Issue 72
October 2017
In this Issue
  • What are the keys to a market turn and will retro cover be reloaded
  • Model discrepancies may have an effect on ILS investors
  • Few public comments on potential rate hikes from carriers
  • CATEX will attend SIRC conference in Singapore
  • Roger notes that he is increasingly encountering robots
  • Quick Bytes: Calif fires kick Q4 off, Bacardi distillery quickly recovers in Puerto Rico, A.M. Best notes primary insurance lags behind reinsurance in profits; Buffett bets big on trucks in the US; despite Mexican quakes Californians lag in quake cover; AIG escapes SIFI status; Insurers contribute nearly $900 mn to Bermuda economy; EIOPA warns UK firms again about brass plaque carriers; possibly the biggest single-risk loss of year could be coming; Kobe Steel data falsification prompts concern; US shoppers bought seafood prepared by North Korean "slave labor"; Integro in advanced talks to buy Tysers; Stephen Catlin laments short time frame of politicians.

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Dear Colleague, 

Welcome to the October issue of CATEX Reports. This is an issue we've been waiting to write for a long time. The long-awaited turn in the market may have finally arrived --we think.

After a Third Quarter that experienced insured losses in excess of $100 billion from three major hurricanes and two earthquakes we would have thought that rate increase discussion would be on everyone's lips but surprisingly the reaction seems a bit muted.

We will examine some of the possible reasons for that caution --ranging from outright uncertainty about the size of claims, questions about the ongoing role of alternative capital and how quickly loss and risk information can be processed with the January renewals right around the corner.

CATEX will be sponsoring and attending the Singapore International Reinsurance Conference later this month and hopes to see many of you there. Emerging economies and the so-called "insurance gap" are important topics for the risk industry and we hope to learn first-hand about the challenges faced by regional players.

We also have our  regular Roger Crombie c olumn here too. Roger is writing this month about robots and their impact on modern day life. If you're a regular reader of Roger's column you can guess what his viewpoint might be and you will find the article quite entertaining.

As always if you have any questions or comments about CATEX Reports , or want more information about CATEX , or our products, please feel free to contact me.
Thank you very much.
Stephanie A. Fucetola
Senior Vice President/CATEX

Is "the market turn" upon us or not quite yet?

Nearly all industry observers seem to agree that at long last the the ongoing decreases of insurance and reinsurance premiums rates have not only been arrested but that expectations of higher premiums are no longer wishful thinking.  We (and everyone else) have been writing about this possibility for years. However one could be excused for worrying about the claim cost that will need to be paid in order to start upward rate momentum.

There have been warnings from rating agencies and analysts that the trio of destructive hurricanes, plus the earthquake in Mexico, could signal more than an "earnings event" for some carriers. Of course "more than an earnings event" means a "capital event" that would require markets to get more money into their coffers quickly.  

This really shouldn't be a surprise and, frankly, hardly anyone in the industry actually does seem surprised at the prospective ripple effects of the significant CAT losses throughout the market.  Years of declining premiums, coupled with paltry investment returns, combined with share buybacks and claim reserve releases have possibly left little in the cash drawer.  At least such a scenario was the one that was being warned about earlier in the summer. Now we will see what actually unfolds and so far we would venture to observe things haven't spiraled into a tailspin as some of the more gloomy observers warned could be a possibility just months ago.

One observation that perhaps should not be so surprising is that there does not seem to be agreement as to whether rates will increase or not.  There does seem to be a general consensus that "loss affected" rates will experience increases but even that consensus is not firm.

We should remember that for several years now industry executives and analysts have been speculating that the pricing "floor" is in sight and that the rate of decrease in premiums was slowing --as if straining for some bit of evidence that the "turn" was near. Given the divergence of opinion as to when rates would stop their downward fall it's maybe not surprising that people are pulling their punches in announcing without reservation that rates will now rise.  There remains a host of uncertainties not the least of which are what will the effects on alternative capital be and just really how great the insured loss is.

As usual, with reinsurance and insurance few things are crystal clear and why should they be? After all even as the industry relies increasingly on data to base rates upon at the end of the day the price of the coverage comes down to a negotiation between the buyer and the seller. If the buyer doesn't think an increase is justified the market can either walk away (and risk a competitor insuring the risk) or accept the buyer's price.

