Unlocking opportunity in a disrupted world - Insurance growth report - Clyde & Co
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Unlocking opportunity in a disrupted world Insurance growth report
Contents 02 06 16 Executive summary – Multiple drivers The insurance Insurance businesses set to encourage M&A landscape map out routes M&A activity in numbers to growth in 2018 18 26 32 Markets and Insurtech – Contributors Models – Who’s a major driver expanding where, for growth how and why?
Welcome This may be an industry that is
ripe for disruption, but this report
In the seven years that we have
demonstrates that insurance leaders
been conducting our annual research,
are up for the challenge and that the
re/insurers have rarely experienced
industry is making great strides in
tougher market conditions or been
disrupting itself.
under greater pressure to deliver
growth. But despite the difficult I do hope the report serves as a
backdrop, this year’s report identifies useful insight into re/insurers’
many positive future indicators. growth strategies in 2017 and
After a lacklustre couple of years, provides a continuing reference
M&A activity picked up in the second point for you through 2018.
half, indicating a renewed level of
If you would like to discuss any
confidence in deal-making as a tried
of the information or ideas presented
and tested route to growth. Our M&A
here, please get in touch with me or
team are predicting that 2018 will be
with your usual partner contact at
the year when M&A returns to form
Clyde & Co.
and the way the year has started,
with a number of high profile deals
announced already, suggests that
will be the case.
Companies have continued to explore
opportunities in emerging markets
and exploit innovative models, but
most importantly, it has been exciting
to see players around the world
embrace opportunities presented –– Andrew Holderness
by insurtech, an area where we are Global Head of Corporate
seeing considerable growth. Insurance Group
Executive summary – Insurance businesses map out routes to growth
3
The pressure on re/insurers Transactions at a turning point The US has regained its position as
the most active region for transaction
to deliver growth for A merger or acquisition remains
activity and will continue to lead
a popular route to building scale,
shareholders is unrelenting. accessing new markets and customers
the way, with dealmakers displaying
greater confidence one year into
Yet so too are the and generating efficiencies. After a
the Trump administration. Recent
two-year slide, the volume of completed
challenges. Despite record tax cuts could generate a spate of
mergers and acquisitions (M&A) in the
stock-market gains around deals involving both US targets and
global insurance industry increased in
acquirers, with Bermudian assets ripe
the world in the last 12 the second half of 2017. A number of
for acquisition.
positive indicators suggest more deals
months, investment income to come in the coming months.
remains unimpressive in
what is still a relatively low
interest rate environment.
Over-capacity in the market
persists, with the impact
of the 2017 hurricanes
having little effect on
pricing, making higher
margins on underwriting
difficult to achieve.
Against this backdrop, re/
insurers around the world
are looking at a range of
strategies to deliver growth.
globally, 2009 - 2017
Volume of deals completed
0
50
150
250
200
300
2009 H1 291
H2 282
2010 H1 272
H2 250
2011 H1 289
H2 266
2012 H1 244
H2 200
2013 H1 162
H2 157
2014 H1 192
H2 192
2015 H1 225
H2 219
2016 H1 201
H2 186
2017 H1 170
H2 180
5
Asia in focus Expanding into new markets At the opposite end of the value
chain, technology is also the key
While the volume of completed deals Where growth via M&A remains
to unlocking new customers in new
in Asia dipped in the last 12 months, a challenge, we continue to see
markets via new distribution channels.
primarily due to foreign currency re/insurers look to enter into new
Others are looking to acquire dynamic
restrictions and regulatory uncertainty markets by either setting up a
and innovative start-ups that can
in China, M&A activity in the region branch or subsidiary or entering into
deliver proven solutions; or take
is set to rebound. Japanese acquirers a joint venture or some other kind
stakes in these types of businesses
will continue their quest for overseas of tie up with a local partner. India
via corporate venture-style funding.
targets while 2018 could be the year remains one of the most attractive
Some are investing in-house, creating
that their Korean counterparts finally emerging markets for those looking
so-called ‘digital garages’ to support
begin to follow suit. On the flipside, at planting a flag in a new territory or
the development of proprietary
Southeast Asia is on the radar of strengthening an existing position. A
solutions. Of course, many are
foreign investors seeking opportunities number of global reinsurers arrived
trialling a number of these routes
in growing and well-populated in the country in 2017, following the
to growth simultaneously.
emerging markets with low levels removal of restrictions on establishing
of insurance penetration. Meanwhile, local offices. Further legislative
2018 a watershed year?
regulatory changes introduced with changes expected in April 2018 should
the aim of creating stronger, better accelerate the arrival of international While 2018 may not be the year that
capitalised insurers in this part of players into the country. technology takes over, it will likely
the world could lead to a wave of mark the point where disruption
Elsewhere, China’s Belt and Road
consolidation among domestic players. becomes a reality. New market
initiative is expected to lead to
entrants such as Amazon and Google
USD 4 trillion in infrastructure
The Brexit effect will threaten established models and
investment across 65 countries,
heap further pressure on traditional
Uncertainty around the UK’s bringing with it significant
insurers. As they seek to compete,
withdrawal from the EU has acted opportunities for those involved
traditional players will need to evolve
as a brake on European M&A while in the risk transfer business.
their business models and leave no
re/insurers plan their post-Brexit
stone unturned in the quest to protect
strategies. Although the final details Technology tops the bill
market share and drive growth.
of Brexit remain unclear, those who
Interest in technology as a growth However, there is one caveat: insurance
needed to respond to the possible
driver has further accelerated. With re/ has been widely tipped for a while as
loss of passporting rights have by and
insurers unable to control investment an industry ripe for disruption but has
large restructured their operations in
returns and pricing driven by market resisted change more forcefully than
preparation for life after March 2019.
forces, direct costs is the one line item many others. It will be fascinating
As such, we expect transactions to
on the profit and loss statement where to see where we are when we review
move further back up the management
they can exert some control. As they developments again.
agenda and, with some of the
look to generate internal efficiencies,
uncertainty removed around the
they are investigating how technology
structure of possible European targets,
including blockchain and artificial
an increase in deals is likely.
intelligence can be deployed to deliver
smarter ways of doing business.
