should not continuously increase their shareholding in a listed company without the prior documented approvals related to major stock investments and acquisition activities.

The regulator has classified insurers’ stock investments into three categories, with respective measures and requirements. Ordinary stock investments refer to total shareholding of less than 20% of a company.

Major stock investments have more than 20% of total shareholding in a company. Acquisitions refer to direct or indirect control of the company. The CIRC said insurers have to use their own funds for acquisition activities and need approval from the regulator.

Insurers are asked to act as financial investors instead of strategic investors in companies, prohibiting aggressive takeovers in partnership with companies outside the industry.

The CIRC said insurers have to be a “friendly investor” with good communication with the listed companies’ shareholders and management teams. The regulator will have closer coordination with other regulatory bodies for insurers’ stock investments and acquisition activities.

The new rules aim to strengthen supervision of insurers’ stock investments, preventing concentration on a particular investment. The CIRC said insurers have to improve their asset-liability management and promote the stability of the insurance sector and financial market as a whole.

China’s insurance sector still has plenty of room to grow its equity investments portfolio. The insurance industry invested 1.2 trillion yuan (US$175 billion) in stocks, accounting for less than 10% of total invested assets. The CIRC said insurers should have a diversified investment strategy for high and long-term value assets.

Insurers should improve the structure of investments amid increasingly volatile capital markets. The CIRC said insurers have two years’ time to adjust the portfolios of their asset management in accordance to regulatory requirements.

This regulatory moves show a tightening of measures on insurers’ asset management.

In 2015, the CIRC relaxed the upper limit for qualified insurance companies to invest in blue-chip stocks. Insurance companies, which must meet regulatory requirements and conditions, could invest up to 10% of their total assets in a single blue-chip stock, up from the previous ceiling of 5%, according to the CIRC.

The proportion of assets allocation in equities had been raised to 40% from 30%, given the insurers’ increased equities investments are for blue-chip stocks.

(By Iris Lai, Hong Kong bureau manager: [email protected])

A.M.BestTVInstitutional Investors Drawn to Life Settlement MarketAttendees at the annual Life Settlement Institutional Investor Conference in New York said there is renewed interest in the repurchasing of life policies but it faces a range of challenges.http://www.ambest.com/v.asp?v=lisa217Analytics: Personal Lines Sector Holds Sole Stable P/C OutlookChief Rating Officer Stefan Holzberger reviews highlights from A.M. Best’s annual Review/Preview report for the U.S. property/casualty insurance industry.http://www.ambest.com/v.asp?v=pc117Analysts: Repeal of Affordable Care Act Could Trigger Range of ImpactsA.M. Best Senior Director Sally Rosen and Senior Financial Analyst Wayne Kaminski examine provisions of the federal Patient Protection and Affordable Care Act that might be subject to repeal and how that would affect insurers.http://www.ambest.com/v.asp?v=aca117A.M. Best’s Thomas: U.K. Insurers Look to Solvency II EquivalenceCatherine Thomas, senior director of analytics, A.M. Best, said U.K. insurers that plan to compete in the EU after Brexit will benefit if the U.K. is granted equivalence with Solvency II standards, or otherwise will face strains on resources.http://www.ambest.com/v.asp?v=brexit117Life and Annuity Insurers Respond to Reserving, Product ChangesChief Rating Officer Stefan Holzberger outlines highlights from A.M. Best’s annual Review/Preview report on the life and annuity sector, including the introduction of principles-based reserving for new business, regulatory changes and insurers’ efforts to more closely tie products to the interest rate environment.http://www.ambest.com/v.asp?v=lifeannuity117


Endurance Shareholders Approve Its Acquisition by Sompo Holdings Inc. Endurance Specialty Holdings Ltd. said its shareholders approved the proposed merger of Endurance with and into Volcano International Ltd., an indirect, wholly owned subsidiary of Sompo Holdings Inc.

More than 54 million votes were cast in favor of the merger between Endurance, Sompo and Volcano, with just 16,945 votes against, according to an Endurance filing with the U.S. Securities and Exchange Commission.