That may be why some observers think some reinsurers are trying to signal to buyers that the market turn has definitely occurred and that rates are going up and it's only a matter of how much.  It always boils down to a conversation between two sides and oddly one factor seems to be that if both sides have read enough articles about the inevitability of premium increases then momentum for price increases builds.

It may be easier to start with what we think we now know.  Without doubt the natural catastrophes of Q3 will cause very significant claim activity for reinsurers. Hurricanes Harvey, Irma and Maria (approximately $100 billion total) plus the strong earthquakes in Mexico ( $1 billion), each occurred in the third quarter.  Q4 didn't start off very well either with projected insured losses from the California wildfires pegged at approximately $4.6 billion.

The headlines speak for themselves and here's just one of them: "Q3 insured losses could be costliest in history." There are a few parts to this potential claim number that are interesting.  First, and not surprising, is that Bermuda insurers and reinsurers expect to pay out at least 25% of that total, or $25 billion, to cover insured losses from Harvey, Irma and Maria. The Bermuda reinsurers after all have a pedigree as CAT carriers and despite widespread diversification this 25% share of US CAT was almost expected.

The next component which we were interested in was the effect of insured losses of this size on alternative capital.  Here at last was a possible litmus test we thought of how alternative capital would react in the face of a loss of profit if not a loss of principal.  We noticed this comment from Munich Re Syndicate Limited CUO, Dominick Hoare who said that non-traditional capital had been "severely impacted". Hoare went on to say "Much of this capital has been destroyed or 'trapped' under their collateral arrangements. This capital will only 'reload' if modelled returns increase significantly, this will involve very material increase in rate". "Furthermore", said Hoare "there is a huge divergence amongst the modelling companies regarding the quantum of loss. Such model frailties will lead to capital requiring additional margin to cope with this uncertainty."

Somewhere in offices in Munich, Zurich and London we are sure that executives in rated reinsurers read that comment and thought, at long last, "welcome to our world." From the perspective of the claimant trapped collateral for an ILS product is no different than a claim reserve by a rated carrier. Model uncertainty on the scale of the loss is a fact of life for insurers and reinsurers.  That's one of the reasons markets are so keen to understand their underwriting data. Some markets can quickly estimate their individual projected claim losses once they know the extent of the CAT damage and where it occurred. And as far as the discussion about the willingness to stand by the client on the next renewal or the idea of abandoning the client because your capital is tied up because of a claim...well this is one of the main selling points of a rated insurer.

Another component of the $100+ billion in Q3 claims concerns the collateralized retrocession market. By some estimates US wind-exposed retro limits deployed by collateralized writers are in the range of $18bn to $20bn and some $9bn to $16bn of that amount may have been lost to claims or certainly "trapped", and unable to be withdrawn, until well after the January 1 renewals.  Much of the retro capacity appears to have been provided by so-called CAT funds such as Catco, Aeolus and AlphaCat.

Even though this collateralized retro is on the top end of any CAT arrangement sources say that retro has a disproportionate effect on "dictating increases in primary reinsurance and, ultimately, insurance pricing."  In fact, and this was news to us too, in both 2001 and 2005 surging retro pricing was key to driving premium increases. Now with the 1/1 renewals upon us Moody's says the "key wildcards" is the availability of retro cover which is increasingly provided by ILS vehicles. 

Alternative capital is estimated to make up around $17.5 billion of a total of $20bn-$25bn limit or about 70% of the retro market. According to Artemis " Retrocession is popular with third-party investors as a way to access higher returning reinsurance business as it can yield upwards of 20%." Participation in the retro market by investors has increased since 2015 as alternative capital seek collateralized instruments to chase that "yield upwards of 20%". 

But like all insurance the investment comes with a risk --no matter how far up the risk chain you may be and no matter what the models say.  Something can happen and that something may have happened in the Third Quarter. 

Alternative capital began to make its effects felt over a decade or so ago with the introduction of CAT bonds designed to payout in the event of hurricanes and earthquakes. Since then alternative capital has developed many more sophisticated ingress routes to the insurance and reinsurance markets even beginning to penetrate the primary insurance market.  The hedge fund reinsurer model is well established as are sidecar insurers funded by alternative capital that are bolted onto existing insurers and reinsurers.

