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Where next for the post-pandemic market?

The article below, by Rachel Cohen, Senior Treaty Broker at New Dawn Risk, was originally published in the Middle East Insurance Review in September 2020.

Prior to the global pandemic and subsequent lockdown that occurred towards the end of March, the reinsurance sector had certainly seen some hardening of rates in the 1 January 2020 renewals, compared to what had been experienced in the past.

In the international casualty treaty sector, this hardening was more prevalent on loss affected programmes. Reinsureds were enjoying more and more increases in underlying rates, in particular on D&O and the professional lines of business, where increases were anything between 25% and 200%, even where accounts were claims-free. However, it could still be argued that rates were still not quite where they should be, mainly due to the excessive capacity in the market. As has always been the case, there was still a gap between the hardening of rates on the underlying business and the increase in the reinsurance pricing, although this gap was certainly becoming smaller.

Deteriorating results

In addition to this, the spotlight in the last six to 12 months before the pandemic had been shining brightly on the casualty lines of business, especially on the reinsurance side, which was never the case in the past. Lloyd’s was starting to voice its concerns over the long-term profitability of this sector.

In 2015 and 2016, the softening of terms and conditions in the international casualty market was paramount. There was an abundance of capacity and an absence of any severity or systemic losses, which meant that rates were at the bottom of the cycle or were approaching bottom. Fast forward to 2019/2020 and it became very clear that there was a plethora of under-reserving of claims in the past years and the prices charged by reinsurers were unsustainable, meaning the profitable results in many reinsurers’ casualty books were fast deteriorating.

Shifting sentiments

Although it is still very early days in terms of quantifying the impact of the pandemic on the underwriting results, it can certainly be said that reinsurers are more nervous than ever before. Their concerns over the challenges of insufficient reserving on casualty lines of business and inadequate pricing still remain, but now there is much more caution from reinsurers on writing any new business on their books, regardless if the casualty class in question is deemed to be potentially impacted by COVID-19 or not. This is because closer scrutiny by internal management is now even more prevalent across all reinsurance teams. There is not just scrutiny in terms of price, but much more close attention is now being given to wording coverages and more questions are being asked over any existing clauses in contracts that could be construed as ambiguous. It is still difficult to predict how the reinsurance rates will move as a result of the pandemic; in the next few months this will become much more apparent as reinsurers slowly begin to assess any potential pandemic losses.

Looking at the casualty treaty programmes for New Dawn Risk’s UAE clients that have been placed in the last four months, the main challenge is to make sure reinsurers are comfortable with the reinsureds’ assessment of COVID-19. Many questions have been posed to the client, for example are COVID-19 exclusions being put on the original policies? What exposures do they think they may have to COVID-19? Have there been any loss notifications so far? The main concern that reinsurers currently have is about picking up any additional exposures to COVID-19. Certainly, in the UAE, the majority of clients are imposing a COVID-19 specific exclusion or the communicable disease exclusion, both of which have been published by the Lloyd’s Market Association. There are also questions being raised as to whether insureds will see this as an opportunity to pursue claims where they would not necessarily have pursued previously, as a way of attempting to recoup money lost as a result of the pandemic.

Increasing rates

In the Middle East, there has been an increase in the number of casualty losses in the last couple of years, and it remains to be seen if these losses will increase post COVID-19. For the first time in a very long while, independent of the pandemic, there are underlying rate increases being seen in the UAE on bankers blanket bond and D&O business, which may be a sign of things to come if reinsurers start to feel the impact of the pandemic.

For the major part, it seems the reinsurance industry has been largely unaffected by the lockdown. One of the most integral features of the insurance and reinsurance market is the relationships between brokers, reinsurers and clients. However, the lockdown has proven that business can just as effectively be placed in the market with all parties working remotely. Brokers have probably been impacted by the lockdown more than underwriters as negotiations are much harder to carry out effectively over a video call rather than face-to-face at the Lloyd’s box or in a meeting room.

In addition, brokers who started 2020 very successfully with new business forecasts being met have now been faced with a big challenge in being able to meet their new business budgets for the next few months. Many businesses across the world will undoubtedly no longer be able to operate and others are no longer able to afford the big insurance capacity they previously purchased. In addition, premiums paid by clients to brokers and reinsurers are being delayed as businesses struggle with their cash flow.

Evolving loss picture

Business interruption cover given in property reinsurance covers is predicted to make up the majority of pandemic-related losses, while event cancellation and medical malpractice risks will also be impacted. There are also other policies, in particular cyber insurance, general liability or environmental policies, which may be available to meet third-party claims and therefore need to be considered.