A second item, a non-binding measure on compensation “that may be paid or become payable to Endurance’s named executive officers in connection with the merger,” gained 52.1 million votes in favor against 1.4 million votes against.

“Endurance and Sompo expect to complete the merger later in the first quarter of 2017,” the company said in a statement.

The special general meeting of Endurance common and preferred shareholders was held at the company’s Pembroke, Bermuda location.

Endurance said the merger remains subject to other customary closing conditions, including regulatory approvals.

Sompo seeks to acquire Endurance in a $6.3 billion deal intended to expand Sompo’s global reach (Best’s News Service, Oct. 5, 2016). Endurance Chief Executive Officer John Charman and his executive team are to lead what will become Sompo’s international division, Endurance said at the time.

Endurance also said in October Charman signed a five-year contract to remain with Sompo. It said there is a strong commitment to maintain significant operations in Bermuda, but it is too early to say if the international division headquarters will be there.

Sompo said in October it changed its name from Sompo Japan Nipponkoa Holdings Inc. to Sompo Holdings. The change signaled a major change in focus, the company said, adding it intended to become a strong competitor globally.


China’s Regulator Approves Establishment of Guobao Life The China Insurance Regulatory Commission has approved the establishment of Guobao Life Insurance Co. Ltd. in the southwestern city of Chengdu, according to a statement from the regulator.

Guobao Life has a registered capital of 1.5 billion yuan (US$219 million) and it is registered in Chengdu city of Sichuan province. The CIRC said the new life insurer has a year to prepare for establishment.

Guobao Life has nine investors, including Sichuan Development Holding Co., Chengdu Advanced Manufacturing Industry Investment Co., Zhongjin Guotai Holding Group, Shanghai Zhongjiu Investment Group, Sichuan Chuangshang Development Holding Group, Chongqing Jinyang Real Estate Development Co., Sichuan Xiongfei Group, Chengdu Tianxinyang Jinye Co. and New Hope Investment Co.


There have been several approvals for the establishment of new life insurance companies since the beginning of this year. Also this month, the CIRC approved the second application by the investors of Haibao Life Insurance Co. Ltd. for a new company. Haibao Life has a registered capital of 1.5 billion yuan, and it is registered in Haikou city of Hainan island.

The CIRC also granted approval to Beijing Life Insurance Co. Ltd. to establish business in the capital city, according to a statement from the regulator. Beijing Life has registered capital of 2.86 billion yuan and its headquarters is in Beijing.


RGA CEO Reports a Good Year, Despite Australia Disability DisappointmentGlobal diversification and strong organic income were key to rising income in a tepid global economy for Reinsurance Group of America Inc., said the life reinsurer’s chief executive officer.

President and CEO Anna Manning said in a conference call the group didn’t close any major block transactions but concluded a number of small deals as all of the group’s international segments, with the exception of Australia, did well.

Manning said although 2016 was an active year for RGA in terms of in-force block transactions, “we did not close on any large transactions but we did close on a number of small transactions,” deploying about $130 million in capital.

In the European Union, Manning said a complex regulatory environment is a factor in closing life reinsurance deals, but added RGA sees good opportunities. She said RGA closed a number of Solvency II-compliant deals in Europe, including its first-ever longevity deal in France.

Manning said RGA is optimistic about the potential for acquisitions and other deals in the near future, given what she sees as “uncertain times.”

Fourth-quarter net income for RGA rose to $190.1 million from $163.1 million a year earlier. Consolidated net premiums rose 7% to $2.49 billion.

Manning said RGA did well in 2016 despite what she called “ongoing macro headwinds” from low interest rates and a strengthening U.S. dollar.

“We had particularly good results from our U.S. traditional business,” said Manning. “A key factor in 2016 and recent years was the successful performance of our global operating model,” which allowed RGA to perform well even as individual segments sometimes did not, she said.

“Notably, after a very challenging 2015 for our U.S. traditional business, this business unit rebounded in 2016,” she said.

