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JULY 2015 FINANCIAL INSTITUTIONS RISK BULLETIN
AJGINTERNATIONAL.COM
FINANCIAL INSTITUTIONS RISK BULLETIN
JULY 2015
Welcome to the July 2015 edition of the Arthur J. Gallagher Financial Institutions Risk Bulletin.
In this edition we update you on the implications of insurance market consolidation, include an important note on the changes to UK Insurance Premium Tax, highlight a recent decision by the UK Supreme Court regarding contractual interpretation, and examine proposed legislation to address the UK gender pay gap. Finally we introduce another member of our team, Piers Stannus.
If you would like more information on any of the topics discussed within this bulletin, please contact [email protected].
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UPDATE ON INSURANCE MARKET CONSOLIDATION – WHAT DOES IT MEAN FOR FINANCIAL INSTITUTIONS INSURANCE?
Since our original article included in our April 2015 risk bulletin (available upon request), insurance company mergers and acquisitions have continued.
CONSOLIDATION TIME SCALE DEAL VALUE
Sompo / Canopius Completed May 2014 £600m
Qatar Insurance Group / Antares Completed June 2014 £Undisclosed
Renaissance Re / Platinum Re Completed March 2015 £1.1bn
XL / Catlin Completed June 2015 £2.5bn
Fairfax / Brit Completed July 2015 £1.2bn
Axis or Exor / Partner Re Expected H2 2015 £6.6bn
Endurance / Montpelier Expected Q3 2015 £1.2bn
FOSUN / Ironshore Expected Q3 2015 £1.1bn
Tokio Marine / HCC Holdings Expected Q4 2015 £4.5bn
ACE / Chubb Expected Q1 2016 £18bn
Zurich / RSA Under Consideration? £5.4bn / £6bn
The XL / Catlin and Fairfax / Brit transactions have now completed and the Endurance / Montpelier transaction is scheduled to complete in Q3. Still ongoing is the proposed acquisition of Partner Re; original bidder, Axis, now faces a rival unsolicited bid from Exor, investment vehicle of the Agnelli family, and both have increased their offers. A shareholder vote on the proposals will be undertaken in early August.
Two major new transactions have recently been announced. In early June, Tokio Marine announced the acquisition of HCC Holdings and in early July, Ace Group announced the acquisition of Chubb Corporation (the combined group will utilise Chubb brand). On 28 July 2015 in a stock exchange announcement, Zurich has declared that it is currently considering to make an offer to acquire RSA Insurance. One analyst post of the Ace Group / Chubb Corporation announcement stated that all major US insurers, with the exception of AIG, could find themselves as acquisition targets. We would also suggest that the same could be said for the remaining independent Lloyds vehicles.
We had previously stated that sector consolidation was not material to market conditions because we did not anticipate any reduction in market capacity relevant to our sector, however the Ace / Chubb transaction is the first that may affect available capacity due to its size and as both have large financial institutions insurance offerings. Despite this though, we remain bullish on market conditions for financial institutions because whilst this transaction may lead to a slight contraction of our market it will be far outweighed for all but the very largest placements by excess capacity.
JULY 2015 FINANCIAL INSTITUTIONS RISK BULLETIN
AJGINTERNATIONAL.COM
The decision in Arnold emphasises the importance of the actual words used in a contract. Insurance policies are of course complex contracts and we understand that the rules of interpretation set out in Arnold will be applied by English Courts when interpreting insurance policies. It is therefore essential that insurance policies are precisely drafted and reflect the intent of both the insured and the insurer. Disputes around the interpretation of insurance policies are unfortunately common, as insurers and insureds often disagree whether a particular matter falls to be covered under a policy. The chances of such disputes arising can be significantly lessened with well drafted policies.
We invest significant resourcecs to ensure the efficacy and clarity of our policies. This effort is led by our Technical Director, Thomas Falcon.
CONTRACTUAL INTERPRETATION: WORDS NOT INTENT
The recent decision by the UK Supreme Court in Arnold v Britton and others [2015] UKSC 36 may herald a retreat by English Courts in applying commercial common sense when interpreting contracts. That approach generally involves the Court adopting the interpretation of the contract that is most consistent with business common sense where language used in the contract has more than one potential meaning. We understand that the Supreme Court’s decision underlined that the actual language used in a contract should be relied on and that commercial common sense should not be invoked to undervalue the importance of the language of the provision which is to be construed.
Arnold v Britton and others [2015] UKSC 36
The standard IPT rate in the UK which applies across all Financial Lines insurance policies will increase from 6.00% to 9.50% from 1 November 2015.