Multiple drivers set to encourage M&A activity in 2018
7
Deals continue despite uncertainty The operating environment for many
insurers continues to be challenging.
There were 350 completed M&A in the
Competition is rife, there is ample
insurance industry in 2017, down from
capacity in the market, pricing is
387 the previous year. Activity in Asia
soft and investment returns remain
was the hardest hit predominantly
unimpressive due to the on-going low
due to Chinese Government foreign
interest rate environment. Hurricanes
exchange controls and regulatory
Harvey, Irma, Maria et al resulted in
uncertainty. Europe also saw fewer
a slight uptick in pricing at renewals in
deals with Brexit preparations taking
January but nothing in the same league
management time and focus, pushing
as we saw following Hurricane Katrina
transactions further down the agenda,
in 2005 and these rises may not hold.
at least in the first half of the year. In
contrast, the Americas – and the US As a consequence, many insurers
in particular– saw a slight increase in remain under pressure due
M&A activity. The US uptick coincides to catastrophe losses, reserve
with growing economic strength and strengthening and write-downs.
corporate optimism in the aftermath of
election uncertainty in 2016.
Percentage of deals by region 60
50 50
40
36
30
20
11
10
2
0
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
H1
H2
2009
2012
2013
2015
2017
2010
2016
2014
2011
Americas Europe APAC MEA“
Insurers can’t control their That brings insurers back to the
question of how they can generate
Buying scale and scope
investment returns and profit on their existing platforms and
Establishing a bigger book of business
and accessing new customers in new
pricing is at the mercy of this means looking at where they can
markets remains a common driver
generate internal efficiencies. M&A
market forces so direct behind M&A in the insurance industry
remains a sound strategy to deliver
costs is the one area of the this. Joining forces with another
across all markets. For example,
Japanese insurers continued their
business they can effectively business effectively increases premium
search for overseas targets, albeit
income while at the same time leading
get their arms around. In at a slightly slower pace than in 2016.
to cost synergies which should have a
Most recently, Mitsui completed its
this context M&A is an positive impact on the bottom line.
acquisition of Singapore’s First Capital
appealing strategy to deliver As the tide turns back in favour of for USD 1.6 billion in December. In
growth if synergies can deal-making, the second half of 2017 Europe, NN Group of the Netherlands
saw the global M&A total rise for the acquired compatriot Delta Lloyd
be achieved. The rise in
first time for two years, suggesting that for USD 2.7 billion while a spate of
transaction activity for the appetite for transactions as a route to deals in the US included CF Corp
first time in two years in growth is increasing. As we look ahead, acquiring Fidelity & Guarantee Life
a number of factors such as tax cuts in for USD 2.2 billion.
the second half of 2017 is a the US and greater clarity over Brexit
significant development. look set to support increased deal-
making in the coming year.
–– Ivor Edwards, London9
Spotlight on cross border deals
30%
Overall all there were
105 completed cross-border deals
in 2017, out of a global total of 350
57%
60 of the 105 cross border deals
were intra-region
Percentage of outband M&A deals
by region
21%
35%
EUROPE
12%
9%
NORTH APAC
AMERICA
9%
21%
MENA
4%
11%
8%
13%
LATIN
AMERICA“
US tax changes have US tax changes and market pressures
will fuel further M&A in Bermuda
Brexit preparations act
as a brake on M&A
diminished a key advantage
Bermuda saw continued transaction In Europe, businesses have been
for Bermudan re/insurers.
activity in 2017. Two of the year’s focused on Brexit preparations so
At the same time, market five biggest deals worldwide involved transactions have slipped a little down
conditions remain very Bermudan targets: the USD 6.3 billion the agenda. The main solution has
acquisition of Endurance by Sompo, been to set up a subsidiary or branch
competitive with insufficient which completed in March, and the to ensure businesses can continue
pricing relief for those USD 2.9 billion Liberty paid to operate across Europe following
re/insurers, which will for Ironshore. the UK’s exit from the EU. Very few
have opted for an acquisition. JLT’s
lead to greater deal activity This trend is set to continue. Many
acquisition of specialty Belgian broker
Bermuda-based companies facing
involving Bermudian low growth, deteriorating margins
Belgibo from Exmar Group for an
undisclosed sum was a rare exception.
re/insurers in 2018.” and cost pressures remain targets for
deals and/or will have to diversify in As Brexit preparations are completed,
–– Vikram Sidhu, New York order to grow and compete. In January we expect see to an increase in deals,
2018, American International Group however, all insurance businesses will
(AIG) announced it had entered into an be looking closely at the terms of the
agreement to take over Bermuda-based withdrawal from the EU. If these are
Validus Holdings for USD 5.6 billion. considered ‘hard’, we may see some
The recent announcement of tax businesses restructuring, rather than
cuts in the US has delivered a further necessarily getting involved in M&A.
competitive pressure that is likely
to act as a driver for M&A. For insurers outside Europe looking
at potential acquisition targets, they
will likely be hesitant at making
significant moves in the EU pre-Brexit,
preferring to wait until the situation
becomes clearer. This may have a
positive impact on M&A activity
elsewhere in the world such as in Asia,
where there is not the same degree of
market uncertainty and deals may be
perceived as easier to get over the line.11
Chinese M&A on hold Regulation intensifying focus
on core business
“
While outbound M&A has
Deal activity in China has dried up pretty much dried up, we
in the last 12 months. This is partly While at one end of the spectrum
continue to see interest from
due to regulatory intervention, with some insurers are actively seeking out
proposed government plans to reduce targets to deliver growth by achieving insurers, especially in Asia,
investment limits for foreign insurers scale and scope, at the other end there attracted by the stability
from 51% to 33% remaining on hold. are those choosing to dispose of less
This is generating uncertainty that profitable assets to free up capital
of the Australian market
is acting as a brake on M&A. and focus on core operations. In some
–– Avryl Lattin, Sydney
instances, regulatory developments are
In addition, the foreign currency
acting as a catalyst for this.
restrictions that were introduced
last year, supposedly as a temporary For example, in Australia there have
measure, have now become more been a number of deals in the life
stringent. Meanwhile, the regulator’s market. Over the last couple of years
focus in the last six to nine months there has been increased regulatory
has been the introduction of lots of scrutiny especially around claims
detailed new regulations around a handling and the role of brokers. This
raft of operational aspects including has prompted a number of existing
independent directors, mis-selling and players to exit the market with
misleading conduct. Commonwealth Bank selling its life
business to Hong Kong insurer AIA for
The aim is to ensure much tighter
USD 3.0 billion and ANZ bank entering
corporate governance, operating
into an agreement to sell its to Zürich
practices and capital management.
for USD 2.2 billion.
