Marketplace

CANADIAN MARKET

Hub International agrees to be acquired

Insurance brokerage firm Hub International Ltd. has agreed to be acquired, for US$4.4 billion, by funds advised by Hellman & Friedman of San Francisco.

Hub International, which was formed in 1998 through the merger of 11 Canadian brokerages, moved its headquarters to Chicago in 2001. Recent acquisitions include Brantford, Ontario-based The Dorsey Group Inc. and Steinbach, Manitoba-based Southeastern Insurance Services Ltd. Under the terms of the acquisition agreement, investment funds managed by Hellman & Friedman would hold a majority interest in Hub International.

The transaction is subject to customary closing conditions and is expected to be completed before the end of 2013.

RISK MANAGEMENT

MIT survey indicates risk management methods

Only 41% of companies surveyed are considered to have “mature” supply chain risk management processes, but nearly four in five mitigate against disruptions by implementing a dual sourcing strategy, notes a recently released report.

The report – titled 2013 Global Supply Chain and Risk Management Strategy – was published by the Massachusetts Institute of Technology’s Forum for Supply Chain Innovation and written in collaboration with PricewaterhouseCoopers. It was based on a survey of 209 participants whose firms have a “global footprint.”

Respondents were asked how their firms mitigate against disruptions. A large majority (82%) said they create and implement a business continuity plan, 79% said they implement a dual sourcing strategy, 78% use both regional and global suppliers, 59% establish distribution centres in multiple regions and 48% use a component substitution strategy.

The report also categorized “supply chain and risk management process maturity” into four levels, where Level 1 is the least mature and Level 4 is the most mature.

Based on the survey responses, the authors noted, 17% of respondents were at Level 1, 42% were at Level 2, 32% were at Level 3 and 9% were at Level 4. The respondents at Levels 3 and 4 – 41% of the total – were considered to have “mature processes.”

CLAIMS

IBC starts VIN database of non-repairable flooded vehicles

The Insurance Bureau of Canada (IBC) recently launched a database of vehicles that have been reported and branded as non-repairable after severe flooding in southern Alberta and the Greater Toronto Area.

Consumers can enter a vehicle identification number (VIN) on the IBC website to check whether or not a vehicle has been branded as non-repairable following the storms and flooding.

Vehicles that were subjected to flooding to the level of the bottom of the dash “must be branded as non-repairable and can no longer be operated on any Canadian road,” IBC stated on its website.

REGULATIONS

B.C. government auto carrier proposes 4.9% rate increase

The Insurance Corporation of British Columbia (ICBC) is seeking a 4.9% increase to basic auto insurance rates, due mainly to a sharp increase in bodily injury claims.

ICBC, which is run by the provincial government, filed August 30 a proposed rate increase with the British Columbia Utilities Commission (BCUC). If approved by BCUC, the rate increase would take effect November 1.

In B.C., vehicle owners are required to buy, from ICBC, a basic package that includes third-party liability, accident benefits, underinsured/uninsured and inverse liability. They have the option of buying collision, fire and theft coverage from either ICBC or private-sector carriers. ICBC noted that bodily injury claims costs rose more than $165 million in 2012 to $1.9 billion, and are more than $400 million higher than five years ago.

TECHNOLOGY

Telematics a hard sell for U.S. consumers

Progressive Corp., an auto carrier based in the United States, is still seeking to get more consumers on board with its usage-based insurance (UBI) program, Bloomberg recently reported.

Bloomberg quoted Progressive CEO Glenn Renwick as saying about 40% of potential users of Progressive’s Snapshot program are saying “no way” to the offering.

The rest are evenly divided between consumers who are willing to try the program and those who want to find out more.

“Our Snapshot advertising campaign, which is set outside of the Superstore construct, ran most of the second quarter,” Renwick noted in a letter to shareholders on the company’s financial results.

“The intent was to raise awareness that an individual’s rates set without the benefit of their specific driving profile, the option Snapshot provides, may well mean they are contributing a subsidy to those with poorer driving behaviors,” he said.

As of last December, Mayfield Village, Ohio-based Progressive owned six UBI patents in the U.S.