Since the intention of D&O insurance is to protect a company’s board of directors and senior officers against claims, investigations and associated defence costs in relation to their actions in the course of managing
the company, this means that many COVID-19-related claims are expected to fall within the insuring clause of the policy. In the US, securities class actions have already been filed against corporations and their senior management in relation to COVID-19. As an example, it is alleged by investors that Norwegian Cruise Line Holdings misled customers with unproven or false statements about COVID-19, enticing them to buy cruises. In addition, Inovio Pharmaceuticals made false and misleading statements about a COVID-19 vaccination that it was producing. In both actions, it is alleged that the value of the company’s shares fell dramatically because of disclosures about the company’s true positions.

The knock-on effect of these pandemic-related claims is that all underwriters will be considering policy wordings carefully going forward and the need for specific exclusions for COVID-19-related (or more generally virus-related) losses. Certainly in the D&O space, both in the UAE and on a global scale, insurers and reinsurers are imposing more restrictions, but more concerning is that they are already drastically reducing capacity, looking to push rates even further, and squeezing commission rates. This may be the sign of things to come at the 1 January 2021 renewals, particularly in those classes of business mentioned above that are potentially facing the most serious impact from the virus. As everyone knows, reduced capacity is a catalyst for a hard market. The heightened scrutiny on renewals will continue and there will certainly be some reinsurers who will be reserving their capacity for renewals only.

Continuing uncertainty

The extent to which reinsurers can withstand continued asset-side volatility and increased claims emergence remains to be seen. Reinsurers have started to de-risk their balance sheets by holding cash, which will have
a significant impact on investment returns. The two biggest Indian insurance companies, GIC Re and New India, have already been downgraded in the wake of the pandemic, and this possibly could mean a bleak future for other currently A-rated insurers and reinsurers across the world. These downgrades may certainly pave the way for opportunities for other prominent players in the market, as well as a chance for brokers to capitalise on their relationships with London and other leading international reinsurers.

The original article can be viewed here

Early September means Monte Carlo, and its physical absence has created a big hole in the 2020 reinsurance calendar, in spite of the excellent virtual initiatives that have been created.

The problem is that its absence will create a real communications gap.  The opportunity to informally have discussions with contacts who we might otherwise never see, is an invaluable oil in the wheels of major reinsurance and capacity deals across the market.  That face-to-face interaction not only helps bring together ideas, allows capacity providers and backers to set up opportunities for new business ventures and structure complex reinsurance programmes; but it also gives everyone an opportunity to get real transparency over barriers that might hinder the signing of deals that are underway.

Monte Carlo gives a window to brokers to extend negotiations and to get the most difficult deals done, and its absence could exacerbate some of the existing problems in appetite for new business among insurers and reinsurers in the London market at present.

Meanwhile, we have also now undoubtedly arrived at a hard market.  Within New Dawn Risk’s field, (the casualty and specialty market), this means the reinsurers are in control and will, to a large part, be able to dictate terms to brokers and cedants.  For brokers this means negotiations will become more difficult and commission will undoubtedly also be squeezed.  Cedants must expect that prices will be flat at best, terms will be tightened, capacity reduced and the number of exclusions increased.

Reinsurers won’t be pushed into deals that don’t tempt them.  In 2020 they will have the option to walk away.  All of this behaviour is reinforced, not just by hardening pricing, but also by the increased focus on deal scrutiny by internal management.  New business is harder for reinsurers to get across the line internally, and we see this lack of appetite as being particularly acute in the treaty market.  No one, it seems, is currently actively looking for new treaty business.  All in all, this reinsurance season could be challenging for all parties, and we will be working hard to mitigate this for our clients.

Max Carter and Rachel Cohen

New Dawn Risk Group Limited, the international specialist insurance intermediary, has announced it is entering into a partnership with Singapore-based SpecialistRe, to strengthen its reach and offering across China, Japan and South-East Asia.

Max Carter, CEO of New Dawn Risk, commented: “At this time of unprecedented change, Asia is powering growth in the global insurance industry. We have been tracking opportunities in the region for some time, and our new partnership with SpecialistRe – a well-established presence in Singapore – will help us to deliver experienced expertise for treaty reinsurance in the specialty space. As we further extend our international footprint so we can best meet the evolving needs of cedants and reinsurers, we will continue to maintain our core focus on professional indemnity, financial and specialty liability lines, as well as accident & health, both on the direct and on the reinsurance sides.”