Once this is established, the regulator
will open the market to another round Elsewhere, in Southeast Asia,
of consolidation via M&A but there regulatory developments will play a big
is no sign at the moment that this is part in M&A in the next 12 months. In
imminent and a realistic timeframe Malaysia, in a bid to protect the local
is likely to be in the region of one to market, the regulator is introducing
two years. Given the genuine pent-up new rules from June 2018 requiring
demand for capital flows both in and insurers to have a minimum 30% of
out of China, once the restrictions are local ownership. As a result, foreign
lifted we should expect to see a flurry owners may need to sell part of their
of deals. stake in Malaysian businesses while
incoming international players may be
deterred from entering the market.8 of 10
Indonesia also continues to implement At the front end, insurers recognise
protectionist policies and measures the growth potential of technology
aimed at bolstering local markets. but the challenge remains how to
insurers planned to invest With new insurance licences generally unlock it. The first step is to acquire
in technology in 2017 unavailable in either of these countries, or develop it and in 2017 we saw a
the only way for companies looking to number of deals with the quest for a
operate in those insurance markets is technological advantage a key driver.
via M&A, joint venture or some other For example, in the US, when Markel
kind of tie up. bought State National for USD 922
million, the acquirer’s Co-CEO said in
Meanwhile, in South Africa, the
a statement: “State National will help
“
upcoming Insurance Bill is also being
us to leverage our insured and digital
implemented with a clear view on
distribution initiatives…”
protecting the local market. New
Technology is increasingly capital requirements under Solvency Also in the US, Travelers bought
going to be a driver of II-style rules will put a lot of pressure Simply Business, the UK’s largest
on insurers that will eventually lead online business insurance broker,
M&A as re/insurers look to consolidation as smaller players for USD 490 million, describing the
to acquire dynamic start- struggle to comply. target as “a profitable and growing
up companies that have technology company with impressive
We expect similar moves could
strategic digital capabilities, leading
developed innovative follow in countries around the world.
digital commerce talent and proven
The impact of President Trump’s
solutions to unlock new “America first” policy is yet to be seen
small business insurance expertise.
With technology and innovation
customers and new markets. but it could generate a ripple effect
driving customer preferences and
with other markets implementing
expectations, advancing a digital
–– Ian Stewart, Singapore protectionist measures.
agenda to best serve our customers
and the marketplace is a key
Technology remains a powerful
strategic priority.”
deal driver
2017 also saw the emergence of a new
As insurance businesses look to deliver
generation of insurance businesses
improvements to the bottom line,
emphasising a digital first strategy
technology is increasingly being seen
that are starting to turn the tables
as the solution no one can ignore.
by acquiring the assets of traditional
At the back end of the business,
insurers. One example, Singapore Life
technologically driven solutions
– which was only granted a licence
can generate efficiencies and cost
in 2016 and is explicit that its model
savings. For example, many insurers
is to explore new distribution with
are looking at how they can apply
a focus on online – has been building
artificial intelligence and blockchain to
its business and has now started
transform their businesses.
to be a buyer in the M&A market,
recently announcing its move to
acquire the business portfolio
of Zürich Life Singapore.13
Run-off moving up the agenda MGAs attracting greater interest
“
As the industry reaches
The run-off market has been busy A key challenge for insurers looking cruising speed on Solvency
with 19 large legacy transactions for growth is access to new customers.
announced in the second half of 2017. Setting up a Managing General Agent
II, the benefits in terms
Lloyd’s has seen an increase in RITC (MGA) is quick, cheap and relatively of capital requirements of
transactions, with the Enstar/Neon light-touch in terms of regulation, optimising the management
transaction announced in December but acquiring an existing MGA is
2017 just one of a number of examples. almost more appealing. MGAs have
of legacy business will be
The companies market is also seeing typically been founded by high quality thrown into sharper focus.
run-off activity. While historically we individual underwriters or teams who We expect a wave of run-off
have seen low quality businesses in the are convinced they can do better in
run-off market, nowadays the offerings control of their own destiny. As such activity will follow
are much more attractive with insurers they have underwriting experience,
like Novae putting their back-end out product knowledge and marketing –– Yannis Samothrakis, Paris
for sale as management teams look to expertise, which make them very
shed backward-looking distractions so attractive targets.
they can enhance capital efficiency and
In one example, in June 2017, Neon
release funds for the future.
announced the acquisition of leading
A wave of run-off activity is expected Guernsey-based MGA Sapphire
in continental Europe where many Underwriters. Commenting on the
re/insurers have a sizeable number move, Martin Reith, Group CEO, said:
of contracts in run-off. Although this “Sapphire’s disciplined approach to
has been in the pipeline for some underwriting will provide us with
time, companies have so far had other valuable local presence for the offshore
priorities but the signs are this is set market. Neon continues to focus on
to change in 2018. profitable growth and this acquisition
reflects that strategy.”Taking on teams is an alternative Two cases in 2017 highlighted some
to M&A of the challenges. In the US, a court
ruled that Florida-based broker
Targeting teams has been a consistent
AssuredPartners pay USD 20 million
trend over the last ten years, although
to national intermediary Brown & Brown
cases tend to go in spikes.
to settle a poaching dispute. In another
It is quite common in the aftermath case, Aon lost a lengthy legal battle for
of a merger for teams that are deemed USD 54 million in compensation from
surplus to requirements to move on. Alliant, which it claimed had raided
Indeed, the insurance industry is its offices in California leading to the
generally quite incestuous with people departures of 75 members of staff and
changing roles and companies relatively a loss of over 1,000 pieces of business.
frequently.