In a sense these machinations are not as novel as they may seem. Historically capital, whether traditional or alternative is what supports risk underwriting.  In prior years the "Names" at Lloyd's signed up to pledge their capital over an agreed to period of time to be used to underwrite risks that broadly conformed to the risk appetites of those investors. But the difference now, and one that has been noted by traditional carriers, is that most of the underwriting vehicles supported by alternative capital are not only finite in duration but are supported largely by model results that can provide reassurance to an investor that has money pledged as collateral will not only not be lost but in fact produce a satisfactory rate of return.  When an investor sees the event posing the  risk of loss in terms of a "one in one hundred year event" or "one in five hundred year event" that can provide a measure of comfort as to the safety of the investment.

When a capital market investor is supporting a retro layer not only do the odds of the event occuring affect his thinking but we would think, too, that the safety offered by all the layers below him that need to be penetrated and depleted must also provide a measure of comfort.  First the insurer's own retention needs to be burned. Then the initial layer of reinsurance needs to be depleted. If there are retro layers between that reinsurer's layer and the capital market backed retro layer then those layers too need to be "destroyed", to use Hoare's term, before the claim wave finally ends up with the retro cover supported by the capital market investment.

Many insulating layers and a small chance of occurrence --plus a rate of return in the neighborhood of 20%.  Where do we sign up one would think?  This is one of the reasons why billions in alternative capital have flowed into the reinsurance industry over the past years.  It's a smart investment.

It's a smart investment though until that rare event actually occurs and all the insulating layers have been depleted.  Then the bill comes due and the claim must be paid. The investment has already "left the building" and is sitting in a collateralized fund. If the cedent meets the definition of the claim trigger the funds will be paid to them.  Loss of principal can occur and the alternative capital investor must revert to the capital provider whether it's a pension fund, hedge fund or financial institution and tell them that not only will there be no expected 20% return this year but that the principal might not be returned either.

According to Leadenhall Capital's Lorenzo Volpi as much as $12.5bn of that capital market supported retro total of $17.5bn could be lost or trapped as a result of the Third quarter claims.

What's worse from the perspective of the retro market is the timing of these losses.  These funds are now "trapped" as it will take weeks if not months to sort through claims and determine how much is to be paid.  The underwriting year ends for many of these coverages on December 31.  How would you like to be the fund manager who has to go back to the capital provider after notifying them of the possible loss of the investment to ask whether they're interested in "re-loading" to take advantage of what will certainly be higher rates (and higher returns) for new coverage incepting on January 1?  These will be difficult discussions which is why the capital markets are signaling loud and clear that rate increases will be needed if they are to continue fueling the expansion of capacity.

Here is the first sentence of a recent article in the Insurance Insider: "Insurance-linked securities (ILS) investors contemplating leaving the sector because of low rates may be enticed to stay by price increases expected following the recent hurricanes." 

If surges in retro pricing in 2001 and 2005 were instrumental in causing premium increases in reinsurance and insurance it seems a possibility at least that the capital markets investors who comprise 70% of the retro market are going to need a similar pricing surge to continue to invest.

How big a surge? That's the big question but it's one that the traditional and alternative investors have been dancing around for years.  Rated carriers may have a slightly different view of the scale of increases that can be imposed on long-standing clients. Jed Rhoads, Markel Global Re's president and CUO summed up what seems to be the consensus view of traditional reinsurers when he noted that "We've never had a $100bn insured loss that didn't turn the market", but then said "We have always been responsible as a reinsurance industry to our clients to do gradual rate increases on them just as they have put gradual rate decreases on us multiple years in a row."

Rhoads' observation could no doubt be echoed in London, Bermuda, Zurich, Hannover, Munich and elsewhere. Markets don't remain in business for decades and centuries building relationships without being "responsible."  The challenge though for the capital markets is to convince investors who have signed up for short term investments with a high rate of return based on a very remote chance of losing principal, that the "responsible" path outlined by Rhoads is the one to follow.