SpecialistRe was originally established in Malaysia and has been operating in Singapore since 2015 as an advisory and consulting firm with a strong focus on treaty reinsurance. SpecialistRe utilises technology in association with its insurtech partners to provide fast and innovative risk transfer arrangements for its network of cedants across Asia. 

Andrew Harris, Managing Director at SpecialistRe, said: “We are delighted to be partnering with New Dawn Risk at this time of evolving change in the reinsurance market. The ability to provide independent treaty capability in these specialist growth areas is an exciting development that will allow us to broaden the range of solutions we can provide to clients.”   

Notes to Editors

Established in 2008, New Dawn Risk is a dynamic, specialist insurance intermediary and a Lloyd’s broker providing bespoke advisory solutions. We focus on complex, international liability and other specialty insurance and reinsurance. Clients large and small profit from our expertise, creativity and responsiveness – from risk assessment through to claims. 95% of our business emanates from outside the United Kingdom.

For further information contact: Victoria Sisson, Luther Pendragon, +44 7941 294872

By Nicky Stokes, James Bullock Webster and James Barrett of Lloyd’s broker New Dawn Risk

2020 has been a year of unprecedented turmoil across every aspect of life and this has been reflected in the insurance industry.  While much of the immediate noise around claims has focused on business interruption insurance, there is a longer tail of impact that sits across the liability spectrum, most clearly seen in the classes of D&O, medical malpractice and cyber insurance. 

A wave of D&O claims

Few classes will feel quite the same impact as directors and officers (D&O). It is easy to forget that even before the onset of the pandemic the D&O market worldwide had already been hardening over the preceding 18 months. This process has subsequently accelerated with D&O rates up 44% in the first quarter of the year according to a study from AM Best. Markets have been cutting capacity, increasing retentions by multiples and pulling out of some sectors completely, such as the hospitality and airline industries, as well as anything on the fringes of their core appetite. 

The reasons are clear.  A number of class actions have already emerged in the US against companies and their managers in connection with COVID-19 that may lead to claims on D&O policies.

Video conferencing provider Zoom, which has become a household name since the start of the pandemic, was hit with a class-action lawsuit by one of its shareholders, who alleged the company failed to disclose issues with its platform’s privacy and security.

Elsewhere, in one example in the pharmaceutical industry, biopharma company Sorrento Therapeutics and its officials have been accused of making misleading comments about a COVID-19 “cure”, which has triggered a securities class action lawsuit on behalf of investors.

Insolvencies and worker class actions to rise

Meanwhile, company directors will also face a number of exposures which could see them facing investigations, claims and prosecutions, for example, for wrongful trading, fraudulent trading, misfeasance or breach of fiduciary duty. We can also expect D&O claims from other sources. Management may be exposed to risks related to the way they have dealt with the process of putting staff into furlough, laying them off, or reducing their salaries and working hours.

Suppliers and creditors are also going to be affected. It’s likely we’ll see a number of speculative and opportunistic claims, especially in the more litigious environments. Although these may not succeed, the costs incurred in defending these claims have the potential to be substantial.

All of this translates into ever tougher conditions for new and existing purchasers. It is not difficult to see a future in which D&O insurance in certain markets is no longer available or affordable, or provides the coverage expected or required. The industry is going to have to think creatively to effectively manage and transfer D&O risk in a sustainable way. This may include greater use of self-insurance and captive insurers, but the D&O market needs to come together to pool its knowledge and experience to deliver innovative solutions.

Medical malpractice sees radical constriction of appetite

Smaller Allied Health and Long-Term Care facilities in the US had already been struggling with an increasingly poor claims record in the years before COVID-19. The market had also been impacted by historic underpricing of risk and the increased cost of claims due to social inflationary pressures. Those insurers who had marketed policies with a $0 deductible have suffered the most, resulting in adjustments to appetite.

In spite of this the market remained well-supplied, with many insurers at Lloyd’s still remaining positive and even looking to grow their Allied Healthcare books up until now.  However, COVID-19 has now caused a rapid and dramatic shift in appetite among insurers, one which many smaller healthcare providers have yet to understand, but which will become clear to all during the next round of renewals.

Most insurance companies now expect a significant increase in medical malpractice claims relating to COVID-19, particularly for the smaller health providers, such as care homes, in-home care providers and hospices.  There is an expectation that law firms are likely to look for opportunities to bring class actions against this type of care providers where, for example, it can be shown that lack of PPE may have contributed to some COVID deaths.