In the last few years employers
However, while it can be a means to have been drafting tighter contracts
side-step the complexities of acquiring and have been more likely to start
a business, there are legal and financial legal proceedings against those who
risks to be navigated, as well as the break them.
potential for reputational damage.15
Summary outlook for We expect deal-making in the
insurance industry to continue to pick
insurance M&A in 2018 up in the coming 12 months.
The Americas will continue While M&A activity in China will Europe will return to form
to lead the way remain subdued, deals elsewhere
As Brexit preparations are
in Asia will pick up
One year into the Trump completed, management attention at
administration, dealmakers are more Japanese insurers will continue their companies within the EU will return to
confident and the recent tax cuts search for overseas targets and their the growth agenda and transactional
could generate a spate of deals. Targets Korean counterparts could also start opportunities. Meanwhile, those
within the US will remain attractive to look beyond their borders for growth outside the region will have greater
while we expect continued acquisitions opportunities. Investors will remain clarity over the suitability of European
of Bermudian assets. focused on opportunities in Southeast targets.
Asia, encouraged by regulatory
developments.600
Down year masks better second half
350
400
200
Completed deals in 2017 -
lowest since 2013.
0
Second half performance
2009
2012
2013
2015
2017
2010
2016
2014
2011
an improvement on H2 2016
H1
2009
Percentage of deals by region 573
H2
H1
2010
522
H2
H1
2011
555
H2
H1
2012
444
H2
H1
2013
319
H2
H1
2014
384
H2
H1
2015
444
H2
H1
2016
387
The insurance H2
M&A landscape 2017
H1
350
in numbers H2
Americas Europe APAC MEA17
+6.6%
Activity up in the Americas, down in
Europe, APAC and MENA
2017 2016 % change
Activity up in the Americas,
2016 - 2017 Global 350 387 -9.6%
Americas 176 165 + 6.6%
Europe 118 151 -21.9%
US buyers making bigger bets APAC 42 72 - 41.6%
45%
MENA 11 13 -15.4%
45% of top 20 largest deals involved ^ Brexit and Chinese forex restrictions were biggest brakes on M&A
US acquirers in 2017.
In 2016 60% of buyers in the top 20
were based in Asia.
H2 2017 saw increase in M&A Deals picked up in final half of 2017
after four consecutive periods
of decline. H2 2017 H1 2017 % change
+22.6%
Global 180 170 + 5.9%
Americas 90 86 + 4.6%
Europe 65 53 + 22.6%
The biggest increase was in Europe.
APAC 20 22 -9.1%
MENA 3 8 - 62.5%
Fewer bigger deals Insurers continue to look 3 key M&A drivers in 2018
at overseas assets
16 30% Technology
Tax cuts
30% of all deals were cross border in
There were 16 transactions valued Territorial expansion
at USD 1 billion+ in 2017, in 2016 2017 (105 of 350 deals)
there were 24 29% of deals (111 of 387 deals) in 2016Markets and Models – Who’s expanding where, how and why?
19
“
Global reinsurers arriving For many insurance businesses,
delivering growth via M&A may not
changes expected in April 2018
could further accelerate the arrival
in India are bringing with be feasible or their preferred route. of international players.
them a combination of Challenges exist including around the
In China, still viewed by many as
capacity, experience and availability and suitability of targets,
emerging even though it is now the
reaching agreement on price and
skills that will support navigating regulatory hurdles. As a
second largest insurance market in
the world, things haven’t been quite so
the development of new result, some companies with growth
simple. With the regulator currently
insurance markets in ambitions are instead looking at
not issuing any new insurance licences
utilising other tools at their disposal
the country. in order to build scale and enter into
and content to let the transactions lie
dormant for the time being, routes into
new markets. These include building a
–– Sumeet Lall, Mumbai China are more complicated.
presence in new territories via a start-
up or joint venture, searching out new However, there are examples of
distribution arrangements or exploring those with an existing presence in
new products and lines of business. the country looking to extend their
In South Africa, the footprint. In the second half of 2017,
Setting up operations Allianz Global Corporate & Specialty
Insurance Bill is expected opened its Beijing branch, taking its
The lure of emerging markets
to come into force in July number of offices in the country to
2018. Under the new rules For those looking at planting a flag three, as part of a strategy to service
in a new territory or strengthening multinational clients in both Europe
re/insurers will find it an existing position, the emerging and Asia. Joint ventures also featured
difficult to operate without markets remain attractive. Often in 2017 as we will discuss later.
establishing a physical characterised by huge populations,
Elsewhere in Asia, new licences are
growing levels of wealth and a low
presence. As a result, level of insurance penetration,
generally unavailable in Malaysia or
Indonesia, so the only entry point into
we have already seen an they present significant growth
these markets is via acquisition, a joint
increase in interest in opportunities and are clearly in
venture or some other kind of tie up.
the sights of insurance businesses.
companies preparing to Meanwhile, in Thailand, a loosening
In the last year, interest and activity of ownership rules is expected which
apply for a licence to open in India has increased following could help open the door to new
a branch. changes in statute and regulation that market entrants.
has opened up the market to foreign
–– Ernie Van Der Vyver, Johannesburg While Myanmar is still almost totally
entrants. A number of global reinsurers
closed to international investors, it is
entered the Indian marketplace in 2017
very gradually opening up. Last year
after the country’s regulator removed
the regulator granted licences to some
sanctions that enabled companies
Japanese insurers to operate in special
to establish a local branch office to
economic areas and there is some
conduct reinsurance business, with
expectation in the market, political
XL Catlin the most recent company
unrest notwithstanding, that 2018
to be granted regulatory approval.
may be the year that Myanmar
In addition, Lloyd’s commenced
permits direct foreign investment
operations in India in April and
for the first time.