Chief Financial Officer Todd C. Larson said in the call the Asia-Pacific traditional life underwriting experience was favorable across Asia “with particularly strong results in Hong Kong and Japan.” He added the region’s result was offset by high claims on individual disability business in Australia.

Manning added in the Australia individual disability business “we expected to see volatility,” while noting a “poor-performing” second half in that line that followed a first half where the business performed “as expected.”

“We did not close on any large transactions but we did close on a number of small transactions.”

Anna ManningCEO RGA


Higher claims costs in the Australia disability segment are being driven by higher incident rates, lower terminations and higher average claims, said Manning. She added the lower performances in Australia disability are seen in several smaller treaties, where she noted “rates are review-able” and price increases are “coming online into 2017.”

Larson said U.S. and Latin America traditional life business benefited from higher variable investment income and modestly favorable claims results in the individual mortality business. Results in the year-ago quarter “reflected poor experience in the group business” and unfavorable claims in individual mortality, he said.

Traditional life business in Canada saw results fall as the year-ago quarter was driven by “particularly favorable individual mortality claims experience” while the 2016 quarter reflected “modestly favorable” individual mortality claims, said Larson.

For the Europe, Middle East and Africa segment, traditional life income rose on higher premiums and a favorable adjustment associated with improved client reporting, partly offset by unfavorable mortality and morbidity experience in the United Kingdom, Larson said.


China’s Regulator Approves Establishment of Guofu Life in NanningThe China Insurance Regulatory Commission has approved the establishment of Guofu Life Insurance Co. Ltd. in the southern city of Nanning, according to a statement from the regulator.

Guofu Life has a registered capital of 1.5 billion yuan (US$219 million) and is registered in the capital city of the Guangxi Zhuang Autonomous Region. The CIRC said the new life insurer has a year to prepare for establishment.

The CIRC said Guofu Life’s establishment is initiated by Guangxi Investment Group Co., which is a state-owned enterprise with businesses in energy, financial, medical, metal and travel sectors. The new insurer’s investors include Guangzhou Weipin Information Technology Co., Jian New Year Advertising Media Co., Beijing Xin Zhongli Investment Co., Three Gorges Huaxiang Group, Guangxi Daily Media Group Co., Shanghai Hengda Building Materials Market Management Co. and Guangxi Mingdu Ecological Science and Technology Development Co.

Last year, the CIRC listed several principles for granting approval to new insurance companies. The regulator is looking into investors with strong capital and business backgrounds, with a priority for insurers launching in remote and special economic and development zones. Some of the recent approvals were granted to insurers operating in non-major cities and provinces. Most recently, the CIRC has approved the establishment of Guobao Life Insurance Co. Ltd. in the southwestern city of Chengdu. Earlier, the regulator granted approval to Haibao Life Insurance Co. Ltd. to establish in Haikou city, of Hainan island.

There have been so far three approvals for new life insurance companies. The CIRC also granted approval to Beijing Life Insurance Co. Ltd. to establish business in the capital city.

China had 75 life insurance companies in 2015, according to the CIRC. Life insurance companies posted a 24.97% rise in total premium to 1.6 trillion yuan. Total assets of life insurers rose 20.41% to 9.9 trillion yuan in 2015.


Briefing: ACA Exchange Marketplaces Continue To Challenge InsurersMany of the health insurance carriers that decided to fully participate in the individual exchange marketplace as part of the Patient Protection and Affordable Care Act in 2014 and 2015 experienced larger operating losses in that line of business. Jan. 31, 2017Special Report: Western European Insurers Enjoy Stability but Diverse Pressures PersistThe credit quality of Western European insurers and reinsurers has been stable over the past 12 months, despite a difficult period of low investment yields, a competitive environment particularly for reinsurers with an abundance of capacity and challenges to meet shareholders’ expectations. Jan. 27, 2017Special Report: Profitability Slides, Surplus Growth Slows and Competition Intensifies for Property/Casualty InsurersAfter three consecutive years of underwriting profits, the U.S. Property/Casualty industry is expected to post a small underwriting loss in 2016. Jan. 26, 2017 Special Report: Life/Annuity Insurers Focused on What They Can ControlWith the outcome of the Presidential election, we are seeing an early surge in optimism for the U.S. economy. Jan. 24, 2017 Briefing: Potential Impacts of the Repeal of the ACAThe 2016 Presidential Election won by Donald Trump has brought renewed vigor to health care reform. Jan. 20, 2017