If capital markets investors are not convinced and demand significantly higher rates to continue participating in the retro market then that amplified effect could come into play and drive rates up across the board. No matter how you slice it there is no doubt that alternative capital is facing its first big test.  CAT bonds have defaulted in the past and investors have lost money but the scope of losses from the Third Quarter will provide the sector the opportunity to either demonstrate that they are in the risk insurance business for a long time or whether their involvement was simply a search for yield.

Speaking in Baden Baden this week Leadenhall Capital's Luca Albertini was clear that alternative capital investors "are in this space in a mature way and here to stay but they are not committed at any price. They expect an increase." If Albertini is right, and he certainly would be someone who has his finger on the pulse of ILS investors, the capital not only remains interested in the risk sector but is determined to see rate increases.

There is another clue though in a comment made by Mike Reynolds, global CEO at JLT Re.  Reynolds is looking at the cost of capital discrepancy between third party funds and publicly traded rated carriers. No doubt remembering the birth of the big Bermuda CAT reinsurers that were quickly setup and funded in the post Hurricane Andrew era he noted that "We are in a different world to that of the 1990s and 2000s, when we would see a string of flotations post-event. Today, and indeed this renewal season, the lion's share of any capital raising will happen via collateralized vehicles--although some of them will be owned by quoted carriers."

Thus far we have not seen any evidence of a "string of flotations" in Bermuda or anywhere else. The absence of such activity may mean that the answer to whether alternative capital intends to remain may have already been revealed but ironically, if Reynolds is right, it will be the reinsurers themselves who are setting up and owning the collateralized vehicles. 

ILS investors trapped by Puerto Rico loss estimated from Maria

As we were completing last month's CATEX Reports we were adding up the loss estimates from modelers.  Even before the AIR loss estimate for Hurricane Maria was released we were certain that the industry was facing a major claim hit for the third quarter.  When AIR released their Maria estimate, that "industry insured losses for Hurricane Maria in the Caribbean will be between USD 40 Billion and USD 85 Billion", the industry took notice. 

AIR estimates that Puerto Rico alone could be responsible for 85% of the estimated loss.  The situation in Puerto Rico continues to be murky.  Accurate loss estimates still seem to be difficult to obtain and news reports indicate that much of the island is still struggling to obtain clean water and lack electricity.  Accurate totals from Puerto Rico may not be known for weeks and of course this delay is contributing to the "trapped" capital in many retro vehicles. It's clear that losses have occurred and per one of the major modelers the losses could be very significant so that capital has to stay in place pending claim results.

The other modeling firms such as RMS and Karen Clark & Co. offered Maria loss estimates significantly lower at $30 billion or less.  After one digests the AIR headline number of a maximum estimate of $85 billion one does see that the AIR low end estimate of $40 billion is "only" $10 billion more than the high end estimate of RMS and Clark's estimate of $30 billion. 

A complete tally of model loss estimates for the hurricanes and Mexico earthquakes was produced by the Insurance Insider. 

That $85 billion maximum estimate from AIR though was enough for Lloyd's to suspend "the release of profits to the market in light of the uncertainty surrounding potential losses from Hurricane Maria on the back of Hurricanes Harvey and Irma. Lloyd's said that expected net claims from Harvey and Irma were roughly $4.5 billion.

Regarding Maria, John Hancock, the Lloyd's Performance Management Director said "like the rest of the industry, we are saying it's simply too early to make a call on the Maria loss. There's very few estimates around the market from modelers, brokers and carriers, and we're assessing and discussing it but it's just too early to put a sensible number on potential losses."

The timing confluence of the uncertainty around a possible unquantifiable major Puerto Rican insured loss, as well as the Harvey and Irma losses with the looming renewal period for many US CAT covers is not helping rate increase discussions. It's possible that it may even be difficult to differentiate loss free accounts from accounts that have had claims.  Estimates of insured losses from carriers that have major exposure in Puerto Rico range from substantial to low enough to prompt questions from the market. 

Property claims, compared to casualty claims, are by their nature of course easier and faster to discern and quantify. The "short-tail" nature of property coverage is one of the reasons alternative capital is attracted to property reinsurance.  The uncertainty in hard information about insured losses from Puerto Rico, against the backdrop of that looming $85 billion potential insured loss from Maria computed by AIR, is causing uncertainty at a critical time in the pricing cycle.