welcomed the MS Amlin and Markel
syndicates. Additional legislative“
While there has been The hub and spoke model The Brexit effect
a slowdown in the Building a regional hub from which Unsurprisingly, one of the busiest
to access emerging markets has been regions in the last 12 months for
number of reinsurance
a popular strategy for some time. applications to open new branches or
vehicles starting up in Dubai has positioned itself as the subsidiaries has been Europe. Post-
the Middle East, foreign gateway to the Middle East and saw a Brexit access to markets within the
rush of new entrants into the market European Union is a challenge facing
investors continue to
following the opening of its Lloyd’s all UK domiciled insurers, and it led to
see opportunities in platform in 2015. However, last year a spurt of movement in 2017.
the region with the saw a slow-down with Chaucer
The vast majority have chosen to
the sole new arrival into the Dubai
intermediary market open newly licensed entities in EU
International Financial Centre in 2017,
seeing active growth. countries; or in some cases (as with
while Beazley withdrew from the
Lockton and Beazley in Ireland),
market. However, this seems likely to
–– Peter Hodgins, Dubai work with regulators to re-license
be only a short-term pause, in reaction
existing businesses from, for example,
to the growth seen in the previous two
reinsurance to direct status.
years. Long-term, the region’s growth
prospects remain strong, and While the search for growth may not
Top three destinations for it continues to extend its influence have been a primary driver in these
post-Brexit EU hubs for UK insurers: 1 as a hub across North and East Africa. developments, the need to protect
existing business and provide a safety
Meanwhile, in Asia, Singapore itself
1. Luxembourg net in an uncertain environment is
continues to position itself as a
causing headaches for some.
2. Dublin gateway to the region. Demand for
new licences is still healthy as the
Part VII becomes painful
3. Brussels market continues to develop, bolstered
by a supportive regulatory structure. For a large part of the market, those
In 2017 Chubb chose the city state as providing pensions or long standing
the location for its Asia Pacific hub for commercial liability covers for
SME business while in January 2018, example, Brexit is more of a challenge
reflecting the growing importance of than opportunity. Question marks
the Asian market, Swiss Re announced over whether UK insurers will be able
the launch of its regional headquarters to continue to pay claims under EU
in Singapore, and appointed a new contracts post-Brexit are focusing
regional board of directors. attention on Part VII transfers, which
would enable such policies to be
transferred to a new (or existing) EU
subsidiary. However, transactions are
proving slow to close, following a trend
towards a much higher level of detailed
scrutiny by the PRA, which means
there is now the real prospect of some
current transfers not completing by the
Brexit deadline of March 2019.21
USD
Worse, after Brexit, the entire legal Notably, there has been much JV
framework of Part VII in Europe will activity as a result of the insurtech
come into question, and we anticipate surge, with companies, mainly in the
4 trillion
that these two factors combined will US and UK, looking for technology
cause some significant stalling of Part partners to help them build out their
VII activity in the coming year. direct distribution. In one example of
many, US-based Spinnaker set up a JV
There is of course a flipside to Brexit.
with homeowners’-focused insurtech China’s One Belt, One Road initiative
The European regulator recently
start-up Hippo. Announced in early is expected to lead to USD 4 trillion
formally noted that insurers based
January 2018, the deal is designed in infrastructure investment
in the EU are much further behind
to allow Spinnaker to use Hippo’s in 65 countries.
on their post-Brexit planning than
technology to expand into new states.
their UK counterparts, although
the UK’s PRA suggested at the end The global expansion of Chinese
of the year that they would let EEA insurers has also seen one or
carriers set up branches in the UK as two interesting deals outside of
long as broad regulatory equivalence China, including a JV on Guernsey,
was maintained. 2 We are therefore between Alternative Risk Management
extremely likely to see some activity Ltd and Chinese insurance services
on this front in 2018, as continental company BACM. The JV will set up
insurers with significant UK operations captives and offer captive management
start to consider how to maintain services to international Chinese
access after March 2019. businesses expanding overseas, a sign
of the increasing demand from Chinese
Joining forces businesses internationally.
A perennially attractive alternative One of the most significant JVs
to M&A or setting up operations of the year, however, was the
independently is to enter into a joint agreement between Chubb and
venture (JV), a strategy that was PICC, China’ s largest property and
deployed in markets around the casualty carrier, which will see the
world in 2017. two companies creating a range of
joint offerings to serve international
Allianz Group and Liverpool Victoria
clients both inside and outside of
Friendly Society (LV=) agreed to
China. Whilst PICC will gain access to
launch a JV and a longer-term strategic
Chubb’s 54 offices outside China, and
partnership in the UK, creating a
Chubb will jointly develop insurance
general insurance business with
business with some of China’s largest
over six million customers and
companies, the true opportunity in this
gross premiums written in excess
deal lies in the joint ability to globally
of GBP 1.7 billion.
service Chinese companies expanding
overseas as part of the ‘Belt and Road’
initiative, an opportunity that other
global insurers, such as Allianz and
AIG, are also positioning to exploit.
1 https://www.postonline.co.uk/lloydslondon/3360316/analysis-the-new-brexit-landscape
2 https://www.bankofengland.co.uk/news/2017/december/approach-to-authorisation-and-supervision-of-international-banks-
insurers-central-counterpartiesManaging General Agents (MGAs) are Investing in distribution Bancassaurance goes digital
a fast-track to connecting customers
MGAs generating interest Another area of distribution which
and capacity 3
is seeing an increasing focus on
MGAs are a very popular growth
technology is bancassurance.
strategy that is reflected both in terms
GBP
Tie-ups with lenders remain popular
of M&A activity but also alternative
as insurers seek access to large, new
routes to growth. In today’s market,
customer bases. In August, Aviva
there is no shortage of capacity but
47 billion
announced a 10-year agreement
the real jewel in the crown is finding
with HSBC, which it said was one
customers. With organic growth a
of the largest deals of its kind signed
challenge, there is an increasing focus
in the UK and is expected to generate
on how to unlock new niches in the
Over 300 MGAs underwrote over 10% hundreds of millions of pounds
market. This has led to a wave
of the UK’s GBP 47 billion general in premiums. However, banks are
of MGA start-ups and expansions,
insurance market premiums in 2017. increasingly focused on what an
with new launches in the US including
insurer can do digitally and whether
Firestone Surety (backed by Fidelis),
the digital strategy is in line
and Volante Global.
with theirs.