Best’s JournalInsurance Issues and Analysis

Commercial Automobile Performance Drags Down P/C Market Profitability

Personal Automobile Line Faces Challenging Road Ahead

New Competitors & Regulatory Challenges Drive Distribution Innovation

Larger L/A Insurers Spur High Risk Asset Growth

2017 Outlooks Life/Annuity - Negative

Global Reinsurance - Negative

Personal Lines - Stable

Commercial Lines -Negative

Health - Negative

Life Reinsurance - Stable

Insurers Compete for Fewer Opportunities in Challenging Market

Chinese M&A Activity Continues to Expand Overseas

Southeast Asian Insurers Look Beyond Commercial Fire & Motor Lines

January 16, 2017 • Issue 1 journal.ambest.com


Fosun United Health Insurance Cleared To Commence Business By ChinaThe China Insurance Regulatory Commission has granted approval to Fosun United Health Insurance Co. Ltd. to commence business in Guangzhou of Guangdong province, according to a statement from the regulator.

Fosun United Health Insurance has a registered capital of 500 million yuan (US$75 million), said the CIRC. The new company is allowed to operate yuan and foreign currency-denominated medical, accident and injury insurance, government health insurance scheme as part of national medical policy, reinsurance for all these businesses, asset management permitted by the regulator and other approved activities.

Last August, the CIRC approved the establishment of Fosun United Health Insurance, which was initiated by Fosun Group. The group said it aims to generate synergies between its resources in sectors such as insurance and health care through integration. Other investors include Guangdong Yihua Real Estate, Ningbo Xizi Asset Management, Chongqing Doyen Holdings, Ample Harvest Finance and Dian Diagnostics.

China’s government expects commercial health insurance will account for a greater proportion of total health expenditures by 2020. Medical needs have become more diversified with increasing public health awareness. Health insurance premium rose about 52% to 241 billion yuan in 2015, according to the Insurance Association of China. It accounted for about 9.9% of China’s total premium income.

Fosun had said its business approach for medical insurance in China is “an insurance plus health care service” model. Fosun’s benefits ride on its invested hospitals in China, drug companies and global access to medical services. It aims to build an integrated approach for medical insurance with health care services, global access, pension and health care management.

China’s medical insurance is expected to post annual growth rate of 30% from now to 2020, according to Fosun. Access to quality services and suppliers are a prerequisite for the development of medical insurance in China, which still sees substantial gaps for medical services like hospitals across provinces.


Chubb CEO Foresees Positive Economic Changes Despite Soft Markets, CatsSoftening property/casualty rates worldwide and higher catastrophe losses underlined concerns about economic uncertainty for Chubb Ltd., but the group is seeing a smooth integration from its merger last year and strong premium gains, according to its chief executive officer.

Chairman and CEO Evan Greenberg said in a conference call “despite elevated catastrophe losses and soft property and casualty rates globally,” the group is optimistic about income and revenue growth going into 2017.

Even with those conditions, he said underwriting results were driven in part by global property/casualty businesses and Chubb’s agriculture division, which he said “had an outstanding quarter.”

Greenberg added economic and political conditions, especially in the United States, add to overall uncertainty but are also causes for optimism.


On possible changes in U.S. tax policies under the Trump administration as they might impact Chubb’s Zurich domicile, he said more than 60% of Chubb’s business is U.S.-based, making anticipated U.S. tax reform a positive issue for Chubb. Greenberg emphasized tax considerations are not a big issue for Chubb in its strategy goals. Underwriting and loss control are the factors Chubb focuses on, he said.