Survey indicates rising consumer awareness of telematics

Half of surveyed consumers are likely to sign up for a usage-based insurance program that would provide at least a 10% discount, while 36% would actually change carriers for that discount, notes new research from LexisNexis Risk Solutions Inc.

One in three consumers is aware of UBI programs or telematics, showing a rise in awareness over the past three years, notes the study, based on a web survey of 2,072 residents in the United States conducted in March by Lynx Research Consulting.

That is up from 10% of respondents knowing about such programs in 2010.

Its research also suggests that 61% of consumers are more likely to accept telematics programs if their insurers offer a trial period for three months. Even more (72%) are likely to accept a program if an insurer offers an automatic discount of 10% for the first six months.

About a third of consumers would also be likely to use a smartphone for collecting and transmitting telematics data, the study results suggest.

Insurers need unified communications strategy: Report

Establishing a unified digital communications platform will be key for insurers looking to evolve into more customer-centric companies, argues a new paper from research firm Strategy Meets Action (SMA).

Insurers are now devoting “significant energy and resources” into transitioning from product-focused to more customer-oriented in recent years, but are still moving away from old methods of doing business, states the SMA paper.

Among its recommendations, the paper notes technology used to communicate with an insurer’s channel partners and customers have tended not to be cohesive.

“When communications are viewed from a customer’s vantage point, it has become apparent that insurers need a strategy to unify their communications so that they are recognizable as being from one company with a consistent brand, and with information that is available and updated real-time,” report author and SMA partner Mark Breading writes.

Such a unified system could bring together portals, websites, mobile and social media capabilities, the report suggests.

REINSURANCE

Cat bond transactions on the rise: Aon Benfield

There was an “unprecedented demand” for catastrophe bonds during the 12 months ending June 30, with no loss activity resulting in cat bond payouts for that period, while several new bonds cover Canadian earthquake risk, notes a paper from Aon Benfield Securities Inc.

Chicago-based Aon Benfield Securities released last month a 76-page paper that aims to review and analyze insurance-linked securities (ILS).

As of June 30, annual issuance volume reached $6.7 billion and total bonds at risk were $17.5 billion, surpassing the previous record of $16.2 billion as of June 30, 2008, notes the report, titled Capital Revolution – ILS Market Expands to New Heights. All figures are in U.S. currency.

Aon Benfield Securities noted that 27 transactions (including three covering life and health) closed during the year ending June 30.

Recently issued cat bonds whose covered perils included Canadian earthquake risk were: a $270-million transaction, issued by Lakeside Re II Ltd., providing Zurich Insurance Company Ltd. with annual aggregate coverage over three years; a $75-million transaction issued by Blue Danube II Ltd. on behalf of Allianz Argos; and a $75-million issuance by Tramline Re II Ltd. on behalf of Amlin AG.

“Despite such an active quarter, investor capital kept pace with primary market issuance,” Aon Benfield Securities stated of the three months ending June 30.

“Many transactions were upsized, and oversubscription for issuances allowed a number of transactions to close at or below the low end of marketed price guidance,” the company added.

Reinsurers face pricing pressure

Reinsurance firms are “capable of absorbing significant losses from a combination of events,” but are also facing pricing pressure because of investments from third-party capital, a new report from A.M. Best Company suggests.

Though global reinsurers are “well capitalized,” Oldwick, N.J.-based A.M. Best “remains concerned that reinsurance pricing, terms and conditions may come under increased pressure as excess capacity continues to build and the convergence between capital market capacity and traditional reinsurance capacity evolves.”

In its report released last month, titled The Capital Challenge: Reinsurance Capacity Overshadows Market, A.M. Best noted “various reinsurance brokers reported” that “as much as” US$45 billion of “additional capacity entered the market in recent years.” Sources of this money included hedge funds, pension funds, endowments and trusts.

When ranked by gross written premiums in 2012, the top five reinsurance groups were Munich Reinsurance Co., Swiss Reinsurance Co. Ltd., Hannover Rueckversicherung AG, Lloyd’s and Berkshire Hathaway Inc.

Despite several cat losses in 2012, including Storm Sandy, “most reinsurers delivered underwriting profits and solid earnings,” states the report.