47%
In Europe, MGAs including Castel,
In Asia, DBS Bank and Chubb signed
Barbican and Acappella have been
a bancassurance agreement, effective
acquiring teams in order to build out
from 1 January 2018, that will give the
their offerings, while in May 2017
insurer access to six million customers
Delegated authority underwriting was Australia-based MGA Ensurance
through a network of more than 200
projected to account for 47% of Lloyd’s announced plans to open in the UK
branches as well as via the bank’s
premium income in 2017 to focus on construction and
digital platforms. The agreement is
engineering cover on a wholesale basis
valid for 15 years and covers Singapore,
with insurance brokers both in the UK
China (including Hong Kong and
and in the EU.
Taiwan) and Indonesia.
The MGA market is set to grow further
In a statement, DBS commented that:
as insurtech solutions continue to
“Chubb’s track record in delivering
be developed. In December 2017,
digital innovation, collaborating with
the app-based insurtech managing
partners and offering a suite of market
general agent Wrisk – whose insurance
leading products across multiple
partners include Munich Re, Hiscox
customer segments makes them
and QIC – received full authorization
an ideal partner.”
from the UK’s Financial Conduct
Authority. Shortly afterwards,
Jacqueline McNamee, the former UK
managing director of AIG, announced
the launch of a commercial lines
insurtech MGA, expected to go live in
the second half of 2018, that will use
technology and data analytics to make
doing business simpler for brokers.23
USD
The promise of new products Parametric triggers gaining attention
ILS market set for further growth The value of parametric insurance
solutions was once again
Despite the substantial losses
31 billion
demonstrated in 2017. In the
incurred during the hurricane season,
aftermath of Hurricane Irma, CCRIF
the catastrophe bond and insurance-
SPC made payouts totalling USD 31.2
linked securities (ILS) market at
million to six countries, within 14 days
the end of 2017 surpassed USD 31 Size of the ILS market in 2017
of a catastrophic event, underlining
billion for the first time, according
the key benefits of parametrics: speed
to Artemis. Indeed, the ILS market
and certainty of settlement.
has since experienced a wave of new
“
interest from institutional investors While still relatively early days for
and 2018 is forecast to be another this segment of the market, insurance
record year. businesses are waking up to the
growth opportunities it presents and The global ILS market
New ILS centres are emerging to
there have been a number of notable is huge and growing –
challenge Bermuda, the established
developments in the last 12 months.
leader in this area. In the UK new
In the UK, the Financial Conduct It accounts for 12% of
regulations to create an ILS framework
Authority brought parametrics into its reinsurance capital. Last
came into law in November. Neon
testing ‘sandbox’ and put Floodflash, year investors took a pretty
became the first market participant
an event-based flood insurance, into
to make use of them, setting up a USD
development. Elsewhere, in France, big hit but have stayed in
60m sidecar the following month.
AXA Global Parametrics was launched the market, recognising that
More are set to follow.
to accelerate the development of ILS offer an attractive route
The Lloyd’s market also looks set parametric products, while AXA and
for a surge of activity on the back of Chubb both launched parametric to growth.
these regulations, with Lloyd’s itself flight delay products in just one
–– William Hogarth, London
announcing that it is exploring using example of how these solutions can be
ILS protection to provide cover for the deployed to cover risks beyond severe
Central Fund under the new London weather events. Further information
market regulations, and major players on developments in this part of the
Brit, Chaucer and Sompo Canopius market is available in the Clyde & Co While the cost of natural
are also at varying stages of planning report Parametric insurance: closing the
their own deals. protection gap.4
disasters to Asia is high, it
is estimated that only 10%
Meanwhile, the Singapore Monetary
Authority has recently announced of these losses are insured.
that Singapore will develop its Parametric insurance
own regulatory framework for ILS
products offer one way to
transactions too (although no date
has been set for this). bridge the protection gap.
–– Joyce Chan, Hong Kong
3 https://www.mgaa.co.uk/MGAA_/MGAA/About_Us/MGAA_R/MGAA2/About_Us.aspx
4 https://www.clydeco.com/resilienceCyber set for more growth On-demand in demand Cyber cover worldwide continued to Another area of product development see expanding sales and innovation in enjoying significant interest is the 2017. Many organisations woke up to advent of on-demand insurance, the significant cost and disruption a typically targeted at younger security breach can bring in the wake consumers and facilitated by social of the impact of the WannaCry, Petya media technology platforms. Initiatives and NotPetya attacks on public and by the likes of Trov - which raised a private sector enterprises around the further USD 45 million to fund global world. Stand-alone cyber coverages expansion - Sure, Covered and Slice began to extend into wider D&O expanded in 2017. We anticipate more product offerings, as the product players and covers will emerge in 2018. became a more regular part of the corporate insurance coverage. With the arrival of the EU GDPR regulations in May 2018, this part of the market is set for further growth.
25
Key facts
Globally, re/insurers are focusing ILS set to take off in 2018 Innovation remains key
on emerging markets for growth
Countries and regions featuring USD 31 billion Two key areas to watch in 2018 will
regularly in re/insurers’ plans include: be parametricss and cyber
The catastrophe bond and insurance-
–– India linked securities (ILS) market USD 2.9 billion
–– Asia (Singapore) surpassed USD 31 billion for the first
–– The parametric market was worth
time in 2017 5
–– South Africa USD 2.9 billion or 9.5% of the total ILS
market in 2017 7
–– Middle East (Dubai) 12%
–– The global cyber insurance market
–– China ILS accounted for 12% of reinsurance could grow to USD 5 billion in annual
capital in 20176 premiums by 2018 and at least USD
7.5 billion by the end of the decade 8
–– The European cyber market will
experience an explosion in demand
when GDPR claims highlight
vulnerability post implementation
in May 2018
Summary outlook for
alternative growth
strategies 2018
China’s Belt and Road initiative IPOs may become more prevalent Insurers will continue to prioritise any
may throw up more opportunities while conditions are right move which shortens the
value chain
Domestic insurers will look for Many private equity houses will be
external partners to support the looking for return on their insurance Any distribution agreement, whether
involvement of international players in investments while markets are strong supported by new models, partners or
infrastructure development. and valuations are holding. technology, will be embraced as a way
to grow market share by getting closer
to customers.