Greenberg said the group is “operating in a time of uncertainty, economically and geopolitically, adding “the world is a tense place marked by growing nationalism and populism that are feeding protectionist sentiment.” On the positive side, he said monetary and fiscal changes are anticipated in the United Sates concerning taxation, regulation of business, infrastructure and higher interest rates, which he said “are potentially a real positive for business, jobs and the economy if implemented in a way that does not exacerbate budget deficits.”

Chubb’s fourth-quarter net income more than doubled to $1.61 billion from $683 million a year earlier.

The property/casualty combined ratio was 87.8, compared with 87.7 a year earlier, or on an “as if” basis, 87.6, compared with 87.3 in 2015. Greenberg noted an “as if” basis refers to what the combined entities of Chubb and Ace Ltd. would have reported had they been a combined entity before their January 2016 merger.

Chief Financial Officer Philip Bancroft said in the call total catastrophe losses for the quarter were $268 million pretax and net of reinsurance, compared with $75 million last year. On an “as if” basis, total pretax catastrophe losses for the fourth quarter of 2015 were $159 million.

Fourth-quarter catastrophe losses include $190 million for Hurricane Matthew and $60 million for the most recent New Zealand earthquake, according to Bancroft.

Bancroft said the fourth quarter also included $78 million pretax in adverse development for legacy asbestos exposures in the corporate segment.

Chubb also harmonized and amended several U.S. retirement programs, which according to Bancroft contributed to a one-time $113 million pretax benefit to the group in the fourth quarter.

Chubb’s consolidated net premiums written for the quarter rose 67.4% to $6.93 billion from the same period a year earlier. On an “as if” basis, NPW fell 3.8%.

Greenberg said the fourth quarter was a bit better than what we experienced in prior quarters during the year with many of the same themes — strong retentions of our in force business, less new business due to market conditions, and a revenue penalty due to planned merger-related underwriting actions including the purchase of additional reinsurance.”

He added while market conditions globally are competitive, “I expect as we progress through 2017 and the impact of the merger continues to fade and the power of the organization gains more momentum, we will produce stronger growth.”

According to Greenberg, crop insurance underwriting premium was $128 million higher in the 2016 fourth quarter than a year earlier.

Crop insurance also looks attractive to Validus Holdings Ltd., which recently said it reached a $127.5 million deal to buy Archer Daniels Midland Co.’s Crop Risk Services business, which according to Validus will boost its crop insurance reach across 36 states.


This Month in

Best BehaviorFor more than a century, U.S. life insurers have relied on actuarial data and a relatively simple exchange of information with customers to underwrite policies. The sum of the company’s interactions with a policyholder might be limited to asking them a series of questions, signing the policy, banking the premiums and paying out on it more than 50 years later. But as growth in life insurance sales has flagged in recent years, companies are looking at new ways to market their products — especially to younger people — and devising better methods of retaining customers and involving them in the process of life insurance.While they are not throwing away their actuarial tables, life insurers are increasingly looking to behavioral science for pointers on how they can achieve this.

Tell Us What You ThinkWhich will have the biggest long-term impact on the insurance industry? Insurance-linked securities, insurtech startups or artificial intelligence?Email your answer to [email protected] responses will be published in a future issue.

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XL Group’s Fourth-Quarter Net Rises Despite Catastrophe, Integration CostsXL Group Ltd. said higher catastrophe losses and merger integration costs related to its combination with Catlin Group Ltd. affected fourth-quarter net income, but the result still rose from a year ago.

Net income for the quarter rose to $304.7 million from $228.6 million a year ago

The group said the current quarter’s result includes about $58.8 million in integration costs as well as $246.1 million in natural catastrophe losses, compared with $73.3 million in integration costs and $107.8 million in natural catastrophe losses in the prior-year quarter.

Property/casualty gross premiums written in the fourth quarter rose 19.3% to $3.02 billion.

The fourth-quarter combined ratio was 94.8, compared with from 92.3 a year earlier.

XL earlier estimated it would incur about $245 million in preliminary net losses from natural catastrophes for the fourth quarter, about $130 million of that related to Hurricane Matthew (Best’s News Service, Jan. 10, 2017).


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