As a result, many insurers have become extremely specific about which risks they will consider.  Many will only look at health providers in a state with a more benign claims record; or require evidence from the insured to demonstrate exceptional risk management procedures are in place to handle COVID exposures.  Insurers in Lloyd’s have developed long lists of US states, drilling down to county level, of where they will not consider taking a risk. Examples of no-go areas include Cook County in Chicago, the five boroughs of New York and increasing concern for insureds domiciled in the state of New Mexico.

Other insurers have introduced COVID-19 exclusions (or communicable disease exclusions) on all renewals, including some of the recent series of wordings recommended by Lloyd’s itself.  The more radical of these exclusions include refusal to provide cover for facilities that are doing any testing for COVID or are seeing any patients with COVID-19.  Obviously, such exclusions cannot be applied to larger hospital groups (many of which, in any case, have their own captive insurers), but they are being put in place for smaller facilities, care home groups and in-home providers. Insurers placing these types of exclusions across their entire portfolio are luckily in the minority, but it is still a concern for the market.

Prices are also hardening, and current rate increases are already moving towards 15%.  We expect rate increases to continue over the coming year, with insurers beginning to place reserves and prepare for the influx of COVID related matters to flood in over the next 12 to 18 months. All those in this category should expect to see double-digit price increases, depending on their individual situation. 

The good news is that most insurance companies are at least not denying renewals to existing insureds, even if offering them at higher prices.  However, choice of other insurers will be much reduced.  In summary, the mid-tier and smaller healthcare provider medical malpractice market in the US is looking ahead to challenging times, and will find renewals, whether insuring internationally with Lloyd’s or domestically, much more difficult than they had previously.

Cyber stays steady as other classes see seismic shifts

Meanwhile there is happier news elsewhere. Cyber is one of the few classes of business that has not been significantly negatively impacted by COVID-19.  Policies have not required significant rewording, and the London market has continued to see a flow of submissions, as well as enquiries for both renewals and new business from the domestic and international markets.

There has been some discernible caution from first-time buyers, reflecting the fact that cyber remains primarily a discretionary spend, unless a company is buying cover to meet the conditions of a contract. This has, however, been counterbalanced by the fact that that many companies have a majority of their staff working from home and may do so for the foreseeable future. This has led to concern about an increase in attempted cyber breaches.  Companies also now typically have a heightened awareness of cyber criminality and are beginning to look for protection against it.  They want to know that the right processes are in place in terms of monitoring, controls and supervision. Companies look at how to train their staff; and beyond this may also budget for an increased spend on cyber insurance.

One of the longer-term impacts of the pandemic has been the increased global tension with both China and Russia.  While global leaders play politics with human lives in front-line locations such as Hong Kong, the cyber war continues to accelerate for everyone.  It is widely acknowledged that the Chinese are exceptionally active in the cyber space, and that this is not just state-sponsored criminality.  China, North Korea and Russia are all home to well-organised cyber-crime syndicates, who are likely to take advantage of fluctuating working locations and conditions caused by the pandemic.

Overall, the future of cyber insurance over the next year is likely to be linked to the bigger forces at play in the market.  The huge claims arising from COVID in other areas such as BI are like to drive up prices and bring a harder market to all classes of business.  With a global recession reducing total premium size, wordings are also likely to become tighter.  This will be a shock to a class of business that has, until recently, suffered from an oversupply and soft pricing.  Our expectation is that this will ultimately lead to an increase in cyber cover coming into Lloyd’s as other markets dry up, and buyers of scale find they need to look further afield. 

In this area, as in almost all others, the impact of COVID-19 can ultimately be summarised in just a few words: a higher cost for the insured, with a restricted offering on cover.  Challenging times are ahead for all, no matter what class of business.

Ends–

Nicky Stokes is Head of Management Liability and Financial Institutions, James Barrett is Head of Professional Risks and James Bullock-Webster is Head of Tech, Media and Cyber at New Dawn Risk

New Dawn Risk Group Limited, the international specialist insurance intermediary, has announced the recent appointment of Charlie Mills as Senior Broker in its Management Liability and Financial Institutions team. 

Max Carter, CEO of New Dawn Risk, commented: “At this time of unprecedented turmoil, much of the immediate attention in the insurance industry has been centred on business interruption insurance, but there is a longer tail of impact that sits across the liability spectrum, and will be seen clearly in classes including D&O. As they navigate their way through this challenging environment, clients need strong, close relationships with experienced and dynamic brokers who can deliver them the solutions they need.”