5 http://www.artemis.bm/dashboard
6 William Hogarth, Legal Director, London
7 http://www.artemis.bm/deal_directory/cat_bonds_ils_issued_outstanding.html
8 Insurance 2020 & beyond: Reaping the dividends of cyber resilience, PwCInsurtech – a major driver for growth
27
36%
Digital solutions for growth –– Bought by Many, a service that
mines social data via artificial
2017 was the year in which insurtech
intelligence (AI) tools to offer
became a mainstream driver for
Insurtech funding volumes leapt “insight-driven” insurance.
growth in the insurance sector.
by 36% to USD 2.3 billion in 2017 –– Betterview, a US tech partnership
Traditional insurers and reinsurers
offering re/insurance clients drone
are looking to digital solutions to help
imagery, analysis and reporting.
them boost their top line, develop new
“
products, enhance their distribution In a similar move, Axis has partnered
strategies, win new customers or build with Silicon Valley insurtech start-
customer loyalty and drive efficiencies. up platform Plug and Play. Axis will
It was commonly thought provide mentoring and technical
that for now the real impact Re/insurers deploy a variety support, actuarial and underwriting
of investment strategies expertise to help turn ideas into
of digitalisation would products and services. Liberty Mutual’s
Re/insurers are deploying a number
be confined to volume global consumer group has set up
of investment strategies in order to
sectors (personal lines and deliver their growth ambitions. These
a venture capital initiative, Liberty
Mutual Strategic Ventures, while
the smaller end of SME). include collaborative investment in
MetLife has launched LumenLab
transformative technology and the
But developments during in Singapore to develop disruptors
so-called ‘digital garage’ model where
2017 including B3i, Cytora supportive alliances are formed.
in the areas of wellness, wealth
and retirement.
and announcements by Munich Re for example partnered with
2017 also saw re/insurers innovating
major reinsurers like several different insurtech providers
under their own steam. ZhongAn
Munich Re show that larger via its Digital Partners subsidiary
raised USD 1.5 billion on the Hong Kong
during 2017 (and the start of 2018) to
commercial lines will also open up new markets, drive greater
Stock Exchange in September, in the
world’s first insurtech IPO. The keys to
be transformed in the efficiency and improve service.
ZhongAn’s success are its proprietary
near future. Outreach teams focus on identifying
systems and three distinct areas of
opportunities before a commercial
technology. Online systems enable
–– Nigel Brook, London team defines the parameters of any
mobile payment transactions, policy
potential partnership. The whole
distribution and claims handling.
process takes only one or two weeks
Blockchain infrastructure is used
followed by three to six months of
to facilitate digital assets circulation,
product development.
ZhongAn’s rise has been transaction clearing, data storage,
Examples include partnerships with: identity verification and anti-money
spectacular but as it deploys laundering. And finally, artificial
–– Trov, an on-demand insurance
cutting edge technologies business offering cover direct to
intelligence-related applications
into other areas of the including image recognition help
consumers via mobile. Based in the
speed up authentication processes,
market we will likely see US, Trov sees the partnership as
machine learning is used for better
an opportunity to: “streamline our
widespread disruption in regulatory path and increase our go-
understanding of user behaviour,
the insurance industry. and automated chatbots are
to-market effectiveness in each new
deployed to streamline traditional
territory we pursue,” according to
–– Michael Cripps, Chongqing customer services.
Scott Walcheck, CEO and Founder.Three
Growing through new products For example, sensors in the
manufacturing environment and in
The internet of things (IoT), wearable
plant and equipment may transform
technologies and in time, the industrial
industrial risk monitoring and
seconds
internet of things (IIoT) are set to
management. This would allow
substantially expand the range of
insurers (and others) not just to assess
risks that insurers can underwrite –
risk on a snapshot basis, but to have
enhancing their topline through new
eyes and ears in the factory or supply time taken for Lemonade to
income.
chain, analysing the live data stream review, approve & pay a claim
The use of telematics by motor from equipment and premises 24/7.
insurers is already transforming the FM Global, a mutual for industrial
motor market, enabling insurers to companies, is already providing an
understand and price previously enhanced risk management service
uninsurable risks more accurately. using this kind of technology. A year ago it announced that its bot,
Wearables are making similar AI Jim, had reviewed a claim, cross
transformations possible in medical Widening distribution referenced to the policy, run 18 anti-
and life insurance. In the home, fraud algorithms, approved and paid
Delegated authority underwriting
Italian insurer Generali partnered within three seconds.
was projected to account for nearly
with Nest Labs, a subsidiary of Google
half of Lloyd’s premium income in 2017 has also seen a proliferation
parent Alphabet, to develop a new
2017. As the number of new MGAs in the use of drones by re/insurers
insurance product in Europe. Through
testifies, there is tremendous appetite both in pre- and post-loss scenarios
the partnership, Generali offers home
to grow this further, yet progress to transform catastrophe management
insurance coupled with Nest’s smoke
has been held back not just by the and provide more efficient and
and carbon monoxide monitors. Aviva,
regulatory and reporting hurdles accurate claims handling for example
Hiscox and others have partnered
which Lloyd’s is reviewing but also after hurricanes Harvey, Irma and
with Neos in the UK with a similar
the complex systems and manual Maria. Loss adjuster Crawford,
connected home proposition.
processes that tend to support it. for example, acquired WeGoLook
In another example, London-based Charles Taylor’s investment in the MGA to pioneer in this area and is now
insurtech provider Concirrus launched Otak platform in February 2017 is one reportedly seeking to expand the use
Quest, an AI-powered marine example of how insurtech is poised to of drones in loss adjusting around
insurance analytics platform in simplify and transform the experience the world.
