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ILS Today
PartnerRe Ltd Publishes Redefined Financial Reporting Segments
The Company announced at its Investor Day on November 8, 2007, that it was redefining its financial reporting segments. The new segment tables, which will include an explanatory note listing the lines of business included in each sub-segment, can be found at www.partnerre.com in the Investor Relations section on the Financial Reports page under Supplementary Financial Data. The document includes two years of historical data on both a quarterly and annual basis.
The new presentation includes three segments: Non-Life, Life, and Corporate and Other. The Non-Life segment will now have four sub-segments: U.S., Global (Non-U.S.) P&C, Global (Non-U.S.) Specialty, and Catastrophe. The Life segment remains unchanged. ART will no longer stand as a separate segment: principal finance, insurance-linked securities and strategic investments are incorporated in the Corporate and Other segment.
PartnerRe Ltd. is a leading global reinsurer, providing multi-line reinsurance to insurance companies. The Company through its wholly owned subsidiaries also offers alternative risk products that include weather and credit protection to financial, industrial and service companies. Risks reinsured include property, casualty, motor, agriculture, aviation/space, catastrophe, credit/surety, engineering, energy, marine, specialty property, specialty casualty, other lines, life/annuity and health, and alternative risk products. For the year ended December 31, 2006, total revenues were $4.2 billion. As of September 30, 2007 total assets were $16.2 billion, total capital was $5.1 billion and total shareholders' equity was $4.2 billion.
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Ernst and Young issues 2008 US outlook for the life insurance industry
In 2008, regulatory issues will confront the insurance industry and put increasing pressure on companies to become more efficient, enhance technology-related processes and alter their business models, according to Ernst & Young's Global Insurance Center.
Moreover, in spite of continued financial growth, life insurance companies need to maximize existing opportunities to meet the growing demand for cost-effective products for baby boomers and the underserved middle-market.
"While net operating gains in the insurance sector are expected to increase in 2008, insurers can by no means become complacent next year," said Doug French, Managing Principal of Ernst & Young's Insurance and Actuarial Advisory Services. "The fundamentals of the insurance industry seem to be inevitably shifting, and executives must work constantly to stay ahead of these trends that will affect their product lines, their investment strategies and their corporate infrastructure."
Ernst & Young has identified the seven important issues that may shape the life insurance sector in 2008:
Retirement Income: The best prospect for organic growth in the insurance industry is found in the 35 million middle-wealth baby boomers facing the realities of retirement. As they shift their defined contribution plans, they may seek predictable, low-cost, income-producing financial products. That said, insurance companies could be more aggressive in competing with other financial services institutions that target this segment.
Financial Events: Over the past five years, insurers have increased their investments in alternative asset classes, which has led to greater credit risk exposure. Now is the time to take action and focus on building risk infrastructure and creating more transparency commensurate with the nature of these important investments. Organizations that embrace the people, systems and processes to accurately comprehend and manage the risks of these asset classes may gain an edge.
Technology: Insurers could take a comprehensive view of data governance and management as they attempt to create a more efficient, interconnected technology environment. In 2008, many insurers may still be forced to expend resources integrating data from disparate systems, but they could quickly move ahead of the trend toward centralizing IT infrastructure (data centers, servers and converged networks).
Offshoring: As insurance companies challenge their growing expenses, they may become increasingly reliant on alternative sourcing strategies, especially as outsourcing service providers expand their offerings. However, insurance companies need to implement risk management programs for outsourcing/offshoring, because risks from service interruption, customer data, information security and privacy exposures could far outweigh any benefits from cost reduction.
Solvency II: The implementation of Solvency II (SII) may pose a considerable challenge with far reaching implications for insurers. Besides the extensive improvements to systems, processes and data SII calls for, the convergence of accounting, risk and actuarial information may also challenge traditional actuarial practitioners to develop more sophisticated financial and risk management methodologies and more efficient deployment of capital.
International Financial Reporting Standards: Regardless of the implementation date being delayed, there is no time to waste for International Financial Reporting Standards (IFRS) preparation. Companies need to develop a plan that includes steps to assess the impact of the proposals on their financial statements, educate key employees and constituents, and evaluate the readiness of their organization for implementation.
Tax Issues and Implications: Debate on tax rules that would require dividends to again be taxed as ordinary income, raise the capital gains rate to 20 percent, and change current estate tax regulation is not expected to heat up until after the 2008 election. Essentially, a new President and Congress may be forced to deal with many tax decisions, most of which may require tax increases. Unfortunately, the impact of future tax legislation on insurers and any implications this will have on product offerings may remain unclear for some time.