Charlie joins New Dawn from The Hartford where he was a Financial Institutions Underwriter. Prior to that he held roles at Tokio Marine HCC and Sompo Japan Nipponkoa. He holds an honours degree in Environment and Business from the University of Leeds.

Notes to Editors

Established in 2008, New Dawn Risk is a dynamic, specialist insurance intermediary providing bespoke advisory solutions. We focus on complex, international liability and other specialty insurance and reinsurance. Clients large and small profit from our expertise, creativity and responsiveness – from risk assessment through to claims. 95% of our business emanates from outside the United Kingdom.

See below for Max Carter’s recent interview in Insurance Day

New Dawn Risk, the London market specialty lines broking firm, is more than ready to navigate its way through the challenges, and take advantage of the opportunities thrown up by a global insurance market environment which is being transformed by a combination of Covid-19, the rapid consolidation in the specialty lines broking sector, and a hard market which is becoming more entrenched.

According to Max Carter, the firm’s chief executive, operating in challenging market conditions is very much part of New Dawn Risk’s DNA. Founded by Carter in 2008 to focus on emerging risk areas in the US and on the emerging markets of the Middle East and Asia, the firm successfully traded its way through the global financial crisis, which he admits he did not see coming.

Launching the business, Carter says, was about fulfilling a long-standing ambition of setting up and running his own successful company. But it was a very nerve-wracking time, particularly in the autumn of 2008, when Lehmann Brothers collapsed, and there was a period of great uncertainty. “The crisis created a period of disruption and discontinuity in the global insurance market from 2009 to 2011/12, a time when a lot of business changed hands, rates hardened and capacity became scarcer,” Carter adds.

However, for those specialty lines brokers with a strategy, who were not too caught up by the rising sense of crisis, the dust settled reasonably quickly, he says. Companies still needed to buy insurance. Despite the financial pressures, there had not been mass business failures. “So, the client base was still there. The market hardened, particularly in our space, specialty liability lines, which is still the core business for the firm today. There were great opportunities on the professional indemnity and financial lines side of the business, and the crisis led to a raft of D&O claims. For any broking business looking for opportunities, there were plenty around,” he adds.

For Carter, there are a number of similarities between the market today, and the hard markets of 2002 and 2009. “There are other, important dimensions to this hard market which we did not have back then, but I think similar opportunities will present themselves both for insurers and for brokers like us that focus on specialty liability products – for which there will be a growing demand over the next three to five years.”

One of those dimensions is technology. Carter describes New Dawn Risk as a business that has embraced technology from the day it was founded. This was in a large part due to Carter’s involvement in the London market’s earliest attempts at electronic trading and distribution of specialty lines risks. He founded Iwix.net, a business-to-business insurance exchange targeting the specialty insurance marketplace in the US, in 1999 and later served as commercial director for Lloyds.com, the online trading division set up by Lloyd’s in the early 2000s.

As a result, New Dawn Risk has always been a paperless business, Carter says. “We have never had a filing cabinet in our offices. A few days before lockdown started, we were able, with almost no notice, to move out of our offices into a remote working environment. This was well before Lloyd’s shut down, and well before the government required us to do so. At New Dawn Risk, remote working presented no real change in the way things were getting done.”

He sees a number of challenges ahead for wholesale brokers in the London market, who came under significant pressure in 2019 as a result of the Decile-10 measures imposed on the market by Lloyd’s. It meant that last year was quite challenging for the wholesale broking sector in terms of new business. “We did not see as much new business coming into London as we had seen in previous years because the market hardened in London first, before it did in other global markets in the US, Asia and the Middle East.”

Proactive and innovative

Painful as it was, Carter’s view is that the market needed a nudge in the direction of improved profitability. But now, with the rest of the world having caught up, the situation has changed, he says. “Rates have been going up quite dramatically in the US, particularly in the D&O space.  The volume of demand for capacity is increasing day by day. It is quite extraordinary. So, having had a relatively challenging year for new business last year, we are seeing some great opportunities.”

But to take advantage of many of those opportunities, wholesale brokers, particularly the smaller ones, will need to be a lot more proactive and innovative. Carter believes that London market wholesalers “will have to invest in broadening their knowledge and deepening their expertise in specialist product areas. That is going to be really important for our sector going forward.”