September 2017. The platform enables for all parties.
Other service improvements are
the integration of insurers’ own
less eye-catching but equally
data with external sources on over Winning and keeping customers
significant. Examples include
200,000 vessels worldwide, supporting
Established players perhaps have Prudential Hong Kong which is
improved risk selection and better
something to learn from the introducing a digital claims submission
pricing.
emergence of pure-play tech-enabled system and AI platform that enables
However, many take the view that the businesses, competing on their own customers to submit hospital claims
real money in the future will be earned terms with their own capacity, such electronically and get instant claims
by companies that move out of a pure as Lemonade. Allianz joined XL Catlin updates. An AI-powered Chinese
insurance sector application and into as a shareholder in the business in language chat bot “Ask Prudence”
data insights and service provision. April 2017. Lemonade deploys AI and enables a 24-hour online enquiry
In time, technology-enhanced risk behavioural economics to transform service. Sam Lim, CTO at Prudential
management may reduce claims, the provision of cover and the claims commented: “The new additions seek
and in some fields even eliminate experience, both of which are largely to offer customers an end-to-end
them – certainly this is a goal for the automated. digitalised experience which sits
autonomous cars industry. at the core of the customer journey.”29
80%
Driving efficiencies
At the front end of the business too,
In a marketplace where price
changes are underway. The Center
competition is fierce and top-
of P&C insurers are considering for Business and Economic Research
line growth hard to find, driving
robotics process automation 9 ranked underwriting fourth in
efficiencies through better and more
the top 10 list of occupations that
intelligent technology is strategically
could be automated. And, according
vital. Reducing claims handling costs
to Xceedance, robotics process
and identifying potential fraud is one
automation can reduce time taken
area where insurers are using AI to
to validate policy information by 90%;
increasing effect.
policy issuance time by half; and errors
Tractable, a London-based start-up, in formatting to zero.
is just one of several companies
Insurtech firm Cytora is another
providing an application to assess
example of successful collaboration
photographs of car damage, for
in the AI field. The firm uses AI and
example. Tractable’s AI views images
open source data to improve the way
of vehicle damage and makes an
insurers quantify, select and price risk.
assessment within seconds, the
Cytora’s product captures the so-called
company claims. Suspicious
‘online footprint’ of potential risks by
claims are flagged and estimates
scraping data from company websites,
for repair can then be quickly
news, and government datasets then
reviewed and authorised.
processing it alongside company
Shift Technology, another 2017 internal data using algorithms to
AI start-up, goes beyond assessing assess potential risk profiles, to predict
the probability of fraud. Its context- claims and quantify risks. Investors
sensitive model intelligently adjusts include Starr Global and QBE Group
the weighting of suspicious indicators, and there are plans to deploy the risk
providing a framework to detect engine in 2018.
fraudulent networks. Shift has
Distributed ledger technology
analysed over 90 million P&C
is another key area of technology that
claims and the associated alerts
promises to deliver significant efficiency
raised by fraud handlers and as the
gains. According to a recent report by
dataset grows so its ability to detect
PwC, blockchain could remove 15-25%
fraud increases.
of industry expenses and deliver
Fraud management is not the only USD 5 - 10 billion in savings.
AI benefit. Fukoku Life Mutual, a
2017 saw the B3i insurance initiative,
Japanese-based insurer, invested in
which now includes no fewer than
a system said to contain “cognitive
38 industry players from around the
technology” to calculate claims
world, start to explore the potential
payouts, alarming claims staff with
of distributed ledger technology to
suggestions it might be able to reduce
create and manage P&C reinsurance
headcount in the process.
contracts from set-up through to
automated claims calculation. The first
market test was launched at the Monte
Carlo RVS conference in September
2017 on the coordination platform.
9 https://www.intelligentinsurer.com/news/robotics-ai-can-transform-business-1362030%
At the event, Paul Meeusen, head Online retail giant Amazon is also
of finance and treasury services at getting set to make its move on
Swiss Re, is reported to have said: insurance. Its new division in London
Blockchain can deliver 30% “There is a real opportunity to improve is aggressively hiring (and targeting
in cost savings & efficiencies10 reinsurance processes with the use Lemonade amongst others).
of blockchain technology, which can It has already launched Amazon
deliver cost savings and efficiency Protect and is reportedly targeting
gains of 30 percent by taking out the UK, Germany, France and Spain –
unnecessary reconciliation, repetitive deploying the combination of technical
duplication of work and waiting times.” firepower, capital and customer
base that individual insurers or tech
The beginning of 2018 is expected
“
businesses will struggle to match.
to see B3i put in place a limited
Its recently announced employee
liability structure, housing R&D and
healthcare alliance with Berkshire
commercial operations, in order to
A huge digital ecosystem better serve members and future
Hathaway and JP Morgan might herald
a wider push into that sector. And a
is being constructed that platform users.
number of insurers already have apps
is allowing companies 2017 also saw Clyde & Co launch Clyde that use its intelligent speaker, Alexa.
Code – a fully integrated legal and
from Alibaba to Amazon to This is competition on a scale that
technical offering designed to help re/
enter the insurance market may worry the industry. Insurtech
insurers and brokers to realise the
players can be invested in for
and use their platforms as growing potential of smart contracts.
monitoring and learning purposes,
powerful sales tools. This Tech takes over?
or acquired if they start to look like a
threat. Amazon is in another league.
has the potential to turn The next phase of development might It has the experience potentially to
the traditional insurance see tech companies in the ascendant establish a lean, data-driven agile
over insurers – building brand loyalty global insurance business with no
industry upside down.
direct and relegating the insurer to legacy systems, processes or people.
the status of ‘white label’ provider of
–– Kevin Martin, Hong Kong
licensed capacity. Tesla for example,
now offers owners the option of
purchasing “Insure My Tesla” cover
underwritten by local insurers
(Direct Line in the UK, Liberty Mutual
in the US). The risk to insurers is plain,
as Elon Musk warned last year: “If
we find that the insurance providers
are not matching the insurance
proportionate to the risk of the car,
then if we need to we will in-source it”.11You can also read
