The International Financial Services London (IFSL) released its annual research in the state of the UK insurance market and found the net worldwide premium income of the UK insurance sector fell 18 per cent in 2008 to £215.3bn. It blames the performance on a fall in long-term premiums which typically account for around 80 per cent of insurance business in the UK. As the economy slowed, demand for long-term cover fell placing downward pressure on premium rates.

According to IFSL’s report, the insurance industry is exposed to the economic downturn on the assets side through a fall in investment returns and on the liabilities side through rising claims. So far the extent of losses on both sides has been limited and most insurance companies have enough capital to absorb losses. But it was not such a bad story for the London market. Gross premiums on the London Market were conservatively estimated at £24.7bn in 2008, up 13 per cent on the previous year. The one-quarter fall in marine P&I Clubs premiums during the year was more than offset by an increase in insurance companies’ and Lloyd’s premium income.

Lloyd’s generated 63 per cent of London Market premiums with the company market accounting for a third and P&I Clubs the remainder. London is a key centre for international insurance and reinsurance, particularly for marine and aviation business and reinsurance. The insurance sector makes an important contribution to the UK economy. It accounts for 1.6 per cent of GDP and provides employment for 325,000 people including 50,000 in the London Market. Insurance net exports increased 48 per cent in 2008 to a record £8.0bn. Funds under management of UK insurance companies totalled £1.5 trillion, almost double those of any other European country.

Marko Maslakovic, IFSL’s Senior Economist said, “The economic slowdown has shown that the UK insurance sector is sufficiently capitalised. Insurance companies have minor exposure to mortgage-related assets and losses on insurance coverage have been limited to specialised lines of business. The insurance sector has acted as a stabilising factor at a time of considerable volatility in the broader financial markets”.

Aon in FFC captive acquisition
Aon Risk Services (ARS) has announced a deal to acquire FCC Global Insurance Services, the in-house captive brokerage Fomento De Construcciones Y Contratas, the second largest construction conglomerate in Spain. The financial details have not been revealed but the deal is expected to be completed by year end. As part of the acquisition Aon will also be the exclusive global insurance broker for FCC for the next decade. 

"This acquisition strengthens the ARS position in both the construction and public services sectors in Europe," said Steve McGill, Chairman and Chief Executive Officer of Aon Risk Services. "FCC is a large diversified international company with a substantial and complex risk profile. FCC is the second largest construction conglomerate in Spain and the seventh largest in Europe, specialising in infrastructure, environmental and related public services.

"The fast worldwide expansion of FCC Group over the last five years means that half of FCC's revenues come from overseas. Increasing premiums, risk complexity and difficulty to locally provide adequate service helped us to decide to become partners with a leading specialist such as Aon,” said Baldomero Falcones, Chairman and Chief Executive Officer of FCC.

Endorsement pilot set to sail with marine and terrorism
The London markets’ planned use of the Lloyd’s exchange for the delivery of electronic endorsements reaches a key stage this week with the market reform committee set to decide on the classes which will be used the pilot the scheme. Word is that marine will form the flagship class with terrorism or professional indemnity set to also be chosen as a pilot class. The aim will be to eradicate the use of paper endorsements into the market for the pilot classes with a range of brokers and underwriters which have agreed to participate.

However as those attending the Market Reform group’s monthly briefing were told the fear remains that the biggest hurdle will be the disconnect between the senior management which have backed the work to drive electronic endorsements and the practitioners which are still yet to be fully convinced. The timetable is to have the market support for the endorsement scheme by the end of next month, with the implementation of the Acord 2009.1 standard in February and the scheme to go live by June 1. It will be reviewed at the end of September with the market wide participation on January 1 2011.

However, while it has been released to the media that the big three brokers, Aon marsh and Willis have committed to the endorsement plan it is not unconditional with certain criteria needing to be met before the brokers will throw their full weight behind the scheme and this includes the buy-in from the underwriters and other areas of the market.

Swiss Re in longevity first
Swiss Re has entered into its first longevity transaction with a pension fund in a scheme which will see the reinsurer underpin the pension payments of a UK local authority. Swiss Re will provide the Royal County of Berkshire Pension Fund (RBPF) with protection against the uncertainty associated with longevity risk on its CHF 1.7 billion of pension liabilities.

Christian Mumenthaler, Swiss Re’s Head of Life & Health, said:“We are very proud to announce this innovative transaction, because it is not only Swiss Re’s first longevity protection written for a pension fund, but the first pure longevity risk transfer written for any governmental body worldwide.

"The contract transfers the longevity risk for RBPF’s existing pensioners through a straightforward insurance policy. It covers the fund’s 11,000 pensions that were in payment on 31 July 2009. The RBPF pension fund will pay regular premiums to Swiss Re according to a fixed schedule. Swiss Re insures the actual ‘floating’ annuity benefits to members, the cost of which depends on how long those pensioners live. The net result is that the RBPF will honour pension payments to its pensioners, but any future positive or negative deviation due to uncertain longevity is absorbed by Swiss Re. RBPF retains legal ownership of its assets and complete control over its investment strategy.

“We are pleased to have completed our first pension plan transaction so soon after expanding our activities to offer pension plans direct access to Swiss Re’s longevity capacity. This demonstrates our ability to take tried and tested solutions created for insurance clients and apply them to occupational pension plans,” said Costas Yiasoumi, who led the transaction on behalf of Swiss Re.Continually rising life expectancies make longevity risk one of the biggest issues facing society, said the reinsurer.

“This creates big opportunities for Swiss Re as market leader in life and health reinsurance. We are now pioneering longevity solutions for public sector counterparties as well as private companies, allowing them to better control the uncertainty they face with respect to longevity risk,” added Mr Mumenthaler.

Workers exchange financial hangover for Christmas one
Broker Aon has conducted some research into the sickness habits of the UK’s  workforce and found that the Christmas season will see a leap in the number of workers who falsely claim to be sick to avoid work withy many simply too hungover to turn up. It seems that according to Aon Consulting 10% of admit that their last sick day off work was not genuine.

Of those surveyed just over 20% cited stress, depression, being hungover or taking a ‘sickie’ as the real reason for their last day off. The survey also revealed that colds and flu are the most common reason for absence (38%), while 11% of workers selected stress and/or depression and 7% cited fatigue. Commenting on the research, Paul White, Head of Risk Benefits at Aon Consulting, said: “At this time of year, it is not surprising to see that many workers will be celebrating the end of a rollercoaster year, as they should.

However, there is no need for employers to suffer as a result. Implementing a flexible benefits programme, where employees can buy and sell holiday, could help employees better manage their time off from work, and mean that ‘sickies’ are less common. Hangovers aside, tackling sickness absence is becomingly increasingly important to organisations who seek to manage their costs. It has been a difficult year and employers must be aware that they have a responsibility to care for their workers. Companies are quite rightly addressing cases of stress and depression and further Aon research shows that flu jabs and stress management are now the most popular wellness initiatives offered by companies.” However many staff which have been faced with the threat of job losses, and pay freezes are it seems determined to make the most of the festive season so firms need to brace themselves for a round of “24 hour flu”.

And Finally………..
With the next two issues scheduled to fall on Christmas Eve and New Years Eve respectively this will be the last issue until the first week of January. All at Global Broker & Underwriter magazine would like to wish all our readers a very happy festive season and a prosperous and claim-free New Year.