In addition to the terrible conditions in Puerto Rico there is also a more identifiable reason why claims totals are slow in coming.  Apparently there simply are not enough qualified claim adjusters to handle the work of three major hurricanes striking at roughly the same time.  Even after Harvey and Irma there seemed to be a struggle deploying enough qualified adjusters and that's not even taking into account the logistical situation in Puerto Rico involving finding, lodging and deploying adjusters on an island still in a crisis condition.

Reinsurers who are both well diversified and have adequate CAT reserves may fare better as the claim discovery process unfolds than their underwriter/investor counterparts in the alternative capital markets. From a traditional carrier perspective the extended process is part of doing business but one could imagine a certain level of frustration on the part of those unfamiliar with the length of time possibly required to simply determine the amount of damage an insured risk(s) has sustained.

After $100+ billion in losses few publicly predict rate hikes

We rarely go through a month when we don't read articles about the importance of data and science to reinsurance underwriting.  This month was no exception. An interview with Scor's Victor Peignet, titled "Data & Knowledge is the re/insurance sector's opportunity" is well worth reading for a number of reasons not the least of which is Peignet's observation in regards to the reinsurance industry "We have a huge amount of data and knowledge --that's where the opportunity is." 

Then we saw this article featuring observations from Swiss Re's Chief Underwriting Officer Edi Schmidt titled "Reinsurers' opportunity to make underwriting more scientific." Schmidt said "Today we have much more capability to use more sources to make the underwriting even more fact-based."

Obviously as the market has experienced the downturn of the past years in pricing we've read a lot about underwriter discipline and "technical price" levels. Underwriters it seems are analyzing vast amounts of risk information before setting premium prices and certainly a part of the analysis includes loss information.

Intuitively we too believed that after a total $100+ billion claim experience in recent weeks that rates were certainly going to increase.  As we are in the United States we were perhaps a bit more aware of the disastrous conditions in Puerto Rico and understood that estimates aside it was going to take some time for hard claim numbers to emerge.  The "data and knowledge" and "fact-based underwriting" noted by Peignet and Schmidt would certainly eventually account for the recent CAT losses and rates would respond.

Thus on October 11 when Hiscox Syndicate 33 announced that it planned to ask Lloyd's for a 450 million GBP increase in its stamp capacity to take advantage of an expected "widespread market turn" following the recent CAT events we were impressed.  At that time only anecdotal evidence or observations from analysts were appearing in the trade press signaling future rate increases.  

The news signaled to us at least that the syndicate already had managed to compile adequate claim data from the hurricanes and earthquakes of the Third Quarter and was preparing to increase underwriting capacity to take advantage of higher rates. 

We did note in the article in the Insider that when Hiscox issued its 2017 forecast last year it anticipated 57% more direct premium growth for 2018.  The main driver behind the premium growth is binding authorities which Hiscox forecasts will rise by 64% in 2018.

The stamp increase request does not seem to have been broken out into expected boosts in lines of business which would rise as part of the 450mn GBP capacity increase but we thought little of it at the time. Hiscox is very well managed and very successful. The increase in capacity, we were certain, would be deployed in the most profitable manner possible.

After the Hiscox announcement on October 11 we expected to see other announcements from syndicates and reinsurers indicating that more capacity was being deployed to take advantage of anticipated higher rates. However as of the time of this writing we can refer to the headline of this Insider  article as an answer to our expectations: "Hiscox's bold pre-emption request appears unmatched by peers."

The article is worth reading and includes only sources who wish to remain anonymous but the upshot of the story is this sentence" Hiscox's effective calling of the hard market is dramatic, and a big bet on where it thinks its future profits will come from. But there is a sizeable contingent in the market that feels Hiscox is using its significant clout to engineer a pricing correction."

No wonder the sources in the article wished to remain unnamed.  And while Hiscox is a significant writer at Lloyd's we can easily envisage Bronek Masojada's reaction to being accorded the power to, all by himself, engineer a pricing correction. 

With all the discussion about data and fact-based underwriting it seems implausible that Hiscox is doing anything other than what it said it was doing --getting prepared in case the market turns.  There is no rule that would require them to deploy all their new capacity if they don't see the return they want but they at least will be ready.

As we were completing this article on October 20 Hannover Re indicated that it too expected to see an increase in rates and on October 23rd Munich Re followed suit.  