Wholesale brokers will also have to be both bold and nimble, Carter says, if they wish to be at the forefront of innovation in terms of new product development. “In this regard, the opportunities in the pandemic business interruption space will be tremendous. At New Dawn Risk, we are already looking at that as an opportunity.”

But, for the moment, in terms of emerging risks, the firm’s focus is on cyber and cannabis. Carter anticipates a tremendous demand for cyber cover because people will work more remotely than they have done in the past, and will continue to do so over the long term, which will present a host of new challenges to be solved by the insurance market. “And we intend to be ahead of the game in solving those challenges,” he says.

Carter sees the emerging cyber risk market as a great example of the need for innovation on the part of wholesale brokers. His experience with cyber goes back nearly 20 years to the time when he worked as head of business development for specialty lines at Beazley. Carter says when he joined Beazley in 2002, the company had 75 people working for it. “Within five years, it was a business with 800 employees. And that was really off the back of the hard market.” At this time the company was very much leading the market in terms of providing innovative cyber and other emerging risk covers.

Indeed, New Dawn Risk’s focus on cyber has seen it increase its presence in the retail market in the UK. UK business currently accounts for around 5% of New Dawn Risk’s overall brokerage, but the hope is that the firm’s new cyber initiative will help grow the size of that presence.

The demand for cyber cover in the UK is currently low, but Carter is confident that this will change. He describes cyber as possibly the most important cover that any enterprise could buy today, because of the absolute dependence of business on technology. “And it makes absolute sense that the risks associated with those technologies should be mitigated by insurance. We see cyber as a great opportunity. I have no doubt that, as a result of the changes in working practices that we are experiencing now, there will be a growing demand for cyber insurance as we come out of this crisis. Companies are beginning to realise the importance of technology to business continuity.”

There is, however, a great deal of work that still needs to be done by the insurance market in terms of raising awareness. The reality, according to Carter, is that so few businesses today buy cyber insurance in the UK, that the biggest challenge for brokers is persuading clients to buy the cover in the first place rather than competing with other brokers for business. Recruiting the right talent is now an absolute priority for both carriers and brokers, he says. “Who we hire will be critical for the development of the cyber insurance market over the coming years,” he adds.

The other interesting area for Carter is the risks associated with the production and use of cannabis. Indeed, New Dawn Risk has invested time over the last three or four years trying to understand the challenges and the opportunities. Unlike cyber, there is a great demand for insurance cover in the cannabis sector, but that demand is not being met, for all sorts of reasons.

This includes the fact that the US federal government still considers cannabis an illegal substance. “And yet, in 30 states, it is considered to be legal for medicinal purposes. And, in 12 states, it is considered to be legal for recreational purposes. If we, as an industry, can find ways to provide effective forms of cover that work within the constraints that currently exist and that addresses the concerns of companies who are operating in a space which is deemed illegal by the federal government, that will really be of real benefit. The cannabis sector is booming and could be worth $40bn in five years’ time. But it is also sector in which the companies operating in it are desperate for insurance cover, which they can’t get,” Carter says.

New Dawn Risk are currently working with a number of insurers to come up with a solution. “I am not saying we have got all the answers at this point. There is a lot of work that still needs to be done. But we are making progress.”

When Carter moved from US, where he was involved in setting up Beazley US, back to the UK in 2007, his remit was to develop Beazley’s international business, including in the emerging markets of the Middle East and Asia. “I felt very strongly that there was a tremendous opportunity. Things were happening in some of the Middle Eastern markets that really favoured a business like ours that was focused on specialty liability risks. The demand for D&O and professional liability was really growing. Prior to that, liability had not been an issue in the region. Businesses did not sue each other. But that was beginning to change. And liability cover was becoming an important part of insurance buying in the region. It was a very fertile time and we did a lot of business in the Middle East, particularly in the early days of New Dawn Risk.”

London opportunities

But it would have been foolish to ignore the opportunities that were in the US, particularly as it recovered the global financial crisis, Carter says. “We set up the business with a focus  on emerging market opportunities, but we also included the new risks that were emerging in the US and being placed into London. “

Indeed, today, New Dawn Risk’s business very much reflects the decisions that were taken back then. “About half of our business comes from the US. The other half is international business, predominantly Middle Eastern and Asian reinsurance business. So, what we did in the early days is still very much in our blood today.”

Going forward, Carter is looking at new opportunities in the agricultural sector on the treaty reinsurance side in India, where New Dawn Risk is already well known. Latin America, where the firm has clients in Mexico, Columbia and Argentina, is another part of the world where Carter sees opportunities to expand. “But the reality is we have to operate within the constraints of our size. It is important that we don’t stretch ourselves too thin. By doing that, there is a risk that you can fail to provide the high level of service essential in our business.”

