Weekly Wrap: El Niño near its peak

Weekly Wrap: El Niño near its peak | Insurance Business

Weekly Wrap: El Niño near its peak
El Niño near its peak
The El Niño event current in place across Australia is “near its peak,” the Bureau of Meteorology (BOM).

In a statement, the BOM said that while some indicators show El Nino reaching its zenith, the weather system is likely to “persist well into 2016.”

“El Niño indicators, notably sea surface and sub-surface temperatures, westerly wind anomalies in the central Pacific, and cloudiness near the Date Line, remain well above El Niño thresholds,” the BOM said.

“The Southern Oscillation Index (SOI) has eased back into neutral values, though this may be short-lived: the SOI tends to be more variable during the northern Australian wet season (October-April). Model outlooks and the strength of the current event suggest El Niño thresholds may continue to be exceeded well into the southern hemisphere autumn.”

The BOM confirmed that the strength of the current El Niño continues to rank highly compared with historical averages.

“The 2015/16 El Niño is strong, and likely to rank in the top three events of the past 50 years.

“Presently, several key indicators fall short of their 1997-98 and 1982-83 values, both in the ocean (e.g. sub-surface temperatures, which have peaked around +8 °C this year, compared to +12 °C in 199798) and atmosphere (e.g. SOI, for which monthly values peaked around 20, while 1982/83 had several months at 30).”

While El Nino normally means drier conditions for the majority of the country, the BOM said that current conditions could see more rainfall than normal.
“The Indian Ocean Dipole has little influence on Australian climate between December and April. However, Indian Ocean sea surface temperatures remain very much warmer than average across the majority of the basin.

“This basin-wide warmth may provide extra moisture for rain systems across Australia,” the BOM continued.

Broker sees interest in ‘active shooter’ insurance grow
Recent mass shootings such as last week’s San Bernardino killings in California have seen Willis in the US fielding an upsurge in enquiries into a new ‘active shooter’ insurance policy.

The broker started selling policies that cover gun violence three months ago and originally pitched them to universities, but over the past few months it has been receiving enquiries from hotels, hospitals, and other institutions, Fortune has reported.

The policy is designed to cover the liability that companies or institutions have if they are found not to have taken the required precautions to prevent gun rampages.

It also covers the ‘on the scene’ costs of a shooting incident, as well as the expense of any counselling or consulting that would be needed after a tragic event.

Executive vice president at Willis, Wendy Peters, said the maximum liability that the policies cover is $5 million.

The only insurer currently underwriting the insurance is Beazley.

Peters said the policies are so new to the market the number sold hadn’t yet been tracked and she was unable to quote an average premium for the policies.

Statistically, most workplace deaths are due to accidents as opposed to gun violence, with 773 workplace deaths out of 3.8 million reported injuries last year being the result of violence.

However, awareness of the threat was rising and risk managers were eager to learn more about prevention and mitigation strategies and other insurers may soon be joining the market.

Peters said: “There’s been widespread interest in the product.”

More insurer consolidation likely as low yields continue
The wave of heavy consolidation that swept through the insurance industry this summer may not be over.

Thanks to low yields in the bond market, insurers are moving toward alternative investments and equities to ensure financial stability, and may even shore up funds by pursuing more mergers and acquisitions within the industry.

Because insurers rely on the purchase of bonds to write competitive business, the low rates introduced by central banks following the 2008 financial crisis has been troubling to many a balance sheet. In fact, 57% of respondents to a survey from Natixis Global Asset Management said they plan to increase their allocations to alternatives in the next 12 months, including in private equity, hedge funds, infrastructure and property.

Keen to increase returns in the low-interest rate and soft market environment without raising operating costs, insurers are considering pooling their resources with former rivals.

“To consolidate or not to consolidate, to acquire or not to acquire – that is the question every management team is asking,” said Insurance Information Institute President Robert Hartwig. “That would imply there are some efficiencies that are going to occur. That implies there would be a merging of investment portfolios.”

The consolidation option has already been exercised to great levels this year. No fewer than seven transactions worth more than $1 billion were either announced or completed during the summer.

The string of merger and acquisition activity began in May, with Chinese juggernaut Fosun International’s announcement that it would pay $1.84 billion to acquire growing insurer Ironshore Inc. A $4.8 billion deal between Catlin and XL Group followed shortly after, and HCC Specialty made headlines in June by agreeing to a $7.5 billion takeover offer from Tokio Marine.

“[There is] a significant mergers-and-acquisitions trends in the insurance space that we expect to persist,” FBR Capital Markets analyst Randy Binner wrote in a July note. “Excess global liquidity and low interest rates are the drivers of the M&A trend, and as long as this environment persists, we believe insurers could be pressured to buy properties where rates are higher, or merge in an attempt to gain scale.”

Growth, of course, cannot continue indefinitely and analysts say that the recent “feeding frenzy” in the P/C space has its limits.

The majority of major acquirers, Binner noted, “have their deals now, so the pool of buyers is dwindling.”