CATEX headed to Singapore for the 14th annual SIRC Conference

CATEX is attending the 14th Singapore International Reinsurance Conference October 31 to November 2. We're looking forward to making the trip and to meet with markets and brokers from around the world and particularly with our Asian colleagues. 

We have a nearly full schedule of meetings set and have closely examined the updated delegate list. We think we will have interesting discussions about data and how to have increased confidence in that data as it's used to underwrite risks from emerging markets. 

The wide divergence in loss estimates given by the risk modeling community in the aftermath of the recent hurricanes US, we think, will prompt more parties to invest in their own analytical capabilities and get a better handle on their data. 

CATEX has two products, Data Vera for Exposure Management and Data Vera for Binder Management, that can readily assist underwriters and brokers to have complete confidence in their data integrity and to perform sophisticated analyses on that data prior to modeling. Data Vera can export clean and validated data to and from modeling firms to better allow clients to perform individualized hypothetical scenarios post modeling.

We will be discussing Data Vera and our other applications in Singapore but most important we will be listening very closely.  The challenges faced by our Asian colleagues represent a significant opportunity for both their own economies and the risk industry and we want to play a role in that solution. 
"I, Robot" is maybe more than you think

Roger Crombie

Robots have been an essential element of production assembly lines since the early 1960s. Their use in customer service followed.

It started with gas pumps (petrol pumps, for our English readers). Drivers, whose tanks were once filled by an attendant, began to have to do it themselves 20 or 30 years ago, I would guess. Some gas stations now even lack a person to take your cash or sell you overpriced soft drinks. Slide in your credit card, pump the gas, and be on your way.

Few, if any, realised it at the time, but the first time you pumped your own gas, you had entered the Age of the Robot.

It has taken a while for the technology to develop for specific industries, but many customer services are now provided automatically.

Passengers have to check themselves in at airport kiosks. Machines then fly the planes, with pilots on hand to reassure passengers and handle emergencies. Vehicles are driving themselves all over the place in California, Texas and elsewhere.

Digital banking has led to automated teller machines largely replacing the work of bank staff. The advent of online money has changed, and continues to change, the very shape of retail banking.

Attorneys use software to scan documents and search for relevant precedents in case law. It saves them having to know anything.

Online shopping transfers all the work to the customer, who can't try on the goods or feel their texture, or (often, in my experience) gauge their size: no sales assistant required.

The warehouses from which we order our online purchases are mostly run by machinery. Drones will drop the goods off without a human being ever becoming involved in the process, other than when Jeff Bezos makes a bank deposit.

At the supermarket, we're bagging our own groceries, and paying a machine to scream "Unauthorised item in bagging area" at us. We then have to find a human assistant to extricate us from the shopping hell that doing it yourself routinely places the customer in. You even have to order your meal at McDonald's from a machine these days.

Insurance is getting in on the act. Those damned robots may be everywhere in so many industries, but insurance is sensibly using automation for the back office, rather than trusting customers to set premium rates or estimate their own claims.

Automated administrative techniques will eventually transform industry operations, from bordereaux processing to the movement of risk data between submissions slips, pricing tools and exposure management systems.

"A new class of robotic software is being used in the financial services industry that can emulate a user, log into systems, process data and automate the various interactions across a reinsurer's systems and tools," EY's Chris Maiato told a reporter.

Reinsurance has not been a natural candidate for automation. The research and review process involves an enormous quantity of data that has not until recently been centralised or digitalised. Plus, everyone has had different systems and requirements, making data transfer tricky.

"The trends in digital, data and robotics tools are now removing these limitations and as a result financial services companies are taking automation seriously," Maiato said. Pilot case studies are being carried out and software robots are starting to be employed by insurers, reinsurers and brokers.

Unlike humans, robots work round the clock. They never complain or take vacations. They don't require human resources departments or have to meet diversity requirements. Robots don't attend meetings, bully other robots, or demand a living wage. Many employers will salivate when they read those words.

Robots do the job faster and better than we possibly could: robot error rates have been estimated as 25 to 30 percent lower than human rates.

I suspect you know all this. What you don't know, because no one does, is what billions of former employees are going to do when robots run the show. The best and brightest will remain employed, but unskilled workers will no longer be required.