Osborne told the House of Commons that, despite the increase, the UK’s IPT would remain lower than that of many other European Union member states.
UK INSURANCE PREMIUM TAX – INCREASE IN THE STANDARD RATE
The Chancellor of the Exchequer, George Osborne announced during the UK Summer budget on 8 July 2015 the first change of the standard Insurance Premium Tax (IPT) rate in the UK (excluding Jersey, Guernsey and Isle of Man) since 4 January 2011.
JULY 2015 FINANCIAL INSTITUTIONS RISK BULLETIN
AJGINTERNATIONAL.COM
To request any of the following, please contact [email protected]:
June 2015 Overview of Senior Managers Regime
May 2015 FCA Business Plan 2015-16 / Employment Practice Liability – an issue that does not go away
April 2015 AJG and XL launch Private Warnings Costs Extension / Insurance Market Consolidation
January 2015 Insurance Market for 2015 – What can we Expect?
August 2014 A Guide to Cyber Insurance for Financial Institutions
PREVIOUS FINANCIAL INSTITUTIONS RISK BULLETINS
UK GENDER PAY AUDITS - MORE ISSUES IN THE FUTURE?The Government announced proposed legislation, in July 2015, to address the gender pay gap in the United Kingdom, requiring all private and voluntary entities with at least 250 employees to publish information about the pay of their male and female employees. The proposals under Section 78 of the Equality Act 2010 (the “Equality Act”) defines employees as anyone employed under a contract of employment or apprenticeship or under any contract personally to do work.
The new measures are currently undergoing consultation, which is due to conclude on September 6, 2015. The consultation paper suggests that the new regulations will come into force in 2016. The proposed penalty for non-compliance with the new measures is a fine of up to £5,000, however it is the reputational risk and the possibility of employment related claims that will be more damaging
Over recent years a number of group employment actions have succeeded in the United Kingdom, most notably the 2012 discrimination claim brought by 174 female council workers against Birmingham City Council for their right to equal pay. The UK Supreme Court decision left the authority with a potential judgement of at least GBP 757m against them.
The transparency required by the proposed legislation could potentially open the floodgates to further group actions, a trend that has already been witnessed in the United States (see http://www.employmentclassactionreport.com/).
Employment Practices Liability insurance could provide you with important cover against this exposure and in light of the proposed UK legislation, specific consideration should be given to an appropriate Limit of Liability.
Please contact us if you wish to discuss this further.
JULY 2015 FINANCIAL INSTITUTIONS RISK BULLETIN
AJGINTERNATIONAL.COM
MEET THE TEAMPiers has worked as a broker in the Financial & Professional Risks arena since 1994 when he joined the graduate trainee programme at Marsh.
Throughout his career, Piers has operated as a client facing executive on a wide range of financial institutions with specific focus in recent years on the Private Equity, Investment Managers and Funds sectors. Piers has mainly operated with clients based in the United Kingdom or its offshore centres.
Piers has a wide experience of the market working at Firstcity, Howden Risk Partners and HSBC Insurance Brokers in addition to Marsh. Piers joined Arthur J Gallagher Financial & Professional Risks practice in December 2014 to bring his experience to our UK focused team with its growing base of Investment Managers and Private Equity clients.
Piers used to have lots of spare time to enjoy his hobbies but with the arrival of a newly born son in late 2014 those days seem to have come to an end!
Piers StannusDivisional Director E: [email protected] T: +44 (0)20 3425 3156
CONDITIONS AND LIMITATIONSThis information is not intended to constitute any form of opinion and recipients should not infer any opinion from its content. Recipients should not rely exclusively on the information contained in the bulletin and should make decisions based on a full consideration of all available information. We make no warranties, express or implied, as to the accuracy, reliability or correctness of the information provided. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide and exclude liability for the statistical content to fullest extent permitted by law.
Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London, EC4N 8AW. Registered in England and Wales. Company Number: 1193013.
If you would like more information, please contact your Account Executive or email [email protected]
www.ajginternational.com @AJG_INTL /arthur-j-gallagher-international
About the Arthur J. Gallagher Financial Institutions Team
The dedicated Arthur J. Gallagher Financial Institutions team offers advice, design and execution services for a wide range of standard and bespoke insurance products. We provide competitive, cost-effective solutions for the full range of liability and crime risks faced by financial services firms and their directors and officers, including civil liability, professional indemnity, fraud, cyber risks and directors’ and officers’ liability.