While the firm’s international business is very much focused on treaty than on facultative reinsurance business, more facultative opportunities are emerging as the market hardens and as the level of local capacity reduces. “In the short term, I am sure, we will see a growth in facultative business coming into London from international emerging markets. But our long-term strategy in the international reinsurance space is to focus on treaty business. We are seeing a number of new opportunities, particularly in Asia, and we are talking to insurance companies in places such as the Philippines, Thailand and Vietnam. Again, it is about making sure we are not stretched too thin on the ground.”

Carter’s vision for New Dawn Risk is to maintain its focus on professional indemnity, financial and specialty liability lines, both on the direct and on the reinsurance sides. “The plan is both to grow our international footprint over the coming few years, but at the same time to deepen our expertise and our capability to provide that high level of service that we believe is essential to success.”

He has no doubt that the way in which business is done in the market will change over the next few years as a result of Covid-19. “But, from my point of view, I think the most important thing that we must hold onto in London is that personal touch, the ability to maintain those personal relationships that allow us to get deals done and make business happen, even as we move into a much more virtual world of business. We have maintained the face-to-face model in the UK very successfully when most of the rest of the world has transitioned to something else. And that brings tremendous value which the market must not underestimate.”

Brokers and underwriters in the London market recognise the value that face-to-face model brings in terms of solving complex and challenging risk issues. “And, frankly, there is no better way of solving those issues than sitting down around a table or at a box in Lloyd’s and working through them. I just don’t think that the face-to-face element is going to go away.”

New Dawn Risk will be firmly rooted in the London market in the coming years, both physically and strategically, according to Carter. “I believe that the London market will continue to be the most important specialist re/insurance market in the world. I think that high volume, purely transactional business will become even less of a feature than it is now in the London market. Complex transactions that require deep expertise will continue to be done in London. To be clear, it won’t be the same market as it is today, but we want to be at the heart of this new London market. And that, as I have said before, will require us to focus on deepening our expertise in our chosen risk areas, have a better product knowledge and a better knowledge of our clients than our competitors.”

The transactional side of the new London market will be much more automated, according to Carter. “It already is. But for a wholesale and reinsurance brokers such as New Dawn Risk, it will come down to our expertise, our personal relationships with clients and our ability to be able to get deals done. Those factors will be central to our success in the next five years or so.”

Ends–

We would like to thank Insurance Day for giving us permission to produce the above article.

The article below, by Nicky Stokes, Head of Management Liability and Financial Institutions at New Dawn Risk, was originally published in Insurance Day on 15th July 2020.

2020 has been a year of unprecedented turmoil across every aspect of life but for the insurance industry, few classes will feel quite the same impact as directors and officers (D&O). It is easy to forget that even before the onset of the pandemic the D&O market worldwide had already been seeing hardening over the preceding 18 months. This process has subsequently accelerated with D&O rates up 44% in the first quarter of the year according to a study from AM Best, which forecasts triple digit increases in a post-COVID world, as insurers respond to increased litigation and emerging claims. While the accuracy of that prediction remains to be seen, there is no doubt that these are turbulent times.

A wave of claims

A number of class actions have already emerged in the US against companies and their managers in connection with COVID-19 that may lead to claims on D&O policies. Norwegian Cruise Lines and its directors are facing a claim brought by shareholders alleging that the company issued false or misleading statements to encourage employees to downplay the virus and keep pressure on customers to maintain bookings, endangering the lives of both customers and crew members. In the days after the claim was brought, the company’s shares fell by almost 53%, causing significant losses for shareholders. A similar class action has since been brought against another cruise ship company, Carnival Corporation. We should expect more to come.

But while the cruise ship industry was one of the first industries to see claims, it is by no means the only one. Video conferencing provider Zoom, which has become a household name since the start of the pandemic, was hit with a class-action lawsuit by one of its shareholders, who alleged the company failed to disclose issues with its platform’s privacy and security.

Elsewhere, in one example in the pharmaceutical industry, biopharma company Sorrento Therapeutics and its officials have been accused of making misleading comments about a COVID-19 “cure”. The firm announced in May 15 that it had discovered an antibody that had “demonstrated 100% inhibition” of the coronavirus infection. This led to a steep rise in the company’s share price but shortly after Sorrento was to make a U-turn to stress that it had “potentially” found a cure.  The subsequent major dip in the firm’s share price triggered a securities class action lawsuit on behalf of investors.