"The life insurance industry seems to be on firm financial ground, which is good news: insurers are doing many things right. But, in some ways, the obstacles for continued growth have never been higher," said French. "To remain competitive, executives must continue to foster innovation in their products, develop new ways to manage and oversee both risk and capital management, and prepare now for a torrent of new regulations that may very well revolutionize this industry in the next decade."
The complete Life Insurance Industry 2008 Outlook report can be found at www.ey.com/insurance
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Michael Stahel, investment manager, head insurance-linked investments unit at Clariden Leu Alternative Invesmtments, answers STORM's questions
Q: Which sector of the synthetic transfer of risk markets are you primarily involved with?
A: We offer funds and mandates with focus on all types of insurance-linked investments. Our flagship product focuses on natural catastrophe risks transferred in the form of ILS (cat bonds).
We have other funds and mandates where the focus is broader and includes ILW contracts, UNL Retro, Life and other product types and business lines.
Q: When, how and why did you/your firm become involved in the sector?
A: Clariden Leu is a Swiss private bank; we manage assets in excess of SFr133bn (about US$120bn). Our predecessing company, Bank Leu, opened the first dedicated ILS fund back in 2001.
Since then, additional funds and mandates have been added to the ILS product family, and the team and expertise has grown considerably. Our insurance-linked investments unit has become an important part of the Alternative Investments unit of Clariden Leu.
Q: In your view, what has been the most significant development in the markets you cover in recent years?
A: Our flagship fund is licensed in Switzerland and sold to retail customers. So, our client base encompasses many private individual investors.
The asset class of insurance-linked investments was unknown to most of our clients some three years ago, but now - especially after hurricane Katrina - many private investors have started to get accustomed to this asset class, which has resulted in increased interest. The recent market turbulences only support our claim that insurance-linked investments are a logical add-on to any portfolio, increasing the diversification with a product that shows little to no correlation to financial market movements.
Q: How has this affected your business?
A: Our funds and mandates have grown considerably over the last 24 months. We were able to expand our team with additional reinsurance experts and have added a licence for a second natural catastrophe modelling software offering. This allows us to assess investments with two independent tools (EQECat and AIR), which gives us an even better understanding of the underlying risk.
Further, with our flagship product in the market which shows an extremely successful track record for over six years, our name and expertise has become known to a wide breed of both potential investors as well as potential counterparties for transactions (i.e. brokers, reinsurance companies, hedge funds etc).
Q: What are your key areas of focus today?
A: Our prime focus lies on continuing and adding on to the history of 97% of positive months with our existing product family. We are also adding new mandates for institutional investors such as pension funds and we provide white-labelling services to other asset managers who wish to open an ILS product but lack the expertise. And lastly, we are developing new products; the current focus lies on life insurance opportunities.
Q: What is your strategy going forward?
A: Our core competency lies in the field of managing a broad portfolio of insurance-linked investments, thereby focussing on achieving an optimally diversified portfolio. The strategy focuses on levering our skills and expertise by furthering expanding on the currently existing product family.
Positive performance for our whole product range is important to us; we are following the market closely and constantly trying to improve our diversification (and reducing the risk level within the portfolios, i.e. the risk of a large draw-down due to a single event).
Q: What major developments do you need/expect from the market in the future?
A: Along with key market participants, we share the conviction that Solvency II and the corresponding regulatory changes in Europe will lead to a massive growth of the ILS market. Regulators will adopt a risk-based model approach to calculate regulatory capital, hence moving away from their experience-based approach.
These regulatory changes will open new ways for insurance companies to fulfil their capital requirements: passing on risks to the financial market in the form of insurance-linked securities will become a key element within their corporate finance strategy. Insurance companies will buy considerably less reinsurance capacity; this shift towards financial markets means less business and income for reinsurance companies and many more opportunities for players like us. For our investors, this means vast opportunities to invest money in a "non-correlated" asset class.
About Clariden Leu:
Clariden Leu is an independent and exclusive Swiss private bank which can look back on a long private banking tradition. Following the merger of the four Credit Suisse private banks - Clariden Bank, Bank Leu, Bank Hofmann and BGP Banca di Gestione Patrimoniale - together with Credit Suisse Fides on 26 January 2007, with retroactive effect from 1 January 2007, Clariden Leu is now one of the five largest providers of private banking services in Switzerland with SFr133bn assets under management.
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Please also visit www.storminvestor.com
Other interesting news:
Catlin buys 225 mln usd catastrophe bond covering US earthquakes, hurricanes
Catlin Group, the Lloyds of London insurer and reinsurer, said it has bought a 225 bln usd catastrophe bond...
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A winning solution - part 1
In this two part series, the utilisation of internal models for Solvency II is examined by the Financial Integration Team at Guy Carpenter
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