Floods in the U.K.; Lloyd’s Exchange Gets Rolling; Willis in Deal for Gras Savoye

December 6, 2009

A series of violent storms struck the west coast of England, beginning Nov. 19. Cumbria, the county just below the Scottish border, was the most severely affected area, where heavy rain caused extensive flooding in a number of towns.

Six bridges collapsed as result of the floods, and more are in danger. Authorities have closed a number of them, and are inspecting more than 1,800 for structural damage.

Risk modeling firm AIR Worldwide (www.air-woldwide.com) noted that the rains arrived less than a week after the strongest storm of the 2009 season roared into southern England and Wales. According to the U.K. Environment Agency (www.environment-agency.gov.uk) a month’s rainfall — about 314 millimeters (12.4 inches) — fell in Cumbrian town of Seathwaite in 24 hours.

Heavy rainfall also triggered flood conditions in Dumfries and Galloway in Scotland, and in north and mid Wales.

Preliminary estimates put flood related claims in excess of £100 million ($166 million), according to the Association of British Insurers (www.abi.gov.uk). Risk Management Solutions (www.rms.com) estimated that approximately 1,300 properties are thought to have been affected by the flooding. It based its estimates on the similarity of the average value of claims to those estimated due to the June 2007 U.K. floods. It reached the following loss estimates:

  • If all claims are residential: £45-60 million [$74.8 to $100 million];
  • If 75 percent of the claims are residential and 25 percent commercial: £80-105 million [$133 to $175 million].

“These figures take into account the reported number of damaged properties, average insurance uptake by coverage and line of business and average claim cost by line of business and flood type,” RMS said. The estimates also factor in motor losses – although the number of vehicles damaged by the floods is not clear yet.

RMS also pointed out that floods such as these and the amount of damage they cause aren’t that unusual. A loss of this value from flooding anywhere in the U.K. could be expected less than once every two years on average, according to the RMS U.K. Inland Flood Model.

Aon, Marsh and Willis have given their support to the Lloyd’s Exchange. They were joined by international insurer Beazley (www.beazley.com), which announced that its underwriters would be placing business through it.

The Exchange is an electronic utility that checks and enforces one information standard across the Lloyd’s market. It provides a service to send messages between multiple parties through a single connection, and registers endorsements using the latest agreed version of the ACORD standard.

Lloyd’s CEO Richard Ward, Aon’s President and CEO Greg Case, Marsh’s CEO Dan Glaser and Willis’ Chairman and CEO Joe Plumeri all gave enthusiastic endorsements for the system. London Market Group (LMG) Chairman Barnabas Hurst-Bannister noted that the organization’s goal is to “help the market to move forward collectively ensuring an increasingly competitive and compelling marketplace,” and that the “Exchange can make a significant contribution to modernization.”

Beazley said using the Exchange would enable underwriters to “undertake electronic placing, endorsements and other market initiatives,” adding that this is the “first step towards achieving end-to-end, straight through processing for risks and claims within Beazley.”

Ian Fantozzi, Beazley’s Group Head of E-Business, pointed out that the group’s underwriters currently handle around 30,000 endorsements a year. “If an underwriter can save just three minutes on each of these by dealing with them on line, this alone frees up nine months of manpower,” he said.

He also noted that response times would be speeded up as underwriters can receive necessary information before sitting down with brokers to discuss coverage and policy details.

One of the drawbacks, cited by brokers and underwriters, which has delayed the adoption of electronic processing, has been the fear of losing personal contacts. However, in Fantozzi’s opinion “the face-to-face negotiation that is a fundamental strength of the Lloyd’s market is only enhanced by this system.”

He also indicated that errors can be reduced with data only being entered once. One of the principle aims of installing electronic processing at Lloyd’s has been the necessity of reducing re-keying errors. Re-entering data is not only time consuming, but also causes mistakes that take more time to find and correct.

Willis Group Holdings has concluded an agreement with the family shareholders of French insurance broker Gras Savoye & Cie. and Astorg Partners, a private equity fund, to reorganize the firm’s capital in a leveraged transaction, expected to close before the end of the year.

Gras Savoye has been an associate company of Willis since 1997 when it acquired a 33 percent ownership interest. It now holds 48.6 percent of voting rights and 46.2 percent of the outstanding shares. The family shareholders and management currently own 51.4 percent of the voting shares of Gras Savoye.

Under the terms of the transaction, Astorg Partners will acquire 33.3 percent of the voting rights (31.8 percent of outstanding shares) of a new holding company while Willis and the family shareholders will sell part of their stakes in Gras Savoye to Astorg Partners and roll over their remaining shares into the new holding company, through a combination of equity, convertible debt and seller financing.

The agreement also gives Willis an option to purchase 100 percent of the capital in the new holding company in 2015, should it choose to do so.

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