Insolvencies to rise

It is still too early to call the depth and length of the recession but it is safe to say it could be the worst in living memory, even without the possibility of a second wave of COVID-19 and a return to a stricter lockdown, with all the economic pressure that would bring. There will be bankruptcies, it is just a question of how many. As a result, directors will face a number of exposures which could see them facing investigations, claims and prosecutions, for example, for wrongful trading, fraudulent trading, misfeasance or breach of fiduciary duty. The courts may see a pandemic of bankruptcy cases.

We can also expect D&O claims from other sources. Management may be exposed to risks related to the way they have dealt with the process of putting staff into furlough, laying them off, or reducing their salaries and working hours. For example, in Mexico, factory workers are suing companies who they say refused to let them stop working even after the Mexican president ordered a lockdown.  There may be risks relating to privacy infringement if employees have been asked questions around their personal health and that of their families. There is also the possibility of cases being brought alleging discrimination based on national origin or suspicion of being infected. And we are also seeing claims from workers given insufficient PPE.

Questions are also being asked of businesses’ cyber security now that many have the majority of their staff working from home for the foreseeable future. There has been an increase in attempted cyber breaches – insurers need to know that policyholders are well placed to withstand these. They also want to know that the right processes are in place in terms of monitoring, controls and supervision. Does the company’s working from home protocol ensure that this diligence is maintained?

Suppliers and creditors are also going to be affected. It’s likely we’ll see a number of speculative and opportunistic claims, especially in the more litigious environments. Although these may not succeed, the costs incurred in defending these claims have the potential to be substantial.

A challenging market

Prior to COVID-19, the D&O market was already under pressure with some insurers exiting the market and others putting up premiums exponentially. What we are seeing now is almost unprecedented as D&O insurers impose more restrictions, cut capacity, and look to push rates even further. Many are reserving their capacity for renewals and some underwriters are not considering business in certain countries or sectors. 

All of this translates into ever tougher conditions for new and existing purchasers. It is not difficult to see a future in which D&O insurance in certain markets is no longer available or affordable, or provides the coverage expected or required. While Tesla’s decision not to renew its D&O cover generated headlines, it raised an important point: the industry is going to have to think creatively to effectively manage and transfer D&O risk in a sustainable way. This may include greater use of self-insurance and captive insurers, but the D&O market needs to come together to pool its knowledge and experience to deliver innovative solutions.

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Can you describe what your current role involves?

I am a senior treaty broker, responsible for structuring and placing casualty treaty programmes with London and International markets for our clients. Currently, the majority of our clients are based in the UAE.


What is your favourite insurance fact?

I remember in my first week of my career, I excitedly came home to my parents to tell them I learnt that the chocolate tester for Cadbury’s had her taste buds insured by Lloyd’s for £1 million.


What did you do before joining New Dawn Risk?

I was an International Casualty Treaty underwriter at Barbican Syndicate 1955 in Lloyd’s for 10 years.


Tell us one thing about your career we didn’t know:

I teach the Under 35’s Reinsurance underwriting pricing seminar every year to 25-30 Reinsurance professionals who have 1-2 years relevant experience. I have also been a Lloyd’s mentor.


What are your hobbies outside of work?

I always hate that questions as I wish I had some real hobbies! Outside of work I mainly enjoy drinking in good pubs, eating in good restaurants and travelling to European cities!

Rachel Cohen, Senior Treaty Broker, was recently interviewed by Insurance Day for an article titled: Covid-19 triggers hard market as US cat rates soar.

Rate hikes of up to 45% at June 1 renewals signalled a key turning point for the reinsurance industry but with Covid-19 losses still unfolding, this may just be the beginning.

Describe your current job in 15 words

Juggling. Broking requires the ability to keep a lot of balls in the air. The challenge is keeping all the balls happy all the time….


Favourite insurance fact: 

You can actually buy alien abduction insurance!!


What did you do before joining New Dawn Risk?

Spent last 5 years in the Middle East and the 15 years prior to that in the South African insurance market – mostly in underwriting


Tell us one thing about your career we didn’t know:

For the first 16 years of my insurance career, I studied various diplomas or degrees while working.  Everything from insurance to financial management to nursery school teaching to medical jurisprudence and finally my MBA.


What are your hobbies outside of work?

Dragon boating, travelling and various other fitness activities (changes often, short attention span…)