A possibly apocryphal conversation between Henry Ford II and labour leader Walter Reuther illustrates the point. Ford was supposedly showing Reuther around a newly built and highly-automated factory at his plant in Michigan.

The conversation neatly encapsulated the paradox of automation:
Ford: Walter, how are you going to get those robots to pay your union dues?
Reuther: Henry, how are you going to get them to buy your cars?

Roger Crombie is an American Society of Business Publication Editors national award winner. An English chartered accountant who lives in  Eastbourne, on England's South Coast, he writes and broadcasts news and opinion in the US, UK, Bermuda and the Caribbean, in print and online. His main beat is insurance and financial services, with 30-year sidelines in music and humour. All views expressed in Roger's columns are exclusively his own. Contact Roger at

Copyright CATEX Reports
October 23, 2017
Quick Bytes

The wildfires in California have completely destroyed at least 7,000 homes and killed 42 people. Moody's estimates that total insured loss from the fires has risen to $4.6 billion. The wine-making region of the state has been particularly impacted...The Bacardi distillery in Puerto Rico is a bright spot in the island's post Hurri cane Maria recovery. Bacardi got its facilities functioning less than two weeks after Maria left many without food, water, power or communications...US shoppers have been unknowingly helping to fund   North Korea by buying seafood at popular stores like Walmart and Trader Joe's that was sourced from suppliers in China who employed North Korean workers paid as little as 46 cents per hour. Both chains have banned any future purchases...The US broker Integro is said to be in advanced takeover talks with  London broker Tysers which was founded in 1820... Australia's two biggest cities, Sydney and Melbourne, could swelter through 50C (122F) days within a few decades according to a study by the Australian National University...One response reinsurers had to the soft market was to move further into primary lines but A.M. Best notes that for most firms, results for primary business are around break even and lag far behind the reinsurance side, which still brings in the majority of profits...Warren Buffett's Berkshire Hathaway has bought a stake in Pilot Travel Centers, a US truck stop chain. Berkshire will be Pilot's largest shareholder in six years. Pilot has annual revenue in excess of $20 billion and Buffett said that the roadside services offered to truckers will continue despite the advent of driverless cars. He said "There is nothing that we own that doesn't have something in the future that might affect it. Trucks are going to be around for a very long time."...The earthquakes in Mexico have had a predictable affect on neighboring Californians. The California Earthquake Authority experienced a "dramatic increase" in website visits and calls from citizens inquiring about earthquake insurance. Less than 11% of Californians with homeowners insurance carry earthquake coverage...AIG is no longer designated as a systemically important financial institution (SIFI) or "too big to fail" per a vote by the US Financial Stability Oversight Council. AIG will no longer be required to comply to the regulatory standards of the Federal Reserve's banking rules...The Association of Bermuda Insurers and Reinsurers (ABIR) released a report saying that its members contribute nearly $900 million directly to the Bermudian economy. The GDP for the entire island was estimated at about $5.2 billion in 2013...The EU EIOPA chairman Gabriel Bernardino once again warned UK carriers about setting up "brass plaque" outposts in Europe post-Brexit and reinsuring their risks back to London. He said "We see 10 percent of business being retained as a good referential."...Conflicting reports abound about whether US pharmaceutical firm Merck is preparing to file a claim which could be as high as $1.5 billion from losses stemming from the NotPetya cyber-attack. Merck says it has adequate coverage but market sources claim the company had no stand alone cyber insurance cover and is planning to try to recoup some of its Business Interruption losses through its property policy...Kobe Steel, a large Japanese steelmaker and a member of the Mitsubishi UFJ Financial Group has admitted to falsifying data quality records for more than 10 years. There are now widespread concerns about the strength and durability of Kobe Steel products and the European Aviation Safety Agency (EASA) advised aircraft manufacturers to suspend use of products from the steel maker...Stephen Catlin thinks he knows one reason it's so hard to get political leaders to pay attention to risk mitigation measures in the public sector. He thinks that politicians need to expand their time horizon s beyond their term in office. "When you get to a 1-in-100-year risk, they are snoring" and said most politicians typically view mitigation policies on a horizon of no more than five to ten years...
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